Business Execs Not Giving Up the Gut, Yet


We love to extol the virtues of data-driven decision making here at All Analytics, but new research tells us we'd be foolish to think business executives give as much credence to analytical insight as they might.

Now, before you get all huffy, let me point out that the research doesn't say business executives aren't appreciative of the depth of insight provided via advanced analytics -- because they are. It's just that they're giving intuition the edge over the rational -- i.e., the data analysis -- when the time comes to make business decisions.

This is the key finding of a survey conducted last month of 720 senior executives, 88% of whom are in director-level positions or higher, said the study's collaborators, Fortune Knowledge Group and global ad agency Gyro. The study's intent was to explore the role of emotions and other subjective factors in business decision making.

Gut Decision Making by the Numbers

  • 65% of executives believe subjective factors that can't be quantified (including company culture and corporate values) increasingly make a difference when evaluating competing proposals; only 16% disagree
  • 62% of executives say relying on gut feelings and soft factors is often necessary
  • 61% of executives say human insights should come before hard analytics when making decisions
  • My own gut tells me that analytics professionals should be neither discouraged nor disquieted by these findings... yet. Let's not forget that, despite the incessant chatter about big data's pervasiveness, many companies are in but the earliest stages of their use of advanced analytics. We can't expect miracles to happen overnight and the C-suite or other top managers to wake up one morning and cast all their years of experience aside and call only for the data. What we should expect, however, is that the analytical insight proves of such high value that decision by decision the data takes on greater and greater weight… till one day the balance tips to its side.

    The study, you might say, even validates the need for greater analytical depth. About one third of respondents indicated they believe a more analytical approach to decision making is hampered by insufficient analytical capacity (37%), excessive data volume (34%), and rapid growth in the types of information available (31%). The executive summary, "Only Human: The Emotional Logic of Business Decisions," explained:

    As a result, factors that can't be quantified -- such as a company's values, reputation, and corporate culture -- increasingly make a difference when executives choose among competing proposals. Many respondents (62%) believe that it's often necessary or even preferable to rely on "gut feelings." Respondents also indicate that unquantifiable factors should be given at least the same weight as quantifiable factors. Only a minority (38%) feel that executives and managers should disregard these factors in favor of a strictly analytical approach when making decisions.

    I would argue, then, that as analytical expertise and experience deepens, the volume and variety of data will become less and less overwhelming to business executives. Big data will simply be data from which decision-influencing insights come, not some big, hairy monster hiding behind a server array.

    And here's another noteworthy point from the study: Analytics cannot stand alone -- and certainly not sit above the business. "A solid majority of respondents (61 percent) say that in order to uncover the most effective, actionable insights, people who know the business should filter data to frame analysis before using predictive analytics." And only 39% said "advanced analytics should be used before human analysis. "

    I don't find anything wrong with that. Analytics teams, we've long said, must work hand in hand with business users. Doing so brings them a necessary understanding of the challenges the business faces and helps them guide the types of questions the business should be asking of the data.

    So today, given where we are in the evolving use of analytics, I reiterate: Don't be disheartened by this report's findings. But take heed from them and figure out ways to gain trust from the business. Little by little, the result will show in the shifting balance between gut and the data when it comes to business decision making. If you don't see this start to happen at your company over time, then -- yes -- start worrying.

    What's your gut telling you? Am I giving business executives too much leeway here or is my logic flawed? Let's talk!

    — Beth Schultz, Circle me on Google+ Follow me on TwitterVisit my LinkedIn pageFriend me on Facebook, Editor in Chief, AllAnalytics.com

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    Beth Schultz, Editor in Chief

    Beth Schultz has more than two decades of experience as an IT writer and editor.  Most recently, she brought her expertise to bear writing thought-provoking editorial and marketing materials on a variety of technology topics for leading IT publications and industry players.  Previously, she oversaw multimedia content development, writing and editing for special feature packages at Network World. In particular, she focused on advanced IT technology and its impact on business users and in so doing became a thought leader on the revolutionary changes remaking the corporate datacenter and enterprise IT architecture. Beth has a keen ability to identify business and technology trends, developing expertise through in-depth analysis and early adopter case studies. Over the years, she has earned more than a dozen national and regional editorial excellence awards for special issues from American Business Media, American Society of Business Press Editors, Folio.net, and others.

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    Re: We need 'Data + Gut', not 'Data vs. Gut'.
    • 7/24/2014 9:33:33 AM
    NO RATINGS

    Tracy, glad you mentioned a decision support system, as that's what had come to mind as I began reading through your comment. I'd like to see more companies take advantage of automated decision management systems -- as long as, like you suggest, they enable exceptions (with explanation) and allow for continous feedback and improvement. Do you think enough companies incorporate decision managment systems into their advanced analytics strategies?

    Re: We need 'Data + Gut', not 'Data vs. Gut'.
    • 7/23/2014 9:59:49 PM
    NO RATINGS

    "...The data and resulting insights aren't supposed to replace the decision makekr's gut. They are supposed to inform decision makers and help them narrow the unknowns. But in the end decision makers are paid to interpret those unknowns and make a call. In other words, they use their gut, and rightfully so." 

