In this post, we’ll cover the definition, characteristics, challenges, and benefits of being a data-driven business as well as the steps to becoming a data-driven business by using data to improve performance and inform strategy and decision-making.
What is a data-driven business?
A data-driven business uses data to not only make decisions but also to improve processes to acquire and retain customers which leads to increased revenue. It’s popular now for businesses to say they’re “data-driven,” but in this post, we’ll show you how to recognize the traits of a truly data-driven business and outline how to become a data-driven business.
Every business inherently has data, but not every business uses data to make critical business decisions methodically and systematically. A shocking amount of businesses still rely on gut feelings and past experiences to guide decision-making. EY conducted a study that found that “81% of [businesses] agree that data should be at the heart of all decision making,” but only 31% of businesses have the operations infrastructure in place to do so.
What are the traits of a data-driven business?
The top three traits of Data-driven businesses include the drive to:
- Better understand customers
- Improve products and services
- improve management of existing data
A data-driven business's strategy is based on quantitative facts and trends and not gut feeling. A data-driven business can admit when its assumptions are incorrect and are able to prioritize continuous improvement (aka kaizen). In the pursuit of kaizen, a data-driven business chases after new technologies with a purpose rather than burning through money with no focus and using technology for the sake of saying they use that technology. Additionally, data-driven businesses have strong leadership buy-in and appropriate investment.
What are the challenges associated with being a data-driven business?
Becoming a data-driven business isn't a kaizen cakewalk. If there isn't leadership buy-in and appropriate investment then a business will never truly be data-driven. The challenges stem from a lack of trust in data. People are used to making decisions based on gut feeling and past experience (qualitative data, not quantitative). Not having a single source of truth and being able to have the right data at the right time causes a lot of mistrust in the data.
Another challenge is data lifestyle creep, or the need to try to keep up with other businesses. Every business has data and there's value in that data, but being a "data-driven business" is also a very hot buzzword now and companies can say they're data-driven without truly being data-driven. 56% of companies say “data-driven” is just a slogan in their company.
Data governance and ownership are vital to remove the feeling of "data FOMO" by having too much data in too many places — again, it's all about having the right data, in the right place, at the right time.
What are the benefits associated with being a data-driven business?
We've discussed the challenges of becoming a data-driven business, but what about the benefits?
Data-driven businesses are 23x more likely to acquire customers, 6x more likely to retain those customers, and 19x more likely to be profitable. By investing strategically in data analytics (starting in the c-suite!) decisions can be based on evidence rather than emotions, gut feeling, or vibes which leads to business intelligence. Business Intelligence (BI), according to IBM, is "technology that enables data preparation, data mining, management, and visualization. BI tools allow end-users to identify actionable information from raw data, facilitating data-driven decision-making within organizations across various industries.”
BI tools should be self-service to reduce IT dependencies to enable decision-makers to recognize gaps or identify new trends and new opportunities faster. We talk about this more in-depth in our Business Intelligence ebook! You can also gauge where your organization is on its BI journey by taking our assessment.
