Facing a tough decision? Don't rely too much on your gut.
That's one message from Tom Davenport, a management professor at Babson College in Wellesley, Mass., and co-author of a book on strategy and decisions called 'Competing on Analytics: The New Science of Winning.'
He urges decision-makers to ask questions and arm themselves with as much information as possible. He suggests that current economic problems could be attributed, in part, to managers who failed to do this. He spoke with The Journal's Michael Sanserino about how to make better decisions. Here are edited excerpts of the conversation:
What are three steps that managers can take to make better decisions?
One would be to clarify the decision roles. Clearly establish who the decision-makers are and who's responsible for different aspects of the decision.
Think about what information you're using to make the decision. We have powerful information tools to make decisions, but in many cases, the information doesn't actually influence the decision as much as it might. You need to acquaint yourself with information tools that are available. In many cases it helps to have someone who can guide you through that process.
[Also] step back and say, 'What's the best way to make this decision?' If you just immediately decide in the way that's most comfortable to you, chances are you're not going to get the best outcome.
What are three decision-making mistakes?
I was looking recently at when the concept of 'group think' first emerged -- where everybody in a small group tends to think the same way. That idea came up more than 50 years ago, but we can think of lots of examples where people still engage in group think. They don't arrive at a good answer as a result.
Another mistake would be to assume that everybody is thinking rationally. People are often irrational about decision issues in a whole variety of ways. One is they are overly influenced by any numbers that they previously heard or any statement of the problem the so-called anchoring effect.
The third problem is that people rely on intuition too much. It's easy, it's comfortable, but in general it should be the last resort, not the first. If you can't get data, if you have a lot of experience, maybe intuition is OK. But in general you want to look for the more analytical approaches than just your intuition.
What sort of analytical approaches do you mean?
I've defined analytics as the use of data and systematic reasoning to make decisions. [Analytics tools are] mostly software. The IT industry typically calls it business intelligence software. You could say data warehouses fall into that category as well data set aside for analysis.
What can companies with little experience and few resources do to use analytics in their business practices?
It's getting easier to enter into the area of analytical decisions. For one thing, almost everybody has better data than they ever had before. If you have any Internet presence whatsoever, the Internet generates a vast amount of data you can use to start making analytical decisions about who's paying attention to your products and information.
[Also] analytical software is increasingly provided by the drink rather than having to buy the whole software capabilities. And it's even possible to get analytical capabilities in an outsourced way.
What can leaders do to bridge the knowledge gap between themselves and their employees?
My thinking has changed a little bit on this. I wrote a book called 'Thinking for a Living,' and said, 'Ah, don't worry about it if your knowledge workers know more than you do. That's the nature of the knowledge economy, and you can't expect to know more than every one of your employees.'
Now I think in the current financial crisis, we've seen examples where highly analytical knowledge workers were able to snow their bosses a little bit. The most successful organizations have been those who've said, 'If you're a manager and you don't understand this type of analysis, don't base your business on it.' What that means is the analyst has to become better at explaining what they do in common-sense terms. And it probably means managers are going to have to bone up a bit and maybe go back to school. It's just too important to the success of the modern economy to make these decisions blind.
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