As noted in a recent issue of the Economist, “the world’s most valuable resource is no longer oil, but data.” As the digital revolution steadily transforms our economy, we are producing data in record volumes. By one estimate, more data has been produced in the last 2 years than in all of human history before that.
While the sheer volume of data is indisputable, what makes data so valuable? First, data allows companies to monitor their performance, and compare it against meaningful benchmarks, competitor performance, or the general marketplace. Second, data offers an unprecedented window into customers’ preferences, needs, and behaviours.
In a well-functioning data-driven organization, insights into company performance and consumer behaviour offer decision-makers the information they need to make smarter decisions, resulting in better return on investment (ROI). Indeed, a study by the Economist Intelligence Unit found that companies who describe themselves as data-driven were three times as likely to rate themselves ahead of their competitors in terms of financial performance.
However, just as crude oil is not very useful without refinement, raw data is of minimal utility. Data is only valuable to the extent that relevant insights can be extracted from it. And in spite of the gains that data-driven companies are realizing in the marketplace, many companies are struggling to effectively integrate data insights with decision-making. According to a 2016 study of 300 senior executives in 16 countries, published by the Association of International Certified Professional Accountants (CGMA), only 27% of C-level executives believe that their company makes “highly effective” use of data. Meanwhile, 32% of executives claimed that the tidal wave of data now available has actually made things worse!
Many decision-makers are (understandably) overwhelmed by the volume of information now available to them. In their book by the same title, seasoned business executives Christopher J Frank and Paul Magnone call this phenomenon “drinking from the fire hose.” How can decision-makers – already stretched thin with a thousand competing priorities – harness the value of their data to make better decisions about how to serve their customers?
As noted in the CGMA report (p. 13): “High-quality decision making has never been more important—or more difficult.”
Although we now have access to information like never before, this is not the first time our species has faced information overload. In fact, long before smartphone and computers were ever invented, we already faced a deluge of information! And even if we manage to set aside our digital tools today, we are still encountering more information than our brains can process.
Where is this information coming from? It is arriving from the world around us through our sense organs: our eyes, ears, nose, tongue, and skin. Our brain is constantly being blasted by signals from our sense organs.
There is way more information available in the world than we have cognitive resources to process, and even less that we have attentional resources to process consciously. Yet, somehow, we must make our way through the world through a series of decisions. How do we do this?
Our brains find a way to narrow down the available information, to focus on the most relevant pieces.
To demonstrate, take a look at the flashing image below. It is alternating between two images with one significant difference between them. Can you spot it?
Are you still looking? It often takes several seconds, sometimes even minutes, to spot the difference. Yet as soon as you have spotted it, the difference between the images seems totally obvious and difficult not to see! (If you’re stuck, the answer is provided at the bottom of this post.)
In Psychology, this phenomenon is known as change blindness. It is one of my personal favourite illustrations to demonstrate just how much information is outside of our awareness. Even when we feel that we are absorbing most visual information in the world, the amount of information that we are consciously processing is actually very small.
The brain has evolved to deal with large volumes of sensory inputs through selective filtering. This means we pay attention to a small sliver of information available to us, and ignore the rest. We filter out details that are unlikely to be important, in order to preserve our precious cognitive resources. In this way, we manage to not go completely insane by the amount of information arriving at us on a continual basis through our sense organs.
Data – the second information deluge
Although the phenomenon of information overload may not be new, we are now facing a second form of information overload. This time, rather than sensory information arriving through our eyes, ears, and other sensory organs, the information is coming at us in digital format. We have evolved over hundreds of millions of years to deal with sensory information, but only in the last one or two decades have we begun to face a true tidal wave of digital information.
Data may be the new oil – but how do we harness it? How can decision-makers maintain their sanity when confronting a tidal wave of digital information?
Investing in data infrastructure and human resources (such as analysts, data engineers, and data scientists) is part of the solution. However, ultimately, for data to be useful, it needs to feed into decision-making – which means anyone in a decision-making role needs to be able to access and make use of data insights. And this means decision-makers need to shift away from asking, “How can I use all this information?” to asking, “What information is important, and what can be ignored?” In other words, how can we put filters on the data to find what’s really important to us?
In their book, “Drinking from the Fire Hose: Making Smarter Decisions Without Drowning in Information,” Christopher Frank and Paul Magnone suggest that decision-makers start by asking themselves: “What is the essential business question?”
“Think of that question as a valve, or a filter, on the data hose. It puts you in control. It governs the rate, flow and direction of the data you collect and manipulate, and even helps determine how you’ll be able to deliver it.” (Ch. 1, par. 3)
The volume of data humans produce, already staggeringly high, is estimated to grow at 40% per year. As the digital revolution continues to unfold, every company becomes a digital company. Meanwhile, organizations are still figuring out exactly how to make use of the wealth of information suddenly available.
Storing data is not enough. The organizations that see the biggest advantages from data are the ones who know what information they need and how to hone in on it. By starting with the essential question, decision-makers can apply selective filtering to their data. This means they remain in the drivers seat, fuelling their decisions with powerful insights data provides.
(Answer to the change blindness demo: on one of the images, the airplane is missing a propeller under its wing).
We are in the midst of a digital revolution. Technology is rapidly transforming our world, and data is being produced at unprecedented volumes. How will these changes impact the way we make decisions? Can we harness the power of data to shape our world for the better?
If you’re like me, you find these questions fascinating and invigorating. Most of us are aware that the proliferation of digital technology and its by-product, data, offers incredible opportunities – and unknowns.
On the one hand, the new wealth of information offers tremendous potential for understanding our world. We are rapidly developing new tools and techniques to gain insights from this raw digital material. This means our decisions can be more informed than ever before.
On the other hand, the incredible pace of change can inspire fear and concern. Technology will certainly lead to changes in the economy: machines are already displacing the work of humans, and this trend is bound to continue. Nowadays, each of us produces a growing digital “signature” as we engage in our day-to-day activities, and the world’s most powerful corporations own the bulk of our personal data. With our personal data being bought and sold as a commodity, what will this mean for our future?
Whether you’re an optimist or a pessimist, it is difficult to deny the transformational impact of the digital revolution. In the midst of these changes, in this blog, I will explore questions and topics at the intersections of data, psychology, and society.
As a researcher in behavioural economics and psychology, I examined how we make decisions and the “cognitive architecture” behind them. Since entering the workforce, I have been helping tech and social enterprise organizations use data to their advantage. My interests lie at the intersection of the following three areas:
In this blog, I hope to contribute to conversations in these areas. If anything interests you, please don't hesitate to get in touch. Thanks for reading!