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1. What is Decision Making?
Some Definitions
A good place to start is with some standard definitions of decision making.
1. Decision making is the study of identifying and choosing alternatives based on
the values and preferences of the decision maker.
Making a decision implies that there are alternative choices to be considered, and
in such a case we want not only to identify as many of these alternatives as
possible but to choose the one that (1) has the highest probability of success or
effectiveness and (2) best fits with our goals, desires, lifestyle, values, and so on.
The two important ideas here are that first, there must be some genuine
alternatives to choose from among. Note that "Do it" or "Don't do it" does not
qualify as a set of alternatives. Only "Do this" or "Do something else" really
qualfies. Second, every decision must be made in the light of some standard of
judgment. This standard usually gets expressed in the form of criteria, which
reflect the values and preferences of the decision maker. These values and
preferences are often influenced by corporate rules or culture, law, best practices,
and so forth.
2. Decision making is the process of sufficiently reducing uncertainty and doubt
about alternatives to allow a reasonable choice to be made from among them. This
definition stresses the information-gathering function of decision making. It

2. should be noted here that uncertainty is reduced rather than eliminated. Very few
decisions are made with absolute certainty because complete knowledge about all
the alternatives is seldom possible. Thus, every decision involves a certain amount
of risk. If there is no uncertainty, you do not have a decision; you have an
algorithm--a set of steps or a recipe that is followed to bring about a fixed result.
Kinds of Decisions
There are several basic kinds of decisions.
1. Decisions whether. This is the yes/no, either/or decision that must be made
before we proceed with the selection of an alternative. Should I buy a new TV?
Should I travel this summer? Decisions whether are made by weighing reasons
pro and con. A simple worksheet with two columns (one for Pro--reasons for, and
one with Con--reasons against) can be useful for this kind of decision.
It is important to be aware of having made a decision whether, since too often we
assume that decision making begins with the identification of
alternatives, assuming that the decision to choose one has already been made.
2. Decisions which. These decisions involve a choice of one or more alternatives
from among a set of possibilities, the choice being based on how well each
alternative measures up to a set of predefined criteria.
3. Contingent decisions. These are decisions that have been made but put on hold
until some condition is met.

3. Most people carry around a set of already made, contingent decisions, just waiting
for the right conditions or opportunity to arise. Time, energy, price, availability,
opportunity, encouragement--all these factors can figure into the necessary
conditions that need to be met before we can act on our decision. Some contingent
decisions are unstated or even exist below the awareness of the decision maker.
These are the type that occur when we seize opportunity. We don't walk around
thinking, "If I see a new laser printer for $38, I'll buy it," but if we happen upon a
deal like that and we have been contemplating getting a new printer, the decision
is made quickly. Decisions made in sports and warfare are like this. The best
contingent and opportunistic decisions are made by the prepared mind--one that
has thought about criteria and alternatives in the past.
4 . Contingent alternatives. Similar to contingent decisions, contingent alternatives
involve two or more choices of action, one of which will be taken when the
appropriate trigger occurs. Often this trigger is an event or more information.
Decision Making is a Recursive Process
A critical factor that decision theorists sometimes neglect to emphasize is that in
spite of the way the process is presented on paper, decision making is a nonlinear,
recursive process.That is, most decisions are made by moving back and forth
between the choice of criteria (the characteristics we want our choice to meet) and
the identification of alternatives (the possibilities we can choose from among).
The alternatives available influence the criteria we apply to them, and similarly

4. the criteria we establish influence the alternatives we will consider. Let's look at
an example to clarify this.
The Components of Decision Making
The Decision Environment
Every decision is made within a decision environment, which is defined as the
collection of information, alternatives, values, and preferencesavailable at the
time of the decision. An ideal decision environment would include all possible
information, all of it accurate, and every possible alternative. However, both
information and alternatives are constrained because the time and effort to gain
information or identify alternatives are limited. The time constraint simply means
that a decision must be made by a certain time. The effort constraint reflects the
limits of manpower, money, and priorities. (You wouldn't want to spend three
hours and half a tank of gas trying to find the very best parking place at the mall.)
Since decisions must be made within this constrained environment, we can say
that the major challenge of decision making is uncertainty, and a major goal of
decision analysis is to reduce uncertainty. We can almost never have all
information needed to make a decision with certainty, so most decisions involve
an undeniable amount of risk.
The fact that decisions must be made within a limiting decision environment
suggests two things. First, it explains why hindsight is so much more accurate and
better at making decisions that foresight. As time passes, the decision

