The Problem With Intuition-Based Decision Making

Circuit CityProfessors pounded it into my head over and over again—businesses use data to carefully plan and execute their short- and long-term strategies. And that's what I believed until I started interviewing for jobs. It seemed like every company I spoke with was fixated on growth—not because it made good business sense, but because they were fixated on chasing numbers. Open 500 stores this year, 2,000 next year, and 1,000,000 in year three. Will the local market be able to sustain that growth? Considering that now-bankrupt Circuit City was one of the companies I spoke with, I'm guessing not. Were they carefully looking at feasibility studies, evaluating the size of the markets they were hoping to enter? Or were they too busy opening up across the street from their key competitor in just about every possible city?

With an almost limitless amount of information at our disposal (years of historical data, complex analytical models, competitor benchmarking, etc.), you'd think more decisions would be deeply rooted in data analysis than they would on gut instinct. Yet, that's often not the case.

Why not?

MBAs, PhDs, and a limitless number of Excel models have taken number crunching to a whole new level and the analysis is becoming increasingly more complex. We need look no further than the difficultly Wall Street had in valuing the toxicity of their exotic financial instruments to understand that. At large organizations with multiple business units and thousands of employees each doing their own modeling and projections, the very thought of integrating data and analysis from dozens, if not hundreds, of quant jocks is incredibly daunting. Even if done effectively, facts and texture almost certainly get lost in conversations up, down, and across the organization.

Adding to the complexity of the sheer volume and sophistication of the analysis are good old fashion time constraints. You're faced with multiple hard deadlines and there clearly aren't enough hours in the day to go over all of the data. So, instead of missing a deadline, you decide to quickly glance over the information and make a hastily-formed recommendation. I'm not sure what the Vegas "line" is on this approach, but I'm betting the odds are good that it comes back to haunt you.

Some companies place more of a value on risk taking than others and operate under a "throw it against the wall and see if it sticks" mentality. Or, the organization might not have the internal resources to thoroughly and thoughtfully analyze data and use the results in their decision making process. As a result, they often perceive analysis as a roadblock to progress instead of a tool.

Is intuition-based decision making such a bad thing? That depends on the scope and ramifications of the decision: If it's a relatively minor decision and the impact on the organization is minimal, there's a good chance you can get away with it. If, on the other hand, the decision could impact other business units and the organization as a whole, you definitely want to rely on more than your gut.

With the proper data analysis procedures in place, such tools are essential in making critical business decisions. You ignore that information at your peril. Just ask the former Circuit City management team who are probably still wondering, "Whaaaaa happened?"

Shawn Graham is the author of Courting Your Career: Match Yourself with the Perfect Job (www.courtingyourcareer.com). Find Shawn on Twitter @ShawnGraham or via email at shawn(at)courtingyourcareer.com.

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3 Comments

  • Shawn Graham

    @ Dr. Bill - way to work in Maslow's Hierarchy of Needs...I try to incorporate a Maslow reference in at least once a week and you beat me to it. Customers are definitely a great input source and, if companies engage them effectively and ask the right questions, they'll get meaningful information. But that doesn't always happen.

    Of course, in a perfect world, organizations would use just the right amount of number crunching and research and gut-based decision making.

  • Dr. Bill

    I, also, suggest that any entrepreneur (or "Marketing Director") take a lesson from Direct Marketers (the folks who present you with those coupons, direct mail letters, catalogs, etc.):

    The key words in the Direct Marketing industry are "Test, Test, Test."

    Got a new idea for your business? Then "test" your idea in just ONE of your stores...or use A/B copy split mailed to your prospect (or customer) list....using the "A" (coded) coupons/order forms against the "B" (coded) copy version to about 10% or your prospects/customers. It's a no-brainer. YOUR OWN CUSTOMERS (or business prospects) should be your market researchers! Let THEM tell you what they like best...and what they will buy.

    Then look at your store sales reports...or count your A/B coupon/order form codes to see which idea ACTUALLY produced your best sales. Then proceed gradually to impement the better idea...while continuing to "test" (10%) your others ideas against your "control" (or "best") marketing idea.

    Always try to "beat your best" by judicious "testing" of your new product or service ideas against your proven best. Various "tests" you might consider: seasonality/price/color/style/credit terms/free premium with purchase, etc..

    Your risk is minimized and your success (or failure) will be solidly documented. Don't look for guidance from above...look to your customers and prospects.

  • Dr. Bill

    I respectfully disagree with your comments about extensive research as the primary basis for success. Mr. Ford and his huge staff and deep pockets did lots of research that "proved" the Edsel automobile would be a best-seller. Under your scenario, all that's needed is a cookie-cutter research computer plan...that all marketing students could be taught to use (a "calculator for success").

    If such a "calculator" were created, then every rinky-dink entrepreneur would be hugely successful...not to mention the person who created such a cookie-cutter research tool that concisely integrated zillions of facts and figures.

    Passion and brains and hiring the right support people remain the triad for success. Just see what Arkansan Sam Walton did after his earlier business venture failed. That's passion. That's hiring the right people. That's getting out of mirror-and-brass-lined ivory towers and walking down Main Street talking with folks in overalls and dancing the hula on Wall Street.

    The "Marketing Expert" is not always the person from out-of-town...he (or she) may be right in the next room, sans 3-piece suit...and probably has no parchment in Marketing. But these rare folks innately know and understand human psychology and Maslow's Hierarchy of Needs. .

    In the old days, the best word in advertising was "Free"...now, it seems, the new advertising phase that every thrid TV advertiser is using is "Ask your doctor if XYZ is right for you"! Shame!

    No wonder Americans are fed up with all this "marketing" invasion of privacy.

    I am so fed up with American marketing "techiniques" today that I now deliberately give completely false answers to every "researcher" who calls my home to ask my "opinion" ...just to throw a cog in their "research" spread sheets.

    The basics of marketing and advertising have not changed: Find out what people want or need and give it to them full value at a fair price. Duh.