Use Data to Improve your Business Decisions
Ask better questions and make better use of your data
The following is an extract from Data Strategy.
Data is becoming an increasingly important input into the decision-making process, and improving decision making is probably the most widespread way businesses are using data today. This is a broad category, covering any way in which data can help people in the organizations make better decisions. ‘People’ is the crucial word there. The data user, if you like, in this scenario is a human being. We are not talking about machines automatically carrying out an action based on what the data tells them (such as Amazon’s product recommendations, which are generated automatically based on data and algorithms). I refer exclusively to the process of human beings in an organization interpreting data in order to make smarter, more informed decisions. Smarter decisions being, essentially, anything that moves the organization closer to achieving its strategic goals.
Data provides the extra edge that businesses will need to succeed going forward. Data provides valuable insights that help you answer critical business questions like, ‘How satisfied are our customers?’ and those insights can be turned into decisions and actions that improve the business.
Setting out your key business questions
You can’t identify what data you need if you aren’t clear about what it is you want to find out. Having very clear objectives in mind helps you get the most out of data. That’s why the process of data-based decision making always starts in the same place: identifying your key business questions. Your key business questions (or strategic questions, if you prefer) are those unanswered questions that relate to core areas of your business and its goals. In other words, what do you need to know to be able to achieve your strategic goals? Focusing on key questions helps you hone in on the data you really need – because once you know the questions you need to answer, it’s much easier to identify the data that will help you answer those questions.
I recommend looking at four key areas of your organization to identify your objectives and key business questions. Those areas are:
1) customers, markets and competition
3) internal operations
You may choose to look at all four areas at once, or you may need to focus only on once specific area (say, if an area is underperforming). Either way, the process is the same. First you set out your strategic objectives for that business area (ie what you are trying to achieve), then you identify the questions that relate to those objectives (ie what you need to know if you are to meet those goals). If you already have a comprehensive strategic plan in place, you can simply identify the questions that tie in with your corporate objectives. For example, if your objective is to increase your customer base, your key business questions might include, ‘Who are currently our customers?’, ‘What are the demographics of our most valuable customers?’ and ‘What is the lifetime value of our customers?’
Once you have created your list of questions, you may need to spend some time prioritizing and narrowing the list down. A list of 100 questions, for instance, is too long to be workable. I suggest that, if you are looking at all four business areas, try to narrow it down to your top 10 questions per area (if your list is smaller than 10 questions, even better). In other words, if you could only answer a handful of questions, which would you choose? Focus on the key questions that are most important to achieving your overall strategy. Any leftover questions can always be answered further down the line.
If you are focusing on one particular business area you can perhaps extend the list to 25 questions if you need to. However, if focusing on just one area, be aware of potential impact on other core areas of the business. For example, if you focus only on customer-related questions, you will need to consider the financial, operational and people-related implications of any decisions.
Good questions lead to better answers
When you start with a simple question and then gather only the data that can directly answer that question, data suddenly becomes much more manageable. You no longer need to be concerned with all possible sources of data, and all the new and interesting types of data that are becoming available. You need only focus on the data that will help with the task at hand. In this way, the right business questions are very powerful things. The right business questions help you get to the heart of what’s important and what’s not. The right business questions help you identify your company’s biggest concerns. They guide discussion. And, most importantly, they help people make better decisions.
Here’s an example showing the power of clear business questions. I once worked with a small fashion retail company that had no data other than their traditional sales data. They wanted to increase sales but had no data to draw on to help them achieve that goal. Together we worked out that the specific questions they needed to answer included:
- How many people actually pass our shops?
- How many stop to look in the window and for how long?
- How many of them then come into the shop?
- How many then buy?
To answer these questions, first we installed a small, discreet device into the shop windows that tracked mobile phone signals, counting everyone who walked past the shops (or rather, everyone with a mobile phone on them, which, these days, is almost everyone) – thereby answering the first question. The sensors also measured how many people stopped to look at the window and for how long, and how many people then walked into the store – answering the second and third questions. And we used ordinary sales data to record how many people actually bought something. By combining the data from the sensors placed in the window with transaction data, we were able to measure conversion ratio and test window displays and various offers to see which ones increased the conversion rate. Not only did the retailer increase sales by understanding what drew customers to stop and come into their stores, but they also used the insights to make a significant saving by closing one of their stores. The sensors were able to finally tell them that the footfall reported by the market research company prior to opening in that location was wrong and the passing traffic was insufficient to justify keeping the store open.