Using Data to Make Better Business Decisions

Nicolai PogrebnyakovCopenhagen Business School

nicolaip@cbs.dk

IT Spring, Minsk, Belarus, May 16, 2015

German tanks in World War II

How many tanks are produced by Nazi Germany?

Date

Intelligence

estimate

Statistical

estimateActua

l

June 1940 1,000 169 122

June 1941 1,550 244 271

August 1942

1,550 327 342

Average tank monthly production

Richard Ruggles and Henry Brodie (1947). “An empirical approach to economic intelligence in World War II,” Journal of the American Statistical Association, 42, pp. 72—

91.

Intuition doesn’t always work• Radiologists asked to diagnose

X-rays– Showed same X-rays to same

individuals in 2 weeks: 59% consistency

• Auditors judged degree of financialcontrol– Same cases presented again in several

minutes: 59% consistency

• Accountants evaluated legality of tax arrangements– Same cases presented in 1—2 months: 77%

consistencyC. Chet Miller and Duane Ireland (2005). “Intuition in strategic decision-

making,” Academy of Management Executive, 19, pp. 19—30.

Decisions based on data

Use data to convert experience and intuition into information, diagnosis and recommendations

Peter Drucker (1989). The New Realities

Settings

Which decisions

• Should I hire this person or that?

• Should I allow my employees to work from home?

• How can we better focus our sales efforts?

• How can we reduce waste in our operations?

• Should we go for or ?

• Should I learn Python or Scala?

• Should I promote that person?

• If I sail west, when will I arrive to India?

Click me

Click me

Human resources

• Should I hire this person or that?– Past experience: doesn’t result in better

performance

– University grades: ? [Johnson & Johnson and Goldman Sachs vs. Google]

– Filled out job application on a non-default browser (Chrome, Firefox)

• How many times should we interview a candidate?– Accuracy of hiring decision stable at ~85%

after 4 interviews

Max Nisen (2015) “Do grades matter?”, qz.com;The Economist (2013). “Big data and hiring: Robot recruiters”

Eric Schmidt and Jonathan Rosenberg (2014). How Google Works

Management

Should I allow my employees to work from home?– Marissa Mayer at Yahoo

– VPN logs

– Some employees never logged in

"People [have been] slacking off like crazy, not being available. It was a great way to get Y! to pay you while you put in minimal work and do your side startup."

Nicholas Carlson (2013). “How Marissa Mayer figured out work-at-home Yahoos were slacking off” and “Ex-Yahoos confess”, businessinsider.com

Marketing & Sales

How can we better focus our sales efforts?

Building products company:

1. Segmented into small geographic areas

2. Examined growth potential in each• Terrain, age of houses

3. Identified market share in each and why low/high• Number of sales reps, marketing budget

4. Moved reps and money to top 20% of high growth and low market share areasManish Goyal et al. (2012). “Selling into micromarkets,” Harvard Business Review, Jul-Aug, pp. 1—9

Operations

Where should we plant wheat?– Each square is 5x5

meters

– Variation due to soiltypes, moisture

Dan Charles (2014). “Should farmers give John Deere and Monsanto their data?”, npr.org

Making it work

• Identify the business issue

• Identify sources of data– Data best understood by those close to the

issue

– Determine what you know now

• Collect data: estimations, experiments etc.

• Make data-based decisions the norm

• Benefits: 5—6% increase in company productivity and output

Douglas Hubbard (2010). How to Measure Anything; Thomas Davenport (2009). “How to design smart business experiments,” Havard Business Review, Feb.

Erik Brynjolfsson et al. (2011). “How does data-driven decisionmaking affect firm performance?” SSRN paper

1819486

Collecting data

Marketing experiment at Harrah’s

1. Control group: $125 package (traditional)– Free room, 2 steaks, $30 in casino chips

2. Test group: $60 in chips

• $60 offer resulted in much more gambling

Christina Binkley (2000). “Lucky numbers,” Wall Street Journal, May 4

Easier than it may seem

If I sail west, when will I arrive to India?

Eratosthenes (3rd century BC) Columbus (15th century AD)

“If we have facts, let’s look at facts. If all we

have are opinions, let’s go with mine.”

—James Barksdale

Thank you