SAS Insitute: How Organizations Make Better Decisions

Thomas H. Davenport January 2010 How Organizations Make Better Decisions Sponsored by: Copyright ® 2010 International Institute for Analytics How Organizations Make Better Decisions Table of Contents Executive Summary Introduction Introduction 2 About the Research 3 I interviewed 57 organizations on how they Figure 1: Frequency of Interventions 4 had improved decision processes. Most were Types of Decisions Addressed 4 able to identify at least one decision that Beneficiaries of Decisions 5 had been improved. The most striking finding LexisNexis® Claims Solutions (Case) 6 is that organizations employed a variety Interventions in Decision-Making 7 of intervention types involving technology, The Stanley Works (Case) 8 organizational changes, and new business Analytics, Testing, and Data 8 methods. Analytical interventions were Transitions Optical, Inc. (Case) 9 the most commonly adopted, followed CKE Restaurants (Case) 10 by culture and leadership. In order to Technology Support for Decisions 10 implement these interventions, decision Changes in Business Processes 11 analysts had to adopt a more consulting- Financial Services Firm (Case) 12 oriented role within their organizations. Changes in the Role of Analysts 12 Decision-Oriented Methods and Tools 13 Businesses and organizations have Cisco Systems (Case) 14 addressed many aspects of their structure Organization, Culture, and Role Changes 14 and function, but relatively few have New York City Schools (Case) 16 given systematic attention to one of their Communicating about Decisions 17 most important activities: their decisions. Draftfcb (Case) 17 Decisions, whether tactical or strategic, are Chevron (Case) 18 critical to the success of every organization. Summary and Conclusions 19 They encompass such questions as what strategies and business models to pursue, which products and services to offer, which customers to target, what prices to charge, and what employees to hire. Organizations that employ poor decision processes and tools will eventually encounter poor decision outcomes, and their performance will suffer. There are many other reasons why organizations should improve key decisions. The recent financial crisis was a reminder that poor decisions have both company- specific and economy-wide consequences. Page 2 Concerning Sponsorship: Note that this report is intended as an objective assessment. Sponsorship was neither sought nor offered until after the research had been completed and the contents authored. The existence of the sponsorship has, in no way, impacted the conclusions. How Organizations Make Better Decisions Several prominent public sector decisions as technology, leadership, or group have also resulted in poor outcomes. process. In this research, the topics addressed were more comprehensive— More positively, there are new insights, the idea being to understand which technologies, and methods that can improvements were used most frequently. guide decisions. Scientific advances in neuroscience and behavioral economics provide new insights for decision-making. About the Research1 Relatively new technologies, including analytics, decision automation tools, and In late 2008 through the summer of 2009, I business intelligence systems, make it interviewed 57 organizations by telephone possible to make better use of information in about specific attempts to improve decisions. “Wisdom of crowds” approaches decision-making. The organizations were and technologies allow larger groups of identified through analyses of secondary people to participate meaningfully in literature and with assistance from SAS, the decision processes. Organizations cannot sponsor of this report, and other vendors afford to ignore these new options if they of data management and analytical wish to make the best possible decisions. software. The individuals interviewed were generally managers of IT functions, Given both negative and positive incentives, heads of analytical groups, or leaders one might expect that organizations would of internal consulting organizations. attempt to improve their decisions—that they would prioritize them, examine their After each interview, I classified the responses current level of effectiveness, investigate based on the type of decision, the particular new options for making them better, and interventions employed, and the results of the implement some of those options. Indeed improvement effort. An overall tabulation of they are doing some of these things, but the frequency of interventions is presented not in a thorough, systematic fashion. in Figure 1.