     

    @David Schimitt    Agreed.  Somehow the discussion has morphed into Data vs. Gut , when as you and others mention these two factors supplement the other.  No question this is a difficult task because most are not fluent in the effective practice of analytics.  Many enterprises rely on the "cash cow" nature of their business unfortunately.

     

    Of course the argument is that analytics will improve margins, squeeze every little bit out of every corner.   Well there are more than a couple of barriers to this, but for starters a company really needs a strong foundation in the use of Analytics as it relates ( and that is the most important part IMO ) to their business.

    Re: We need 'Data + Gut', not 'Data vs. Gut'.
    • 7/23/2014 7:59:22 PM

    Beth, Really good question. We can never know what's happening inside someone else's head, or how they used data -- unless they're willing to tell us. After years of studying how people explain decisions, I've learned that we're all tempted to blame someone for 'ignoring the evidence' when we disagree with them.  

    Without explicit capture of decision processes, we can't measure 'data vs. gut' -- or 'data + gut'. My work focuses on creating transparent (but not too painful) ways for decision makers to find relevant data and acknowledge how they weighed it. We can improve substantially on the old model of citing references, or compiling lists/matrices of factors. So accomplishing what you suggest (measuring 'data vs. gut') is possible if we have a practical way to see what the evidence says, and compare it to decisions being made. 

    Example: In evidence-based medicine, a clinical decision support system can make recommendations based on patient data and available evidence. Then the physician can accept that, or suggest a different action/treatment (some workflows require the care provider to explain exceptions). After that healthcare cycle plays out, we can perform analytics on electronic health records, outcomes, and decision support systems to measure the quality of a decision process, and how successfully the evidence was incorporated.

    Unfortunately, in areas such as business strategy, comprehensive evidence isn't so available. I'm hoping that will change. Decision makers do get useful data from tools such as BI and data visualization. But it's typically not incorporated into end-to-end decision processes that connect actions to outcomes, supported by evidence-based recommendations. I look forward to the day when a marketing manager can easily see a systematic summary of evidence from multiple sources on, for instance, paid search marketing. Then we could begin to measure whether his/her marketing plans were based on data or gut.

    Re: We need 'Data + Gut', not 'Data vs. Gut'.
    • 7/23/2014 3:15:47 PM

    Tracy, thanks for jumping in here. I haven't had a chance to read your piece yet, but in the meantime let me ask: Do you think the balance we see now between data and gut is appropriate? My sense is that when the data is counter to gut, the decision maker can be all too willing to disregard the data and favor the gut. Maybe that turns out OK sometimes, maybe not. But how do we measure that?

    Re: We need 'Data + Gut', not 'Data vs. Gut'.
    • 7/23/2014 2:12:43 PM

    I totally agree with this. The data and resulting insights aren't supposed to replace the decision makekr's gut. They are supposed to inform decision makers and help them narrow the unknowns. But in the end decision makers are paid to interpret those unknowns and make a call. In other words, they use their gut, and rightfully so. 

    I wrote about this some time ago on this site -- glad to see the topic resurface! 

    http://www.allanalytics.com/author.asp?section_id=2092&doc_id=251922

    We need 'Data + Gut', not 'Data vs. Gut'.
    • 7/23/2014 1:35:17 PM

    'Data-driven' vs. 'Gut feel' isn't the problem that needs solving. Technology should supplement human intuition, rather than try to replace it. For instance: Medical diagnosis is messy, requiring hard evidence *and* the physician's decision-making.

    My recent Evidence Soup post explores this further: The Data-Driven vs. Gut Feel hyperbole needs to stop.

    I also highlight the data/intuition debate in my new research paper: Data is easy. Deciding is hard. 

    Tracy Allison Altman, PhD

    Ugly Research (founder) - @UglyResearch

    Evidence Soup (editor)

     

    Re: The final vote
    • 7/22/2014 11:16:20 PM
    NO RATINGS

    @Maryam, as one wise businessman I know likes to say, business is about emotions. And trust is a very strong emotion. That's why relationships (with vendors for instance) will remain key decision drivers, despite what numbers may say.

    Re: The final vote
    • 7/22/2014 4:16:51 PM
    NO RATINGS

    Hi Maryam. Yes, you're right --- when a new leader comes in, nothing is guaranteed. But with increased use of business analytics, I'd hope that change just for the sake of change (or ego) gets harder to accomplish.

    Re: The final vote
    • 7/22/2014 1:19:28 PM
    NO RATINGS

     

    Beth I have witnessed it firsthand sometimes previous relationships weigh heavy on project awards. I have seen cases where all vendors were replaced because the new leader preferred vendors from previous workplaces. While the numbers should be a key driver at times they just hold a back seat to old habits and comfort levels.

    Re: The final vote
    • 7/22/2014 11:03:22 AM
    NO RATINGS

    Hi Bryan -- too funny. I could think of worse people to be the source of inspiration for!

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