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Analytics Magazine

Forum: Intuition-based decision-making: The other side of analytics

March/April 2015

By Jay Liebowitz

In the fall 2014 issue of Johns Hopkins Magazine, Aneesh Chopra (the first U.S. chief technology officer) said, “When it comes to making major decisions, there are two camps. One consists of people who believe intuition trumps analysis – go with your gut. The other rejects intuition in favor of careful data analysis – where there is enough data, there’s no need for intuition. The ideal is a marriage of the two.”

I also feel that we need a complementary set of both analytics and intuition, and I would like to focus on the latter part, which hasn’t been discussed much in the analytics community and conferences.

According to Tim Cook, CEO of Apple, “Intuition is something that occurs in the moment, and if you are open to it, if you listen to it, it has the potential to direct or redirect you in a way that is best for you.”

Said Albert Einstein: “The really valuable thing is intuition.”

According to Betsch (2008), intuition is a process of thinking whereby the input is processed automatically and without conscious awareness, resulting in a feeling that can serve as a basis for judgments and decisions. In experiments with shares in the stock market, Betsch (2008) found that most of the participants said they relied on their “gut reaction” or “intuitive feeling” when judging the shares. Similar conclusions were also reached in political judgment and other domains.

Many people believe intuition is an instinctive “knowing” without the support of logic, analysis or actual evidence (Liebowitz, 2014b; Dorfler and Ackermann, 2012; Greengard, 2012; Heskett, 2013; Hensman and Sadler-Smith, 2011; Williams, 2012; Woiceshyn, 2009). But in reality, intuition is founded upon the scrutinizing of failures and lessons learned. So, to characterize intuition, it typically is: experience-driven, holistic, affective, quick and non-conscious (meaning that it is difficult to trace a logic trail to the decision).

Intuitive decision-making is one’s ability to recognize patterns at lightning speed – a process that often happens unconsciously (Matzler et al., 2007). In an experiment to reposition 25 pieces in chess after examining them for a few seconds, the inexperienced chess players located an average of only six of the original positions. However, the chess master correctly replaced all 25 pieces.

According to Dane and Pratt (2012), intuition may be just as effective in decision-making as an analytical approach – and sometimes more efficient and effective, depending on the decision-maker’s level of expertise on the subject at hand. Dane and Pratt (2012) further state that if you’re working in an industry where you have risen through the ranks, your domain expertise will likely better serve an intuitive approach. If you gained your expertise in a different field, you may not have the background to rely as strongly on your intuition.

Perhaps those from MIT and Austria (Matzler et al., 2007) said it best: “For many complex decisions, all the data in the world can’t trump the lifetime’s worth of expertise that informs one’s gut feeling, instinct, or intuition.” In their research, they talk about honing an executive’s intuition. Specifically, cultivating instinct requires the following factors: experience, networks, curiosity, tolerance, emotional intelligence (from the leadership research, emotional intelligence is the key differentiator from successful leaders and those who are not) and limits (like any good thing, a reliance on intuition can be taken to extremes – executives should reflect on their intuitive decisions before they execute them).

According to Parkinson (2014), “We generally have good intuition about things that are similar to what we encounter every day, and are able to make ‘instinctive’ decisions (based on comparisons with our experience) that are generally correct. But we have poor intuition about things that are outside of everyday experience and very poor intuition about things that are totally alien.”

Certainly, intuition has its disadvantages. In speaking at the 2014 Canada’s Best Managed Companies Conference, Dr. Salman Mufti, executive education director at the Queen’s University School of Business in Canada, cautions us to perhaps start with your intuition, but validate or verify it. When I worked with some auditors, their credo was, “trust but verify” (sounds somewhat similar). Peter Drucker, one of the fathers of management, said that we shouldn’t be “hunch artists,” rather we should “believe in intuition only if you discipline it.”

Perhaps we should think of intuition being based on analysis and experience, and we should apply “rational intuition” (Heskett, 2010) to our management decision-making. I believe we need to educate “informed intuitants,” as I pointed out in a column in the SAS Exchange (Liebowitz, 2014a). The CEB (Corporate Executive Board)(2013) talks about the necessary skills as applied to analytics, such as problem-solving, intellectual curiosity, issue diagnosis, insight generation, synthesis of internal and external data, problem-framing, and synthesis of financial and qualitative data. But there are other skills integral to the informed intuitant (Liebowitz, 2014a), including:

  • collaboration abilities, such as team building, project management and interpersonal communications (oral and written);
  • creativity-enhancing skills to think outside the box;
  • business-speak, summarization and data visualization techniques for the analyst to explain their results to C-level executives; and
  • learning by doing or testing by learning methods to sharpen the analytical and decision-making skill sets.

