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How do companies make decisions? A simple answer to this crucial question can be: in two ways – one based on experience and intuition; and the other backed by data to validate its credibility. Whereas the former is a traditional way of making decision, but is wrought with drawbacks like inaccuracy, incomplete, the latter is a rather newer concept (called Data-Driven Decision making). Definition A recently published article by Foster Provost and Tom Fawcett define Data-Driven Decision Making (DDDM) as: “The practice of basing decisions on the analysis of data, rather than purely on intuition.†To explain it, an example of Wal-Mart can be cited, where it used past data to make decisions about what items to stock in the stores before an oncoming storm, based on past purchase records in other Wal-Mart stores before oncoming storm in that area. A simple intuition based approach would very well have predicted that merchandise items like torches, batteries and bottles of water would be sold most before storm – “common senseâ€. What it would fail to predict would be the amount of increase in sales due to the hurricane, i.e the quantity to be stocked. This is where past data would come to the rescue. Also, there could be astonishing discoveries made during the analysis of past data, e.g. the sale of strawberry Pop-Tarts increased by as high as seven times the usual in other stores. And that, the pre-Hurricane top selling product was Beer - a finding, nothing but a data driven approach can make. Productivity Increase Data-driven decision making (DDDM) is usually undertaken by an organization as a means of gaining a competitive advantage. A study conducted by a team of researchers of MIT on 179 companies concluded that “firms that adopt DDDM have output and productivity that is 5-6% higher than what would be expected, given their other investments and information technology usage.†This distinction of 5% is substantial enough to separate winners from losers. P&G, which is the world’s largest FMCG company did sales worth US$84 billion last year, is a data driven business. The company touches the lives of close to 4 billion consumers every day. One cannot achieve this feat merely by experience driven approach, without relying on data. Visualising data with comprehensible patterns helps the heads of the respective country, category or brands identify which products are working, and which aren’t, thus finding places where new opportunities lie, all this in real-time. The success of the data-driven decision making approach is dependent upon two factors: i) the quality of the data gathered; and ii) effectiveness of the analysis and interpretation of the results. There cannot be more striking examples of companies, whose business is driven by DDDM, than Google and Facebook. Their advertising is based on examining, analysing, and exploiting the online data. Be it displaying ads of products and websites similar to past search history on Facebook, or be it sponsored ads on Google related to the search query, all credits to the data analytics. That’s not all. Software giants like IBM, Microsoft, SAP and Oracle have sensed the future of the DDDM industry, commonly called “Analytics†or “Business Intelligence (BI)â€, wherein companies help others to find patterns in their data, to generate meaningful information. IBM expects this industry to grow to US$16 billion by 2015. Applications In addition to the Google or Facebook examples, where the data is used for marketing purpose, DDDM helps a business in all of the following areas: 1. Marketing: DDDM helps a business to compute returns from a particular promotion, fine tuning spending to yield better ROI, tracking social media, etc. 2. Sales: Finding best path and best practices, cost of customer acquisition, process improvement, Y-O-Y turnover, sales analysis, etc. 3. Inventory: As with the Wal-Mart example above, it helps project to a considerable accuracy the inventory to be maintained, monitoring and adjusting inventory levels. 4. Human Resource: Managing recruitment process, monitoring and managing attrition rates, employee turnover, etc. Another example, from a very different end of business spectrum, is the one shown in the movie Moneyball, wherein the manager of a baseball team uses statistical data to analyze players he picks and place value on them accordingly. The team makes straight 20 wins, confirming the role of Data in making winning decisions. Zipcar, a US based carsharing company is the world's leading car sharing network. Founded in 2000, it is valued at US$500 million now. The company has more than 810,000 members and offers nearly 10,000 vehicles throughout the US, Canada, the UK, Spain and Austria. The feat was reached only by analysing the data generated at every touchpoint between the company and its members, and crunching the data to generate useful information to make personalised future contacts with the customers. Incorporation with Traditional approach Does that mean there is no role of experience, intuition, gut feelings, personal beliefs in decision making? Gabriel Eckert, CAE, executive director of a leading organisation and co-author of From Insight to Action: Six New Ways to Think, Lead, and Achieve, in an interview to Associations Now says, “...decision making is where statistics meet the senses. It’s where research combines with gut reaction. It’s asking ourselves, What does the data mean? ... There’s really three different ways intuition comes into play... It’s leveraging your experiences, it’s recognizing patterns, and it’s understanding the whole of the connections among decisions that we’re making . †This means that the best approach is dynamic decision making process, which incorporates the data analytics with the experience of those making the decision. Conclusion Data-driven decision making is the need of the hour for any aspiring organisation. When the world is moving very fast, not embracing the newer technology will leave our organisation in the dark ages. Our Unit has a perfect blend of individuals with a great experience in their field and good analytical skills. Hence, incorporating this contemporary mode of decision making into the unit, and thereby into our organization will be the best step towards prosperity. 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