Data-driven Management – has Intuition had its day?
Which decisions are better? Intuitive decisions from the gut or rational decisions based on data and facts?
This question occupies countless researchers, and there is still no clear answer. Currently, in the age of big data, data mining and digitization, the importance of data for a business is undeniable. In the business world, executives prefer analytically sound decisions. They are verifiable, justifiable, and data can explain them.
In reality, however, the situation is different.
According to Scherm et al., many managers in companies make intuitive decisions. However, if such a decision-maker is wrong and admits to having made intuitive decisions, he is considered dubious.
However, is that also the case?
In this article, we provide a brief insight into decision research. On this basis, combined with the current conditions of B2B sales, we give sales managers our recommendation for efficient decision making.
Where does intuition come from, and what are its strengths and weaknesses?
Good intuition does not come from a clear sixth sense or a supernatural ability. It comes from one’s own experience. In short, intuition is also based on data.
Scherm et al. states in a chapter of the book “Sustainable Decision Making” that intuition can do two things:
1) It recognizes patterns from experiences already gathered and sorts them into “successful” and “unsuccessful”. It is essential to know what synapses are to understand this process. In short, synapses are nerve connections that are activating specific actions.
In a successful action, the brain strengthens those synapses that were responsible for this action. Conversely, if the effort is unsuccessful, the responsible synapses are weakened.
Through these strengthened synapses, connected with an individual action/decision, our gut feeling develops. If a situation occurs with an already known, similar pattern, our gut instinct is triggered and leads us in a particular direction. Our neuronal network ensures that we repeat a successful action.
2) Besides, intuition can bring us to “improvise”. Improvising does not mean merely repeating a successful action in a similar situation (as in point 1). No, intuition can also make us fully grasp the new context and make adjustments – i.e. improvise – like a passionate jazz musician on a stage.
As the experience progresses and with many variants of similar situations, our intuition improves. This point means that experienced salespeople and managers probably have a good intuition for sales decisions.
This point means that experienced salespeople and managers probably have a good intuition for sales decisions.
That all sounds pretty good, doesn’t it? If you still consider that we make intuitive decisions exceptionally quickly and without analytical effort, why don’t experienced experts always make decisions from the gut?
Because intuition also has a few weaknesses over well-founded, rational data analysis:
A decision maker’s experiences (i.e. “data”) are unconsciously processed, and he has no influence on which of the many are responsible for his gut feeling. The decision-maker cannot rationally explain why he is deciding because it is intuitive. This last idea also means that other participants cannot reasonably understand the decisions.
Moreover, one’s own experience is limited in time and space and may be subject to distortions.
If, for example, a successful and experienced sales executive is on regular contact with a customer, he might believe that it is a loyal customer and will never churn.
However, a churn reduction software using machine learning and millions of data points might signalize a high risk. The executive is not wrong, per se. It is just that the machine has more data, computing power – more experience, one may say.
Which decisions require gut feeling and when data & facts?
Scherm et al. also explores this question in his work. An exciting finding of his research is that the ambiguity of information can distinguish intuitive and analytical decision making. In situations with high uncertainty or interpretability, he recommends an instinctive decision. On the other hand, data analysis should solve cases with evident characteristics.
Situations with high uncertainty or interpretability Scherm recommends an instinctive decision. Data analysis should solve cases with evident characteristics.
However, what does this mean in practice?
A typical example of an ambiguous situation is the hire of a new sales representative. On the one hand, there are facts in the form of job references, work experience or references. On the other hand, the interview is a very ambiguous situation. Hiring managers can read it in different ways and decide according to their intuition – possibly even against all facts. That’s fine as per Dr Scherm.
As a counterexample to ambiguous situations, we make the decision of a sales manager which of his customers need more attention. In such a case, precise data and information (which customers have bought little recently, which customers have the potential to buy more?) help to maintain an overview and make informed decisions.
What does this mean for B2B sales and sales managers?
The flood of data today, under the buzzword “Big Data”, should not be underestimated in sales either.
In many situations, programs that analyze data and draw conclusions from it are worth their weight in gold – because above a certain mass of customers and products even the sales manager with the best intuition can no longer keep track of everything.
Unfortunately, the fewest decision situations, in reality, are unambiguous and without any uncertainty. For this reason, our recommendation is: use your existing data and trust your gut feeling for your reactions.
If, for example, a churn reduction software detects that some of your customers could churn, this is essential information for you. In the next step, you decide what to do about it. Here your intuition might kick in. You have already had contact with the customers before, and your gut feeling can tell you which action is appropriate in this situation.
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Data-driven management- has intuition had its day? – Summary
In our opinion, this is a fascinating question. Modern research has not yet found a clear answer to it without reason. In this article, we have not looked at all aspects of this topic.
Although we are a company that offers data analysis software, we believe that one should never underestimate an experienced sales manager’s intuition. Intuitive and data-based decisions complement each other at best.
Many factors shape a decision situation. Data analyses are verifiable, rationally justifiable and can contain a large amount of data so that no distortions arise. In contrast, according to Scherm et al., intuition can capture a starting position holistically and conclude ambiguous situations.
Our recommendation: use your data and trust your gut feeling.
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Scherm, E. et. al. (2016): Intuitive versus analytische Entscheidungen – Überlegungen zur situativen Stimmigkeit. Hg: Ahn, H. et al., p. 299 – 318