5. environment continues to grow and expand. New information and new
alternatives appear--even after the decision must be made. Armed with new
information after the fact, the hindsighters can many times look back and make a
much better decision than the original maker, because the decision environment
has continued to expand.
The second thing suggested by the decision-within-an-environment idea follows
from the above point. Since the decision environment continues to expand as time
passes, it is often advisable to put off making a decision until close to the
deadline. Information and alternatives continue to grow as time passes, so to have
access to the most information and to the best alternatives, do not make the
decision too soon. Now, since we are dealing with real life, it is obvious that some
alternatives might no longer be available if too much time passes; that is a tension
we have to work with, a tension that helps to shape the cutoff date for the
decision.
Delaying a decision as long as reasonably possible, then, provides three benefits:
1. The decision environment will be larger, providing more information. There is
also time for more thoughtful and extended analysis.
2. New alternatives might be recognized or created. Version 2.0 might be
released.
3. The decision maker's preferences might change. With further thought, wisdom,
and maturity, you may decide not to buy car X and instead to buy car Y.

6. And delaying a decision involves several risks:
1. As the decision environment continues to grow, the decision maker might
become overwhelmed with too much information and either make a poorer
decision or else face decision paralysis.
2. Some alternatives might become unavailable because of events occurring
during the delay. In a few cases, where the decision was between two alternatives
(attack the pass or circle around behind the large rock), both alternatives might
become unavailable, leaving the decision maker with nothing. And we have all
had the experience of seeing some amazing bargain only to hesitate and find that
when we go back to buy the item, it is sold out.
3. In a competitive environment, a faster rival might make the decision and gain
advantage. Another manufacturer might bring a similar product to market before
you (because that company didn't delay the decision) or the opposing army might
have seized the pass while the other army was "letting the decision environment
grow."
The Effects of Quantity on Decision Making
Many decision makers have a tendency to seek more information than required to
make a good decision. When too much information is sought and obtained, one or
more of several problems can arise. (1) A delay in the decision occurs because of
the time required to obtain and process the extra information. This delay could
impair the effectiveness of the decision or solution. (2) Information overload will

7. occur. In this state, so much information is available that decision-making ability
actually declines because the information in its entirety can no longer be managed
or assessed appropriately. A major problem caused by information overload is
forgetfulness. When too much information is taken into memory, especially in a
short period of time, some of the information (often that received early on) will be
pushed out.
(3) Selective use of the information will occur. That is, the decision maker will
choose from among all the information available only those facts which support a
preconceived solution or position. (4) Mental fatigue occurs, which results in
slower work or poor quality work. (5) Decision fatigue occurs where the decision
maker tires of making decisions. Often the result is fast, careless decisions or even
decision paralysis--no decisions are made at all.
Decision Streams
A common misconception about decision making is that decisions are made in
isolation from each other: you gather information, explore alternatives, and make
a choice, without regard to anything that has gone before. The fact is, decisions
are made in a context of other decisions. The typical metaphor used to explain this
is that of a stream. There is a stream of decisions surrounding a given decision,
many decisions made earlier have led up to this decision and made it both possible
and limited. Many other decisions will follow from it..

8. It is important to realize that every decision you make affects the decision stream
and the collections of alternatives available to you both immediately and in the
future. In other words, decisions have far reaching consequences.
Concepts and Definitions
1. Information. This is knowledge about the decision, the effects of its
alternatives, the probability of each alternative, and so forth. A major point to
make here is that while substantial information is desirable, the statement that "the
more information, the better" is not true. Too much information can actually
reduce the quality of a decision. See the discussion on The Effects of Quantity on
Decision Making in Part 1.
2. Alternatives. These are the possibilities one has to choose from. Alternatives
can be identified (that is, searched for and located) or even developed (created
where they did not previously exist). Merely searching for preexisting alternatives
will result in less effective decision making.
3. Criteria. These are the characteristics or requirements that each alternative must
possess to a greater or lesser extent. Usually the alternatives are rated on how well
they possess each criterion. For example, alternative Toyota ranks an 8 on the
criterion of economy, while alternative Buick ranks a 6 on the same criterion.
4. Goals. What is it you want to accomplish? Strangely enough, many decision
makers collect a bunch of alternatives (say cars to buy or people to marry) and
then ask, "Which should I choose?" without thinking first of what their goals are,

