This column is part of Globe Careers' Leadership Lab series, where executives and experts share their views and advice about leadership and management. Follow us at @Globe_Careers. Find all Leadership Lab stories at tgam.ca/leadershiplab.
The advent of big data is changing the ability of businesses to analyze their operations, understand their customers and react to shifts in the market. In recent years, business and media have given a lot of attention to the role data is playing in shaping business strategy and transforming the commercial world around us. However, lost in the conversation is the fact that intuition is an important guide in making decisions.
Recently, a mid-sized Canadian company that makes technology-based security systems applied a decision-making process in which the senior management team chose to ignore the directions the data was suggesting and proceeded with a strategy based on their intuition.
When examining their supply chain, the company decided to flout what the conventional wisdom (and the data) suggested – ignore and outsource low-value activities, such as manufacturing. Instead, the leadership team decided to bring manufacturing in house even though costs would rise. They felt this strategy would produce long-term benefits. It was a big bet, and, ultimately, it paid off. Leading their own manufacturing efforts, the company was able to innovate and improve the process and quality of their products, which allowed them to sell a high-quality product at a premium price.
While each decision-making situation is all about context, what success boils down to in this case is the team's outstanding expertise that turned out to be what the company needed to make the right decision.
And that's where a common misunderstanding lies. If you become more evidence-based, you might feel that you need to throw intuition and creative thinking out the window. Don't do that. Data and intuition are not mutually exclusive. In fact, successful managers across the board start with their intuition and then validate with data.
Combining intuitive and analytical approaches is essential to expert performance in any type of a decision-making scenario. However, research suggests that, when it comes to judgment calls on strategy, people management or crises, there are variances in an optimal mix of the two. The latter two represent situations where experienced leaders may choose to rely more on their gut to drive their responses. The recently released Smith School of Business Executive Survey shows that data and analytics are behind the majority of leaders' strategic decision-making (71 per cent), while executives use intuition to make decisions involving their teams (66 per cent), and for crisis management (65 per cent).
The Executive Survey also shows that 52 per cent of senior executives think they rely on data and analytics too much when making decisions. On the flipside, 41 per cent feel they rely too much on intuition. In reality, there are dangers in relying too much on either.
An excessive amount of data can have a negative impact in three distinct ways. First, you can be overwhelmed by volume and lose the signal in the noise. Second, too much data can sometimes produce too many alternatives. Most of us are very good at selecting from three alternatives, but it's very difficult to choose from 100 – the distinctions become too blurred. Finally, the more data you collect, the higher the probability of finding conflicting information.
The main problem with over-reliance on intuition, however, is that, to achieve a positive outcome, the decision-maker is expected to have actually experienced the situation before. Obviously, the greater the body of experience, the more likely one is to have lived through a similar episode in the past. But, what if the organization operates in an industry undergoing a period of rapid disruption? Think of how globalization, deregulation, new technologies or evolving customer preferences are colliding to create unprecedented changes never before encountered. No one can use experience to manage situations that have never been encountered before. Intuition is no help here.
Whatever the business problem or the context, both data and intuition give business leaders the tools they need to successfully navigate most business challenges. Sometimes, the data will win the day. Other times, intuition will lead the way.
In the current business environment, leaders need to leverage both strategically if they are going to succeed in a constantly changing world.
Salman Mufti is associate dean and executive director of the Smith School of Business – Executive Education, and associate professor of Management Information Systems at Smith School of Business and Visiting Associate Professor at The Johnson School of Management at Cornell University.