What is 'Data-Directed Decision Making'

Data-directed decision making is the system of using scientifically valid information to inform executive decisions. Data-directed decision making, also referred to as data-driven decision (DDD) making, attempts to reduce “gut feel” decisions by presenting valid data that can support optimal outcomes. Under data-directed decision making, there will be cases where the data overrules the management’s preferred course of action.

BREAKING DOWN 'Data-Directed Decision Making'

Data-directed decision making has become widespread in a variety of industries. That said, we have important questions about businesses’ core functions being decided by the most persuasive or passionate person in the room. This can work out to the benefit of a business if that person also happens to have the best information at hand or is able to continually make intuitive leaps that pay off, but it carries the same risk of betting in a casino — it is luck, which sometimes wears off.

Data-directed decision making can incorporate the creative thinkers and gut feelers by giving them tools to test their ideas. Data-directed decision making is not meant to stifle ideas. It just brings more rigor to the discussion before a new idea is accepted. At its core, data-directed decision making reduces some of the risk of a business-killing decision being carried through.

Empowering Data-Directed Decision Making

With the rise of detailed business analytics, the idea of using them to guide decisions is not as controversial as it once was. Data-directed decisions are smarter decisions. They make the company more productive, and some research has shown that executives using it to lead their companies see higher pay as a result. The next frontier for data-directed decision making is spreading beyond the C-suite. This means having analytics and data shared at all levels and integrated in the corporate culture. After all, if data-directed decision making helps to improve the big decisions, it should be able to help with the smaller ones as well.

Some companies have already embraced data-directed decision making at all levels, updating company-wide key performance indicators in real time for employees to follow, making scenario testing tools available and encouraging staff to spend time analyzing how their department works within the larger organization. Companies on the cutting edge of data-directed decision making are even removing the management team from the decision making process, allowing statistical performance to dictate everything from product mix on the shelf to landing page design.   

The Cost of Data-Directed Decision Making

It can be expensive for companies to invest in data-directed decision making, so it's always important to weigh its benefits with how much it will affect the bottom line, Smaller businesses may not be able to afford implementing it into their cost structure, while larger companies may not feel the pinch. Adding the process of data-directed decision making means adding more infrastructure to handle the larger data sets, and more employees on the payroll to collect and analyze it.  
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