“Instinct vs. Analysis: Optimal Business Management?”

by Nov 7, 2023Advisory Groups, Business, Decision Making, Entrepreneur, Leadership, Management

With the rise in popularity of people pursuing MBAs in recent years, there’s been a spike in the reliance on analytics in business decisions. If you don’t have data to back up your position, you come across as unprepared, even unprofessional. You can thank the rise of Money Ball thinking and the broad availability of powerful analysis software for this.

But that reliance on analytical thinking is antithetical to how many executives think, especially entrepreneurs. Many of these folks will tell you how important it is for them to rely on their intuition or “gut” feelings when making decisions. Funny enough, the gut approach is pretty accurate if someone has the smarts or experience to guide it.

Yet, what happens in most companies is that as they grow and scale up, more and more rules are put in place, which typically forces a greater reliance on analytics and less on intuition when making decisions.

But is this a good thing?

Analytics versus intuition

Many of the classic management gurus have studied whether decisions should be based more on analytics or intuition. And they have found that decisions based on analysis are, for the most part, more often correct. In other words, you’re more likely to hit the bullseye by using data to drive your decision.

Point for the pro analytics side.

However, the spread or standard deviation of the possible results of those analytically driven decisions is much wider than those based on intuition.

In other words, using intuition may not get you the perfect shot at the center. But you’ll wind up with a cluster of shots closer to the bullseye than those guided by analysis.

That’s because intuition is a result of seeing many situations over time. It’s built through exposure and experience, and that guides your ability to assess a situation, including those situations the data might be blind to.

The question then becomes whether you’d rather have more shots closer to the mark using your gut, or would you rather take the risk that just one of your shots will make the biggest impact through analytics?

The answer is really that you need to do both.

Thinking fast and slow

The challenge modern organizations face, especially those that are scaling or have scaled, is that analytics drives out intuition as the primary guidance system for decision making. That’s because the hard always drives out the soft.

But to be successful, most organizations will need to bring back the ability to use intuition as a hedge against pure analytical decision making.

As psychologist Daniel Kahneman wrote in his book Thinking, Fast and Slow, it can be very useful at times to make a quick decision based purely on your gut instinct. However, approaching a problem slowly through analysis can also be extremely effective.

The problem is that slow thinking has been pushing out fast thinking, and that can dynamic lead your organization down the wrong path too. As a leader, you must force your organization to use their gut in some situations.

The best approach

I’ve found the best way to coach balanced thinking in your organization is to first attack a problem by asking for the “blink” reaction to it. In other words, with limited data, what should the organization do? Then, if a quick conclusion doesn’t feel right or seems highly risky, you have to add deeper analysis to improve your chances of avoiding a catastrophic miss. But be careful. I’ve seen many executives get misled when the analysis overrules their intuition.

Don’t let that happen to you. When you take a balanced approach that uses analysis and intuition, you only increase your odds of success.