9. what overall objective they want to achieve. Next time you find yourself asking,
"What should I do? What should I choose?" ask yourself first, "What are my
goals?"
A component of goal identification should be included in every instance of
decision analysis.
5. Value. Value refers to how desirable a particular outcome is, the value of the
alternative, whether in dollars, satisfaction, or other benefit.
6. Preferences. These reflect the philosophy and moral hierarchy of the decision
maker. We could say that they are the decision maker's "values," but that might be
confusing with the other use of the word, above. If we could use that word here,
we would say that personal values dictate preferences. Some people prefer
excitement to calmness, certainty to risk, efficiency to esthetics, quality to
quantity, and so on. Thus, when one person chooses to ride the wildest roller
coaster in the park and another chooses a mild ride, both may be making good
decisions, if based on their individual preferences.
7. Decision Quality. This is a rating of whether a decision is good or bad. A good
decision is a logical one based on the available information and reflecting the
preferences of the decision maker.
In judging the quality of a decision, in addition to the concerns of logic, use of
information and alternatives, three other considerations come into play:

10. A. The decision must meet the stated objectives most thoroughly and
completely. How well does the alternative chosen meet the goals identified?
B. The decision must meet the stated objectives most efficiently, with concern over
cost, energy, side effects. Are there negative consequences to the alternative that
make that choice less desirable? We sometimes overlook this consideration in our
search for thrills.
C. The decision must take into account valuable byproducts or indirect
advantages. A new employee candidate may also have extra abilities not directly
related to the job but valuable to the company nonetheless. These should be taken
into account.
8. Acceptance. Those who must implement the decision or who will be affected
by it must accept it both intellectually and emotionally.
Acceptance is a critical factor because it occasionally conflicts with one of the
quality criteria. In such cases, the best thing to do may be to choose a lesser
quality solution that has greater acceptance.
Approaches to Decision Making
There are two major approaches to decision making in an organization, the
authoritarian method in which an executive figure makes a decision for the group
and the group method in which the group decides what to do.

11. 1. Authoritarian.
The manager makes the decision based on the knowledge he can gather. He then
must explain the decision to the group and gain their acceptance of it. In some
studies, the time breakdown for a typical operating decision is something like this:
make decision, 5 min.; explain decision, 30 min.; gain acceptance, 30 min.
2. Group. The group shares ideas and analyses, and agrees upon a decision to
implement. Studies show that the group often has values, feelings, and reactions
quite different from those the manager supposes they have. No one knows the
group and its tastes and preferences as well as the group itself. And, interestingly,
the time breakdown is something like this:
There are two types of group decision making sessions. First is free discussion in
which the problem is simply put on the table for the group to talk about. For
example, Joe has been offered a job change from shift supervisor to maintenance
foreman. Should he take the job?
The other kind of group decision making is developmental discussion or
structured discussion. Here the problem is broken down into steps, smaller parts
with specific goals. For example, instead of asking generally whether Joe should
take the job, the group works on sub questions: What are Joe's skills? What skills
does the new job require? How does Joe rate on each of the skills required?
Notice that these questions seek specific information rather than more general
impressionistic opinions.

12. Developmental discussion (1) insures systematic coverage of a topic and (2)
insures that all members of the group are talking about the same aspect of the
problem at the same time.
Some Decision Making Strategies
As you know, there are often many solutions to a given problem, and the decision
maker's task is to choose one of them. The task of choosing can be as simple or as
complex as the importance of the decision warrants, and the number and quality
of alternatives can also be adjusted according to importance, time, resources and
so on. There are several strategies used for choosing. Among them are the
following:
1. Optimizing. This is the strategy of choosing the best possible solution to the
problem, discovering as many alternatives as possible and choosing the very best.
How thoroughly optimizing can be done is dependent on
A. importance of the problem
B. time available for solving it
C. cost involved with alternative solutions
D. availability of resources, knowledge
E. personal psychology, values
Note that the collection of complete information and the consideration of all
alternatives is seldom possible for most major decisions, so that limitations must
be placed on alternatives.

