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LaValle: Are Your Good Instincts, Good Enough?

As our political leaders in Washington grapple with healthcare reform, one aspect that everyone agrees on is the need to drive cost out of the system.

Much of the cost-saving talk has been centered around digital records, and for good reason: With electronic medical records, patient diagnoses and treatment plans can be made more quickly, accurately and effectively than ever before. And more importantly, decisions can be evaluated in the context of vast bodies of clinical and research-based information about treatments and outcomes. The process is dynamic: each new record can become additional intelligence for informing future decisions.

Truth be told, the same conversation should be happening around all business records.

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Although much business information is already digitized, emerging business leaders face similar challenges, and changes, in their ability to apply it.

A recent IBM survey of more than 225 business leaders found that more than one-third have significant challenges in extracting relevant information, using it predictively and using it to understand risk. One in two business leaders indicated they do not have sufficient information from across their organization to do their jobs.

In confronting these gaps, smart business leaders are reconsidering their approach to information and decision-making. Instead of “checking their gut” they’re checking the facts by tapping advanced mathematics expertise for strategic analysis and optimization. Complex algorithms, previously the domain of academics, are now being used to solve formerly intractable business challenges.

More and more, personal experience in problem-solving is no longer enough to run an organization. In a culture where first responders are heroes, for example, firefighters receive few kudos for prevention. “With better information we might have avoided the loss of firefighters’ lives when the Deutsche Bank building, shuttered for seven years following the twin towers attack, took fire and collapsed,” said Bill Eimicke, deputy commissioner of the Fire Department of New York City. "It took this tragedy for us to undertake a rigorous analytic approach to our mission."

Business leaders in all sectors are learning comparable lessons, and in doing so are becoming better decision-makers. With every foray into analytics and optimization, they are able to re-educate their intuition and gain a head start in future situations. For example, a manufacturer finds out that effectiveness of supply chain management improved measurably when information about competitors’ promotions was factored into inventory replenishment calculations. Then, a year later, one of those competitors goes out of business. Now the business has a relevant analytic reference point for evaluating new pricing or acquisition scenarios.

Business analytics also mitigates personal bias.

Product availability, for example, is likely to be a higher priority to a supply chain executive, just as greater market share is to a sales executive. Typically, senior leaders request fact-based recommendations from executives experienced in distinct functional areas. They must then “guesstimate” the probable amount of professional bias in the counsel they receive and seek further input where information seems incomplete. Finally, they make a decision, validate it based on their previous experience, and move forward hoping for the best. Once a tried and true approach to business leadership, it falls woefully short in a world that requires business leaders to be on hair-trigger alert for changes, threats and opportunities.

Increasingly, complexity is no longer a barrier to better decision making.

Is there a trove of unexamined information about suppliers or customers in departmental databases -- or in blogs and social networking sites? Business analytics can make sense of it. Do you need to account for the impact of water and carbon usage in cost reduction scenarios? Sophisticated optimization methods can analyze the full range of possibilities. In the past, neither a phalanx of experts nor raw computational power could process the massive amounts of information required to solve difficult real-world problems. Addressing them always meant simplifying them. Today, business analytics embraces all that complexity to provide robust, relevant and precise answers.

For doctors and CEOs alike, the rules of the game are changing.

To achieve the best results for their patients, medical practitioners will need to incorporate electronic records and evidence-based medicine into their clinical practice. The same holds true in every sector of the economy: overreliance on instinct is a fast path to extinction. A more adaptive approach? Decisions based on analytics.

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Steve LaValle is the global leader of Strategy services within the IBM Business Analytics and Optimization service line. In this role, he leads a global team of consultants and practitioners who provide advisory services across geographies and industries, focused on helping clients optimize their results through the application of insight, analytics and business process improvement.