Data-Driven Decision-Making: Why Analytics Are Crucial for Business Success
In the business world, decision-makers must rely on their own knowledge and intuition to some extent. Of course, that can only get you so far. In today's era of big data, more businesses are relying on analytical insights to make decisions.
With a better understanding of what data-driven decision-making entails, the benefits of using data analytics in business, and how to implement a data-driven culture in your own business, you can be poised to help your organization succeed.
The Importance of Data-Driven Decision-Making
Before diving into the ins and outs of data-driven decision-making, it's important to understand what it entails and why so many businesses are already using it in their everyday operations.
What Is Data-Driven Decision-Making?
Specifically, data-driven decision-making refers to a problem-solving method in business where data science applications (including data collection, data management strategies, and analysis) are used to extract valuable insights from large amounts of data. These insights are then used to inform business decisions, ranging from the seemingly smallest to the most critical ones.
Within the realm of data-driven decision-making, there are a number of key types of decisions that businesses may choose to focus on, including:
- Strategic decisions - Long-term decisions that shape the overall direction and vision of the company.
- Organizational decisions - Decisions that require careful data analysis and are typically carried out by multiple decision-makers within the company.
- Programmed decisions - Long-term decisions made based on past data.
- Unprogrammed decisions - Shorter-term operational decisions based on predictive analytics in business.
Benefits of Using Data in Business Decisions
Today's business leaders are faced with many decisions on a regular basis, and they can only rely on their own knowledge and expertise to get them so far. By implementing data-driven decision-making strategies, business leaders can apply a more analytical approach to their problem-solving and decision-making.
Meanwhile, data-driven decision-making strategies allow business leaders to not just make better decisions, but to make them faster and using fewer resources. Likewise, strategies that rely on raw data can also remove much of the bias from the decision-making process, which can lead to more objective business decisions.
Key Areas Where Data Analytics Improve Business Performance
There are several areas in which the use of data analytics can improve overall performance within a business, ranging from operational efficiency and customer insights to financial management and human resources.
Operational Efficiency
When data analysis and business intelligence tools are used to extract valuable insights from large amounts of data automatically, this boosts operational efficiency by utilizing fewer resources to make important business decisions. This also frees up valuable time and resources to be used in other areas of operations.
Customer Insights and Personalization
Using the right data mining techniques and data analysis tools, businesses can gain better insights about their customers (and target them more appropriately) than ever before. They can even use customer behavior analysis to inform their marketing and advertising strategies, personalizing campaigns to reach specific audiences and improving the return on investment (ROI) of these campaigns.
Financial Management and Forecasting
Another way in which data can be used to make better business decisions is through improving overall financial management. For example, many businesses use data analytics to help them make decisions that will decrease expenses and save the company money. Meanwhile, business intelligence tools can also apply predictive analytics to help with financial forecasting, which can further improve decision-making to protect the company's bottom line.
Human Resources and Talent Management
Another area where the importance of data analytics becomes obvious is in human resources and talent management. When human resources professionals have the relevant data and insights they need about such KPIs as retention rates and employee satisfaction rates, they can better manage their own talent and even make changes where necessary to create a better workplace culture.
The Role of Technology in Data-Driven Decision-Making
Now that you have a better understanding of what data-driven decision-making entails and why it matters, it's time to dive into some of the tools being used to carry out business analytics trends across a variety of industries.
Data Collection Tools and Platforms
You can't gain valuable insights from data if you don't start with the right data. This means being able to collect lots of high-quality, relevant data from the very beginning. To do this, businesses rely on a wide range of data collection tools and data mining techniques to gather as much relevant information as possible. Some examples of these tools may include:
- Social media monitoring platforms
- Surveys and questionnaires
- Formal interviews and focus groups
- Case studies
Data Analytics Software
In the meantime, businesses also need to have the right business intelligence tools, including data analytics software, to extract meaningful information from those large amounts of data. These platforms can look more closely at specific KPIs, help business leaders visualize data, and may even include cloud computing for data analysis.
The Role of AI and Machine Learning
Today, many businesses are leveraging the power of artificial intelligence (AI) and machine learning in data analytics to make more informed decisions. For instance, predictive analytics through AI and machine learning can help businesses make predictions about a wide range of topics. In the interim, AI and machine learning algorithms can help businesses identify new patterns and gain novel insights from existing data.
Challenges in Adopting Data-Driven Decision-Making
Of course, adopting data-driven decision-making within a business isn't something that happens easily overnight. In fact, there are a number of challenges that businesses may run into when applying data analytics to their decision-making.
Data Quality and Accuracy
First, it's important to understand that not all data is created equal. If you start with bad data, you're going to end up with low-quality insights that can actually lead to poor decision-making.
Data Privacy and Security Concerns
Another major obstacle for many businesses is simply finding a way to keep the data that is collected secure at all times. Storing data can be challenging and costly and implementing the right security redundancies to keep information out of the wrong hands can be complicated.
Organizational Culture and Data Literacy
Finally, there is the simple fact that many business leaders still fall into the outdated notion that they should be able to rely on their own knowledge and experience alone to make business decisions. As a result, many business leaders simply don't have the data literacy skills needed to make use of data once it's collected. Consider, for example, that about half of Americans will go with their own intuition even when they are presented evidence that contradicts it.
Steps to Implementing a Data-Driven Culture in Your Business
Although implementing data-driven decision-making within your organization isn't something you can do overnight, the good news is that there are some relatively simple steps and best practices you can follow to get on the right path.
Defining Key Metrics and Objectives
First and foremost, determine your goals for the kinds of data you plan to collect and the types of decisions you'd like to make. This will require your team to pinpoint some key performance indicators (KPIs) that can be easily measured and tracked. Some examples of common KPIs in business decision-making include:
- Revenue
- ROI
- Customer satisfaction
- Customer lifetime value (CLV)
Once you have a better idea of the kind of data you want to collect and how you'll measure success, it's easier to move forward to the next step.
Building a Data-Driven Team
Now, it's time to build a data-driven team within your organization. This should be a team that understands not only how to collect and analyze data, but how to use the common tools and software that will aid in pulling valuable insights from that data.
Investing in the Right Tools and Infrastructure
Last but not least, businesses need to be prepared to invest in the right software and infrastructure for successful long-term data collection and analysis. This may mean upgrading servers and security features to store more data, as well as researching and purchasing business intelligence tools that can grow and scale with the business itself.
Advance Your Education at Indiana Wesleyan University
There's a lot to keep in mind when it comes to building a data-driven culture and using these insights to make important decisions for a business. Not only do you need to understand the key performance indicators (KPI) that you're measuring, but you'll also need to choose the right business intelligence tools and software. In doing so, however, your business can reap the benefits of improved decision-making that leads to improved growth and success.
Looking to advance your business education to the next level? Explore programs offered by Indiana Wesleyan University's DeVoe Division of Business, including degrees in business administration, finance, accounting, management, and more. Reach out to request more information about any of our programs today or get started with your online application for enrollment.
Sources
https://www.tableau.com/learn/articles/data-driven-decision-making
https://www.quantummetric.com/blog/7-ways-to-use-data-analytics-to-improve-your-business
https://www.precisely.com/blog/datagovernance/data-driven-strategic-decisions
https://www.linkedin.com/pulse/how-build-data-driven-culture-your-organization-b-eye-ltd
https://www.indwes.edu/academics/cas/school-of-professional-studies/division-of-business/
https://www.indwes.edu/find-your-program
https://indatalabs.com/blog/artificial-intelligence-decision-making