13. 2. Satisficing. In this strategy, the first satisfactory alternative is chosen rather
than the best alternative. If you are very hungry, you might choose to stop at the
first decent looking restaurant in the next town rather than attempting to choose
the best restaurant from among all (the optimizing strategy). The
word satisficing was coined by combining satisfactory andsufficient. For many
small decisions, such as where to park, what to drink, which pen to use, which tie
to wear, and so on, the satisficing strategy is perfect.
3. Maximax. This stands for "maximize the maximums." This strategy focuses on
evaluating and then choosing the alternatives based on their maximum possible
payoff. This is sometimes described as the strategy of the optimist, because
favorable outcomes and high potentials are the areas of concern. It is a good
strategy for use when risk taking is most acceptable, when the go-for-broke
philosophy is reigning freely.
4. Maximin. This stands for "maximize the minimums." In this strategy, that of
the pessimist, the worst possible outcome of each decision is considered and the
decision with the highest minimum is chosen. The Maximin orientation is good
when the consequences of a failed decision are particularly harmful or
undesirable. Maximin concentrates on the salvage value of a decision, or of the
guaranteed return of the decision. It's the philosophy behind the saying, "A bird in
the hand is worth two in the bush."
Quiz shows exploit the uncertainty many people feel when they are not quite sure
whether to go with a maximax strategy or a maximin one: "Okay, Mrs. Freen, you

14. can now choose to take what you've already won and go home, or risk losing it all
and find out what's behind door number three."
Decision Making Procedure
As you read this procedure, remember our discussion earlier about the recursive
nature of decision making. In a typical decision making situation, as you move
from step to step here, you will probably find yourself moving back and forth
also.
1. Identify the decision to be made together with the goals it should
achieve. Determine the scope and limitations of the decision. Is the new job to be
permanent or temporary or is that not yet known (thus requiring another decision
later)? Is the new package for the product to be put into all markets or just into a
test market? How might the scope of the decision be changed--that is, what are its
possible parameters?
2. Get the facts. But remember that you cannot get all the facts. Get as many facts
as possible about a decision within the limits of time imposed on you and your
ability to process them, but remember that virtually every decision must be made
in partial ignorance. Lack of complete information must not be allowed to
paralyze your decision. A decision based on partial knowledge is usually better
than not making the decision when a decision is really needed. The proverb that
"any decision is better than no decision," while perhaps extreme, shows the
importance of choosing. When you are racing toward a bridge support, you must

15. decide to turn away to the right or to the left. Which way you turn is less
important than the fact that you do indeed turn.
3. Develop alternatives. Make a list of all the possible choices you have, including
the choice of doing nothing. Not choosing one of the candidates or one of the
building sites is in itself a decision. Often a non decision is harmful as we
mentioned above--not choosing to turn either right or left is to choose to drive into
the bridge. But sometimes the decision to do nothing is useful or at least better
than the alternatives, so it should always be consciously included in the decision
making process.
4. Rate each alternative. This is the evaluation of the value of each alternative.
Consider the negative of each alternative (cost, consequences, problems created,
time needed, etc.) and the positive of each (money saved, time saved, added
creativity or happiness to company or employees, etc.). Remember here that the
alternative that you might like best or that would in the best of all possible worlds
be an obvious choice will, however, not be functional in the real world because of
too much cost, time, or lack of acceptance by others.
5. Rate the risk of each alternative. In problem solving, you hunt around for a
solution that best solves a particular problem, and by such a hunt you are pretty
sure that the solution will work. In decision making, however, there is always
some degree of uncertainty in any choice. Will Bill really work out as the new
supervisor? If we decide to expand into Canada, will our sales and profits really
increase? If we let Jane date Fred at age fifteen, will the experience be good? If

16. you decide to marry person X or buy car Y or go to school Z, will that be the best
or at least a successful choice?
Risks can be rated as percentages, ratios, rankings, grades or in any other form
that allows them to be compared. See the section on risk evaluation for more
details on risking.
6. Make the decision. If you are making an individual decision, apply your
preferences (which may take into account the preferences of others). Choose the
path to follow, whether it includes one of the alternatives, more than one of them
(a multiple decision) or the decision to choose none.
Risking
Because making decisions involves a degree of risk, it would be helpful to
examine risk and risk analysis in this chapter in order to gain an understanding of
what is involved. Risk and uncertainty create anxiety, yet they are necessary
components of an active life.
General Comments on Risk Taking
1. Only the risk takers are truly free. All decisions of consequence involve risk.
Without taking risks, you cannot grow or improve or even live. Many risks we shy
away from have relatively minor consequences for failure. Ask yourself, "What's
the worst that can happen?" or "What's the worst case scenario?" Should you
attempt that sink repair yourself? What's the worst that can happen? The repair

