The Biz Box: Business

Support your intuition with data

Written by Queeny Dieke on . Posted in Business

An increasing number of companies use data to make decisions. This is a smart move because figures often reveal opportunities that others can easily miss. How do you utilise your data efficiently? Two data specialists share their vision. “Data cannot be a substitute for leadership.
 
A baker needs to be able to predict as accurately as possible how many customers will visit their store the next day. They can then plan their orders accordingly. An extra staff member might be needed on busy days. An incorrect estimate could lead to disappointed customers or having to dispose of unsold bread, rolls and almond cakes, which results in an irrevocable loss of turnover.

Entrepreneurs used to have to rely on their gut feeling in such situations. However, there are better ways to make accurate prognoses in 2018, says Judith Redi, head of data science at Exact. “Not only can they use their own data – such as the turnover data of the previous year – but also integrate the figures with external datasets, such as macroeconomic data, sector trends, weather data and the turnover data from local competitors. This creates an increasingly comprehensive picture.”

Redi’s standpoint is endorsed by Timothy Prescott, who as data analyst was part of Barack Obama’s re-election campaign and now works as Analytics Director at IG&H Consulting. “Making decisions on the basis of data is nothing new. The arrival of big data means we can observe more quickly and more accurately and therefore make better decisions.” In his opinion this is down to three developments: “Firstly, we can produce more data: 90 percent of data worldwide has been generated in the last two years. Secondly, computing power is constantly increasing. And finally, the advent of cloud computing makes these data and analysis methods more accessible.”

Democratisation of knowledge
Prescott speaks of a democratisation of knowledge. “Previously only large companies were able to afford extensive data analyses. First you’ve got to invest in expensive hardware and then time into rather basic analyses. Now, big data has become accessible to smaller companies too. Companies such as Amazon and Google have algorithms available at low rates. Physical infrastructure is no longer required because you can work in the cloud, where you only pay for the capacity you need. This offers a multitude of opportunities. Entrepreneurs can make better predictions, for example, or check how they score in comparison with their competitors”, says Prescott. “You can also respond more effectively to the needs of clients because you understand them better. An insurer who wants to find out why clients are switching to their competitors can try to make enquiries at the call centre. But this is only anecdotal evidence. By analysing the data of large numbers of consumers instead, a much more accurate image is created and you can work with a greater statistical certainty. Big data allows you to move from anecdote to fact.”
 
Prescott believes data-driven work also promotes creativity. “You can test your assumptions, which in turn leads to follow-up questions. This creates the golden combination of human creativity and the factuality of data.”
 
Closer to the ball
Not using data is simply not an option today, says Prescott. “We live in a world where everything is changing quicker and quicker. As an entrepreneur you have to keep your eye on the ball. Web stores which rely solely on the vision of the purchasers will never be able to make sales predictions as accurately as retailers who analyse their broad datasets. They’ll likely end up systematically ordering too much and getting stuck with large amounts of stock, while their competitors can do something different with their capital.”

Entrepreneurs also seem increasingly aware of the importance of using data in their decision-making processes. From the SME Barometer, a survey commissioned by Exact, it appears that more and more entrepreneurs in SMEs don’t exclusively base their decisions on subjective factors such as intuition or own experiences, but on internal or external data as well. Data always plays the leading role in 16% of companies with 50 - 250 employees. For 72% it sometimes plays the leading role and sometimes the supporting role. For smaller companies with less staff the figures are a little lower, but it is almost impossible to imagine life without data for these companies too.

Start with the data you already have
The big question is: how to start? A major pitfall is that companies remain in the talking phase for too long, notes Prescott. “Many entrepreneurs think big when it comes to big data. However, I advise them to start small. First look at which data is already available and start working on that. Evaluate which clients create the biggest turnover, for example, and how they perceive the company. Then filter two groups: clients who are satisfied, but offer little revenue, and the most valuable, but dissatisfied clients. This is where you stand to gain the most.”

Such a seemingly simple analysis demands that the quality of your data is good. Judith Redi: “Using outdated, incomplete or polluted data obviously leads to bad decisions. A simple typo in a formula, an incorrect copy and paste job or using an old version is already enough to pollute the dataset in Excel, with disastrous consequences.”

That’s why good business software is becoming increasingly important. Redi: “You store your data in one central location and have direct insight using integrated dashboards, for current turnover figures, cash flows or the number of quotes sent, for example. This ensures increased overview and minimises the risk of errors. Exact also works to make this software available to smaller companies.”

This kind of software package also helps to remove irrelevant data, which also gets in the way of good decision-making. For a car rental company, the number of rented vehicles is less relevant than the rental percentage, for example. “Always keep a clear question in mind and identify which data affects it. Noise in models leads to confusion and less accurate conclusions”, says Redi.

Prescott also believes it’s important to assess a dataset critically. “Are the figures representative? And is there a real or artificial correlation? If research shows that people who eat breakfast live longer, for example, does this mean that having breakfast is healthy? Or is it also possible that people who eat breakfast have a better daily routine, for example, which subsequently leads to a longer life? Drawing incorrect conclusions can have major consequences.”
 
Intuition or data?
Furthermore, it’s important to think critically about the role data will play in your company. “Many entrepreneurs find themselves facing a dilemma: should I take a decision on the basis of intuition or on the basis of data? However, it’s not necessarily about one or the other”, says Judith Redi. “There is no perfect recipe. A combination of both is the most optimal. If you can support your intuition with data, you make stronger decisions.” She explains that data shouldn’t be an aim in and of itself: “Data is only a tool with which to achieve an objective. Always bear this in mind.”
 
Prescott emphasises that it’s always important to keep reflecting. “Data cannot be a substitute for leadership. Take decisions on the basis of a vision and a moral compass.” Redi also believes people will always play a crucial role. “Everything ultimately stands or falls with a correct interpretation and correct decision-making based on data. People always have the last word.”