This article is the first part of a series of articles on the theme ‘How data can – and cannot – drive our future’.
These days, data is widely regarded as a new – and increasingly important – currency in our world, with more and more of us exploring how we can harness the wealth of insights it provides. Questions like “what does the data tell us” and “can we gather data about X to decide Y” permeate many settings today. From the tracking of key business metrics like revenue and run rate, to OKRs that vary across functions and teams, organizations are calling for data to guide decision-making. The term ‘data-driven’ has become a buzzword, with many organizations putting data at the centre of all business decisions.
Yet, we are also realizing that data is not the be-all and end-all of things. This has given rise to the term ‘data informed’, which advocates for the combined use of data, context, intuition and experience to arrive at decisions. With executives like Instagram Head Adam Mosseri and Vox Media CEO Jim Bankoff calling for a shift from being data-driven to data-informed, the latter has been recognised as the ‘better’ approach.
Though is that necessarily the case? As cliché as it might sound, I’d argue that it depends, and that we need to be more than data-driven and data-informed to thrive in today’s world.
But first, let’s take a closer look at these two terms.
To better understand the difference between being data-driven and data-informed, let’s turn to a hypothetical scenario. Say you manage cosmetic sales, and you want to increase traffic to your e-commerce store. You try a few methods and realize that the banner ads placed on influencer blogs drove the most traffic to your site.
Being data-driven: Clicks have gone up. Web traffic too. Same for revenue, with the increase in purchases. All the key business metrics have seen improvements. Awesome! Let’s put more banner ads on influencer blogs, especially those that have higher click-through rates.
Being data-informed: It’s great that all the key business metrics have improved, after placing banner ads on influencer blogs. But let’s dive deeper, and ask who these influencers are. Do we want them – or influencers in general – to be promoting our products, and by extension, our brand? How does our target audience perceive these influencers? Let’s also take a look at our counter metrics. The exit rate has also increased. Seems like we might not be reaching our target audience, if they only spend fewer than three seconds on our site. Or our content might not be attractive enough.
In a data-driven approach, data is at the centre of the decision-making process. It is the primary input, and in many cases, the only input.
Yet, relying on data alone to chart the steps forward can be limiting, and may lead to sub-optimal decisions being made. Say you start to put more banner ads on influencer blogs. Users start to associate your brand with influencers, which may not serve your business well. We are also assuming that the data generated is robust and free from bias, which is often not the case.
Recognizing this, there have been calls to shift from being data-driven to data-informed. In a data-informed setting, data is but just one of the key inputs among other factors. Brand positioning and counter-metrics, for example, are taken into consideration with data when making decisions.
The whole idea is that data, while important, does not paint the full picture of our perceptions, behaviors and experiences. We need to turn to other factors to help make better decisions, including our own intuition and past experiences. Have a nagging feeling that engaging (certain) influencers might not be the best for your brand? Pay attention to it. Learned from a past project that higher visitor traffic need not generate more sales? Apply this learning.
With that, it is easy to conclude that a data-informed approach is ‘superior’, and that we should strive for this. That said, there are also situations where being data-driven is the more appropriate approach.
So when should we be data-driven, and when should we be data-informed? This might sound cliché, but it really depends. I’d argue that there are three huge factors to consider: the purpose behind your decision, the nature of the problem you are solving, and the size of your company.
1. Purpose of the business decision
As a rule of thumb, be data-driven when looking to validate a decision, and be data-informed when looking to create a new product.
When validating a decision, data is crucial. Say you revamped your company’s website one month ago, and you want to find out whether it has drawn increased traffic. You would want to collect the past month’s data on the number of visits, average time spent and the number of clicks on page elements, before comparing it with historical data. If there are observed increases in all three metrics, we can say that the decision to revamp the website – and the eventual output – was a productive one. In such instances, being data-driven is still the best approach to take to validate business decisions.
But what if you want to launch a new product, or disrupt the existing market? The success of these plans will not be measured by the same metrics that you have always been using. It is also hard to know what metrics you should aim or optimize for at the start, not to mention what data you should gather to evaluate these metrics. Here is where it becomes key to rely on experience, instinct and yes, even data, to chart into new territories. This is essentially a data-informed approach, where multiple sources (including data) are used in decision-making.
2. Nature of the problem
Ask yourself what the problem is. Are leads dropping off from your website? Have there been increases in customer complaints? Or are you sensing that your product is reaching its maturity stage?
These problems paint very different pictures, and thus require different (combination of) inputs when devising solutions to them. The more you understand the problem and what is needed to solve it, the easier it would be to pick the approach that allows you to do so.
If leads are dropping off from your website, a good place to start is to focus on data. Look at the funnel of traffic entering your site, and identify instances where people abandon the checkout process. Is it at the page where they have to register for an account? Or at the shopping cart page, before users proceed to checkout their products? Data can pinpoint where and when the drop-offs are, allowing you to zero in on these instances and kickstart the solutioning process.
But if your product is nearing maturity stage, it is crucial to bring something new to the table. This could come in the form of product enhancements, extensions or, as we see from Apple, rollout of new products to pique customers’ interest. In such instances, you probably will turn to a few disparate pieces of data, generate some ideas, and evaluate their technical and economic feasibility before implementing them (or not). Data is but only one piece of a myriad of factors that you should consider.
3. Size of your company
For smaller companies or companies that have just started out, aim to be more data-driven. At this stage, it is more about finding out whether your product works and if you need to make modifications to it. You probably will not need all the data you have. But the more data you have, the better hypotheses you can generate about your product, and that is key to improving it and growing its reach.
Being data-driven also pushes your company to put in a place a mechanism to gather and analyze data efficiently. This sets the groundwork for your company to scale more effectively – the focus of any small and/or new company.
For larger and more established companies, your focus will be different. At this stage, while new customer acquisition is important, it is also about customer retention and preventing your product(s) from reaching the maturity stage. The company must find ways to create value for its customers. That requires a deep understanding of market opportunities and challenges, its internal capabilities and resources, as well as those of its competitors. Data can be used to gather insights and develop solutions, but we should not and cannot rely on it 100 percent.
It really depends. Yes, that sounds noncommittal, but it is the most practical and honest answer. Both data-driven and data-informed approaches have their merits and drawbacks and must be applied differently. No one approach is best under all circumstances, despite what some out there might claim.
For all companies, the ‘right’ step forward is to consider the factors listed above, before deciding which approach to pursue. Put it simply, it is not so much about which approach to use, but what and when it is used for your business. The best companies are those that can combine and switch between being data-driven and data-informed, when relevant, to extract insightful findings and use them to drive business decisions.