17. won't work and you'll have to call a plumber (which you would have to do
otherwise, anyway. And you'd have lost some time and a bit of money. Is the risk
worth losing $10 in parts?
2. There is really no such thing as permanent security in anything on earth. Not
taking risks is really not more secure than taking them, for your present state can
always be changed without action on your part. If you don't take the risk of dying
by driving to the store, your house could collapse on you and kill you anyway.
3. You are supposed to be afraid when you risk. Admit your fears--of loss, of
rejection, of failure.
4. Risking normally involves a degree of separation anxiety--the anxiety you feel
whenever you are removed from something that makes you feel secure. Many
children feel this when they first leave their parents for school. Some college
students feel this when they go off to college. Travelers sometimes feel it when
they get homesick.
Risk Management Strategies
In order of precedence, the strategies are:

18. 1. Dismiss extremely remote or unrealistic possibilities. For example, in the
decision, Shall I go to the store? there are risks like dying on the freeway, being
shot by robbers, buying poisoned food, and so forth, but these should not normally
enter into the risk evaluation because they are highly if not extremely improbable.
Remember that all life is accompanied by risk. Ten thousand television sets catch
fire each year, a hundred thousand people walk through plate glass each year,
125,000 do-it-yourselfers injure themselves with power tools each year, 70,000
children are injured by toys each year, ten thousand people are poisoned by
aspirin each year. But what are we willing to give up? Some of these are not really
remote, but we are willing to take the risk. E.g. automobile deaths. 1 chance in
4000 each year of dying.
And of course whenever you trust someone, you risk betrayal; when you open
yourself, you risk exploitation or ridicule; whenever you hand over a dollar, you
risk being defrauded.
2. Insofar as possible, avoid catastrophes. If there is a small but significant chance
for catastrophe, then the regular expected value calculations may not apply.
A major principle of risk management is to avoid any real risk of catastrophe at
any reasonable cost. The difficulty of applying this principle comes from the
uncertainty of what is a real risk and what is a reasonable cost.
3. Recognize the tradeoffs. Remember that every action of life has some risk to it.
Even when we don't take the risk upon ourselves, risk is often put upon us by the

19. nature of life and society. Eating you risk food poisoning or choking, but you have
to eat or you'll die. Socializing you risk disease, driving or flying you risk
crashing, but in some sense you have to socialize and travel.
4. Maximize Expected Values. Normally, the expected value of each alternative
shows its relative preferability. That is, you are opting for the greatest probability
of the greatest good. Remember, though, that these calculations are guides, and
are based on what may be very subjective probabilities and rewards. You are not
"required by law" to choose any particular alternative
The Evolution of Decision Making: How Leading
Organizations Are Adopting a Data-Driven Culture
The imperative to make better decisions faster has increased the
pressure on organizations and their employees. Research that the
Aberdeen Group conducted in December 2011 found that 65
percent of managers face a shrinking decision window. The call for
timelier decision making is even stronger, as reported by
respondents to the Harvard Business Review Analytic Services
survey: roughly three-quar-ters of respondents feel pressure to
achieve results in less time.
“In the dot-com space, we have in general seven seconds or less to

20. entice the customer; otherwise they will be going to our
competitors,” says Kerem Tomak, vice president of analytics for
Macys.com. “That means we need a laser focus on how we deliver
products and services the minute the customer comes to the site.”
As a result of such pressures, an evolution is occurring in the
development of a data-driven culture, typi-cally based on the use of
analytics and business intelligence. The evolution can be delineated
by a series of key developments explored in this paper:
ππTime Pressure Increasing. The need for more timely decision
making is pervasive in an ever more competitive global market.
ππStandardized Processes. Decision-making processes are
becoming more standardized, with data as the foundation and
starting point for discussions.
ππEmergence of Analytics Leaders. Mature analytics users have
refined their decision-making process-es as part of a data-driven
culture and achieved superior financial performance.
ππSkills Expanding. To meet the heightened demands for faster
and better decision making, business users are developing

