America’s leading companies have been moving away from decisions based on intuition and towards data for more than a decade. Amazon, Google, Netflix and Facebook are constantly running experiments in an effort to make better decisions. Experiments are no longer the sole domain of scientists in labs. Today’s leading enterprises employ and master the science of experimentation to improve the art of decision-making.
The familiar scene has played out in 100s if not 1000s of television and cinematic performances: the sage executive ponders strategic alternatives, running each meticulously through their “gut” filter. After a long pause, and some serious hand-wringing, the executive elects to go with their intuition. Cut to the next scene — a victory celebration — the “hunch” paid off and the company is reaping the financial benefits of the executive’s instincts.
Unfortunately, our business reality does not come with a team of screenplay writers and deterministic outcomes. As managers and leaders, you are regularly positioned to make decision with uncertain outcomes. On many occasions our gut — which is really a heuristic model composed of a lifetime of decisions — is the only voice in the conversation. But what if there was another way? What if decisions could be informed by what a customer thinks instead of what you think? What if there was a way to make better decisions?
Experiments connect decision-makers with actual customer behavior. Instead of sitting in an office guessing how customers will react to a change, experiments provide real client feedback. One of the greatest advantages to this approach is the ability for companies to fail small and succeed big!
Companies have varying needs so there is no one single experiment that all companies need to try. That said, there are three areas all companies could experiment — and immediately improve the precision of their decision-making.
- Customer acquisition: Developing strategies to acquire new customers can be a frustrating process. Experiments can reduce frustration and improve an executive’s confidence the new strategy led to acquisition. For example, when Capital One wanted to test the ability of a free transfer promotion to acquire new credit card clients they used an experiment. Capital One randomly selected prospects, sent half the free transfer promotion offer and the other half the standard offer. The free transfer offered worked, they scaled to all prospects and the rest is history.
- Process improvement: For many businesses customers do not differentiate between service delivery and product quality. For entertainment giants like Netflix, this is most definitely the case. If the video stream is slow or interrupted, the product (movie or tv show) is diminished. To continuously improve Netflix continually attempts to improve the technology of video delivery. With each adjustment they run experiments that allow them to assess whether or not the adjustment has improved the customer experience.
- New product development: The problem with any new product is that is new and thus unproven. Experiments provide a tool to test a new product with customers, without leveraging the financial future of the business. Amazon has a long history of this approach to innovation. In fact, many of these innovations have failed like Amazon auctions. Yet Amazon continues to grow and prosper because experiments enable Amazon to test the viability of an idea before sinking too many resources into its operation. This fail small approach allows them to test more innovations than most companies, which also allows them to win big more than most companies.
Think about your work in the three areas above — customer acquisition, process improvement and new product development. How are you making decisions in each area currently? Have you had an experience where customer intelligence would have made for a better decision in each of these areas? Start small, select one tactical decision and design a simple experiment. You are sure to see how the decisions you make have increased precision.
Scott has spent the last several years working with nonprofit organizations, assisting them with program evaluation, market research, commercialization, business planning, strategic planning and board training. His primary research focus is social entrepreneurship and his work in this area has led to publication and several presentations at international and national academic conferences.
About the Author:
Scott Helm, director of the Bloch Executive MBA program, has spent the last several years working with nonprofit organizations, assisting them with program evaluation, market research, commercialization, business planning, strategic planning and board training. His primary research focus is social entrepreneurship and his work in this area has led to publication and several presentations at international and national academic conferences.