Adam Gartenberg's Blog

Business Analytics and Optimization, IBM and Social Marketing

MIT/Wharton: "Data-Driven Decision Making" Boosts Productivity 5-6%

The New York Times this past Sunday reported on a new study by faculty from MIT's Sloan School of Business and the Wharton School that found that companies that adopted "data-driven decision making" practices were able to boost productivity 5-6%.  An important point is that the researchers didn't just look at whether companies are collecting data, but whether they are actually using it to drive decisions, new product introductions, and the like.

According to MIT's Erik Brynjolfsson, those companies that are guided by data, not intuition,  are “harbingers of a trend in how managers make decisions.... And it has huge implications for competitiveness and growth."

From the NY Times article (emphasis mine):

Mr. Brynjolfsson and his colleagues, Lorin Hitt, a professor at the Wharton School of the University of Pennsylvania, and Heekyung Kim, a graduate student at M.I.T., studied 179 large companies. Those that adopted “data-driven decision making” achieved productivity that was 5 to 6 percent higher than could be explained by other factors, including how much the companies invested in technology, the researchers said.

In the study, based on a survey and follow-up interviews, data-driven decision making was defined not only by collecting data, but also by how it is used — or not — in making crucial decisions, like whether to create a new product or service. The central distinction, according to Mr. Brynjolfsson, is between decisions based mainly on “data and analysis” and on the traditional management arts of “experience and intuition.

Of course, if you've been coming to the IOD conference or following this blog, this shouldn't come as a big surprise to you.  To site just one data point, IBM's CFO study found that companies that companies that invest in analytics lead their peers with 49 percent higher revenue growth, 20 times more profit growth, and 3 percent higher return on invested capital.