21. stronger skills in using analytics tools and integrating them into
the fabric of how they work.
ππMore Careful Use of Managerial Judgment. While the reliance
on data is paramount, decision-making processes include adding in
industry practices, experience, and other forms of managerial
judgment.
ππ “Ecosystem” Emerging. Organizations at the forefront of
analytics adoption create an “analytics ecosystem” over time
that encourages data-driven decisions. As a part of this,
business users are

22. Decision-Making Processes Figure 1
QUESTION: Which of the following most closely describes your
organization’s decision-making process?
We have a formal, corporate-wide decision-
making process
27
%
Most functional areas have their own
standard process
22
%
A standard process is followed across some
areas, but not all
19
%
There is little or no consistency in our
decision-making process
14
%
I have no visibility into the decision-making
process outside my area of the organization
9
%
We have an informal corporate-wide
decision-making process
8
%

23. forging deeper, more consultative relationships with analysts who
in the past were simply viewed as “report producers.”
ππStages of Evolution. A clear pattern is emerging about the
stages of how these analytics ecosystems evolve within
organizations.
ππBest Practices Developing. A series of best practices evolve as
organizations create an analytics ecosystem that prizes data-
based decisions. These practices typically include training,
sharing KPIs widely, and promoting transparency in decision
making.
This paper leverages the survey findings and interviews to trace this
important evolution in the use of BI/ analytics, the challenges users
face, and the frustration some feel about the current way that
decisions are typically made.
DECISION-MAKING CHALLENGES

24. While respondents’ companies usually recognize the need to step
up decision-making abilities, many don’t have all the processes in
place to meet the challenge. For example, only a quarter of those in
the survey have a formal, corporate-wide decision-making process.
One-fifth say their decision-making processes are inconsistent or at
best an informal process. Figure 1 And tellingly, companies with
flawed decision-making processes are far less likely to use
analytics when making decisions.
Survey respondents noted frustration with their organizations’ current
states of decision making.
“The majority of my peers rely on intuition or simply agree with
upper management, as they trust they got there for a reason,” says a
mining company executive. “I am usually alone when voicing
concern, which is not done to criticize—it is to point out areas of
opportunity to excel.” He noted that an overreliance on managerial
intuition brings a decided haphazardness to the decision-making
process. “Often decisions are made to see if the change works out,
and if it doesn’t, then we can always go back to how it was or try
something new,” he says. “With this approach we may get lucky;
however, the risk of a negative impact is larger.”

25. Indeed, a sizable number of survey respondents indicate flaws in
their organizations’ approaches to decision making. More than a
third say their managers use judgment rather than data to make
decisions. In addition, nearly half of respondents say that there is
little transparency about how key decisions are made. Figure 2
ANALYTICS LEADERS: A NEW APPROACH BEGINS TO EMERGE
One group of survey respondents stands apart from the others in the
use of data to drive decisions. This group comprises organizations
that have integrated the use of analytics corporate wide, and they
display a host of other characteristics, according to survey
respondents:
ππSelf-defined high level of
analytical maturity ππA data-
based decision-making culture
ππDecision-making

26. transparency ππCorporate-wide
decision-making processes
ππGreater use of analytics in real-time decision making
ππEmphasis on the use of managerial insights as
a supplement to the data ππContinual refinement
and testing of new ideas
The Harvard Business Review Analytic Services survey finds that
11 percent of the responding organiza-tions are in the group that has
integrated analytics across the entire organization. Figure 3
It is important to note that while these analytics leaders come from
a wide range of industries, regions, and sizes, it is striking that they
share a well-defined approach to decision making that has yielded
sub-stantial benefits.
A hallmark of the analytics leaders is the bigger impact made by
analytics, as measured by improved financial performance, increased
productivity, reduced risks and costs, and faster decision making.
Survey respondents who qualify as analytics leaders reported that
their organizations are achieving these benefits at a much higher rate
than are other organizations. Figure 4

27. ANALYTICS IS CHANGING INDIVIDUALS AND
ORGANIZATIONS
Another important finding is the way in which the role of decision
makers is changing. The deluge of data from social media, emails,
videos, presentations, and other nontraditional sources of information
gives executives an unprecedented ability to understand their
customers and businesses, anticipate challenges, and identify
opportunities.
To fully exploit the opportunities and resolve the challenges,
executives, managers, and professionals are cultivating new skills to
understand what data is important and to dive deeper into the
numbers to make and test their assumptions and decisions. At the
same time they are forging new—and deeper—relation-ships with
analytics professionals, elevating them to the position of trusted
internal consultant.

28. Eight out of ten say they are reliant on data in their roles. Almost
three-quarters say their areas rely on data to make decisions. And
roughly the same majority also predict that their organizations’
overall reli-ance on internal data will increase in two years.
So it’s no surprise that over half of respondents (52 percent) say they
have had to improve their analytics skills, while just under half (44
percent) have taken action to improve staff analytical skill levels.
Almost three-quarters of the individuals who have identified their
companies as analytics leaders say they had to enhance their
analytical skills—a key finding about the pathway to becoming an
analytics leader. Figure 5
Macys.com provides a telling example of how executives are
reshaping their roles through analytics. The retailer uses visualization
in its online channel for business and customer insights as well as a
way to set the stage for predictive analytics modeling. A significant
element is that the impetus for these initiatives comes not from the
information technology (IT) department but from the executives
themselves who want a deeper understanding of the data. “We are

29. seeing more interest from the C-suite and upper-level management in
interacting with the data, so we are deploying interactive dashboards
through portals,” Tomak says.
For example, the online retailer implemented an international
shipment dashboard that can reveal which countries are generating
the highest sales. The executive can look at the heat map of the world
and drill down to the key issues, such as delivery delays, in each
country. “This allows the executives to really understand the driving
forces behind key business units and components,” he says. “They
can visualize the source of the data and get an easier grasp of the
connections that are creating different trends. They can make faster
decisions that way.”
Overall, only 25 percent of companies in the survey report using
interactive data visualization to date. However, analytics leaders such
as P&G’s Passerini stress the need for such tools, which are fairly
new, to enable decision makers at all ranks throughout the
organization to quickly profit from the use of analytics.
“We’ve been using analytics for many, many years, but the difference
now is we’re blending analytics and visualization tools, which makes
the analytics much more compelling and much easier to use,” the

30. CIO says. P&G employees have access to a visualization-laden
desktop cockpit to monitor key metrics in real time as well as to
receive alerts. “We have the ability to bring to life for the line
managers what is going on in the business in real time, so they can
focus on specific issues. Essentially, we are able to manage the
business by exception.”
While P&G’s reshaping of the roles of the entire staff may be
unusual, it is clear that the professional lives of decision makers
from the corner office to the call center have evolved due to
analytics. “It is the democratization of data,” says Clifford Hodges,
regional manager, General Motors International Opera-tions
leadtime reduction. “Before, the data was in the hands of only a few
highly trained people. Now, many executives can use pivot tables
and formulae and drop and drag information to come to their own
informed decisions quickly. You can be your own Jedi master of the
data.”

31. NEW ROLE OF MANAGERIAL JUDGMENT
As the evolution toward data-driven decisions occurs, the current
stage of decision-making evolution is to judiciously add management
judgment to form real-world insights about the data. As Michael
Pierce, cus-tomer service manager at Bosch Security Systems, says,
“Personally, I run with analysis first, and during the research I will
listen to my intuition. When my gut does not agree with my
decision—and all analytics show it is the correct one—I pay closer
attention to the results.” As this suggests, business users are seeing
that making the right decision in a timely manner is a matter of
balancing data analysis with judgment.
Another key development uncovered by the survey is how the use of
analytics is improving the standing of executives, managers, and
professionals in their organizations. More than four in ten of those in
the survey say that analytics has increased the importance of their
functional area within their organizations.
Figure 5

32. FIVE STAGES OF ANALYTICS EVOLUTION
The change in skills and decision-making processes is an evolutionary
process. In our interviews with respondents who are analytics leaders,
we identified a series of steps in how they initiated and spread
analytics throughout the organization, developing the “analytics
ecosystem” that marks organizations that are leading the charge
toward a data-driven culture. It is important to point out that use of
analytics, like most business and technology initiatives, is not a neat
and tidy process and that not every company goes through the exact
same progression. And in large companies, different departments may
be traveling the same road at different speeds and with more or fewer
stop signs.
Another caveat: Thomas Davenport, coauthor of the best seller
Competing on Analytics and other books on decision making, notes
that a company can be jump-started into its analytics journey when a
key C-level executive who mandates the technology’s use comes
aboard. In his books and articles he cites the arrival of Gary Loveman
as a vice president and later as CEO at Harrah’s as the beginning of
its transition to a data-driven culture.

33. That said, there is often a progression in developing
an analytics culture shaped around better and faster
decision making. Harvard Business Review Analytic
Services interviews and other research found five
stages.
VERRELIANCE ON MANAGERIAL JUDGMENT
SUCH AS INTUITION AND INSTINCTS
Companies at the early stages are often start-ups or have
leaders who tend to maintain a firm control of all
decision making. The way in which they use information
is highly unstructured, and often they resist change. The
dangers of excessively relying on managerial instinct and
experience alone are manifest. As Davenport points out,
sometimes intuitive and experience-based decisions work
out well, but often they either go astray or end in
disaster. The results can range from companies making
poor hiring decisions based on hunches to executives
pursuing mergers and acquisitions driven by intuition to

34. palliate their egos. As noted earlier, roughly four out of
ten survey respondents say that their managers too often
based decisions more on judgment rather than on data.
Figure 4
Of course, management judgment remains the most
common factor in decision making even today—84
percent of survey respondents say it was a strong factor,
and a large number of them rated it as the top factor.
Notice that internal data is the second-most-influential
factor. Figure 6
There is often resistance to move to a data-driven culture.
“The initial stage of the evolution was an inher-ent
mistrust of statistics,” says Jim Bander, national manager
of decision sciences in the Risk Management department
of Toyota Financial Services. “They were skeptical that
we had it right.”
SILOED USE OF ANALYTICS IN A FEW DEPARTMENTS
Typically analytics first take hold in a siloed manner,
where they are not integrated into company-wide

35. decision making. They are usually a response to a
specific challenge in a high-profile department, such as
finance or marketing. The siloed and focused nature of
the implementation often means that workers do not
develop a deep grasp of the power of data-driven
decisions and so do not develop the necessary skill set to
appreciate or use analytics. Top executives and even line
managers may lack the analytical skills to “question”
data. In addition, the data neophytes are not able to
balance the insights from the data with their managerial
instincts and experience. Essentially, many individuals at
companies in Stage 2 don’t understand the possibilities
of analytics.
“Having data and knowing how to use it are two
completely different things,” explains Brian Holman,
direc-tor of customer support for The Standard, a
Portland, Oregon-based insurance company. “Knowing
how to use data to understand the marketplace, motivate
employees, and drive performance is a learned skill.”
Because of the siloed nature of the analytics initiatives,
there can be departmental discrepancies and duplicated

36. efforts. These companies can have trouble encouraging
interdepartmental collaboration and
STAGE 3: EXPANDING USE OF ANALYTICS IN SEVERAL
DEPARTMENTS, NOTED BY AN INCREASING AMOUNT
OF COLLABORATION
After companies have had success using analytics to resolve or better
manage narrow but important chal-lenges, the technology begins to
expand to a few other departments. This stage is typified by
structured use of analytics, with a disciplined decision-making
process in those units. Executives and line manag-ers have learned to

37. rely on past data to identify trends but also are comfortable using
their managerial instincts and experience to consistently pose new
hypothesis, launch experiments, and test and improve.
Says J.P. Morgan’s Williams, individuals at this stage “look at the
past data for information on trends, patterns, or insights, and they ask
great questions—‘How come?’ and then ‘What if?’” They also test
their theories and then run small experiments so that they can use
analytics to verify, reject, or modify the theses quickly and often
relatively cheaply.
Companies at this level begin to develop integrated knowledge
systems that balance departmental goals with enterprise goals.
Analytics becomes integrated in the culture of these divisions—it is
recognized as an essential corporate asset.
What is interesting is how this approach mixes both data and
managerial instincts. “Gut feel is still valu-able because there are
always multiple paths for any project, and based on your experience
and intrinsic knowledge of a domain you can eliminate a lot of
options that don’t make sense,” says Oseyi Gregory Ikuenobe, an IT
architect at Monsanto. “And that permits a more rigorous process for
the better options to determine which is the most valuable.”