In looking at some of the technical journal research, intuition plays a key role in decision-making worldwide. For example, Bocco and Merunka (2013) reported research of small- and medium-sized enterprises (SMEs) in Africa, where more than 300 managers and entrepreneurs at SMEs revealed that intuition is a key resource for managerial decision-making. Loechner (2014) reported a study where even people who think of themselves as data-driven decision-makers (i.e., “I collect and analyze data as much as possible before making a decision”), also place trust in their own intuition. According to the study, 73 percent of executives surveyed said they trust their own intuition when it comes to decision-making, and, even among the data-driven decision-makers, 68 percent agree with that statement.

Interestingly, research from Dartmouth (Kyung and Thomas, 2013) showed that you couldn’t rely on your intuition if given negative feedback. In one of the experiments, the researchers gave false negative feedback to half the participants by telling them they were wrong even when their answers to some questions were correct. Subjects whose confidence had been disrupted by negative feedback lost the relative accuracy advantage from relying on their intuition (Kyung and Thomas, 2013).

Some research is being done now to assess one’s intuition, such as the CEB’s Insight IQ instrument (CEB, 2013). They found that 19 percent of more than 5,000 managers in major global companies are “visceral decision-makers” who rely almost exclusively on intuition.

So, what can be done to improve our decision-making from a business intuition perspective? Dimitrius and Mazzarella (2008) offer some suggestions:

  • Recognize and respect your intuition, not following it blindly or rejecting it outright.
  • Identify what your intuition is telling you. Follow the hunch, asking what is it?
  • Review the evidence by playing back the events in order to become more conscious of the signs.
  • Prove or disprove your theory. Gather additional information to consciously test your theory.

For some reason, much of the intuition in management research is being done in Europe (United Kingdom) and Australia. Not much in the United States per se. If we want to improve this area of research, there are some recommendations for advancing the current state-of-the-art, as highlighted by Akinci and Sadler-Smith (2012) and Sinclair (2014):

  • careful conceptual framing;
  • greater cross-disciplinary collaboration and integration;
  • increased methodological rigor and pluralism; and
  • closer attention to levels of analysis issues.

Here are some guidelines (Sadler-Smith and Shefy, 2004) to help further develop your intuitive awareness:

  • open up the closet (be amenable to count on intuitive judgments);
  • don’t mix up your “I’s” (instinct, insight and intuition);
  • elicit good feedback;
  • get a feel for your batting average (benchmark your intuitions);
  • use imagery rather than words;
  • play devil’s advocate; and
  • capture and validate your intuitions.

Intuition may breed innovation. If you are tied only to statistics and analytics, you may miss new and better strategies, opportunities and methods for your business to be more efficient, effective and successful. Use your informed intuition, founded upon years in business and inspired by trends in big data, to navigate the future of your business.


Jay Liebowitz (jliebowitz@harrisburgu.edu) is the DiSanto Visiting Chair in Applied Business and Finance at the Harrisburg University of Science and Technology.

 

REFERENCES

Akinci, C. and E. Sadler-Smith (2012), “Intuition in Management Research: A Historical Review,” Int. Journal of Management Reviews, Vol. 14.

Betsch, T. (2008), “The Nature of Intuition and its Neglect in Research on Judgment and Decision Making,” In H. Plessner, C. Betsch, & T. Betsch (Eds.), “Intuition in Judgment and Decision Making,” Lawrence Erlbaum Publishers.

Bocco, B. and D. Merunka (2013), “Do Leaders of Small and Medium-Sized Businesses Base Decisions on Intuition?: An Empirical Investigation Among West African Managers,” Global Business and Organizational Excellence: A Review of Research & Best Practices, Vol. 32, No. 5.

CEB (Corporate Executive Board)(2013), “Effective Information Management Report,” Enterprise Architecture Executive Council, IT Practice, www.eaec.executiveboard.com.

Dane, E. and M. Pratt (2012), “When Should I Trust My Gut: Linking Domain Expertise to Intuitive Decision-Making Effectiveness,” Journal of Organizational Behavior & Human Decision Processes.

Dimitrius, J.E. and W. Mazzarella (2008), “Reading People: How to Understand People and Predict their Behavior – Anytime, Anyplace,” Ballantine Books.

Dorfler, V. and F. Ackermann (2012), “Understanding Intuition: The Case for Two Forms of Intuition,” Management Learning Journal, Vol. 43, Nov. 5.

Greengard, S. (2012), “Big Data Unlocks Business Value,” Baseline, http://www.baselinemag.com, Jan. 17.

Heskett, J. (2010), “What’s the Best Way to Make Careful Decisions?”, HBS Press, February.

Heskett, J. (2013), “Is There Still a Role for Judgment in Decision Making?”, HBS Working Knowledge, Cambridge, Mass., http://hbswk.hbs.edu/item/7322.html

Hensman, A. and E. Sadler-Smith (2011), “Intuitive Decision Making in Banking and Finance,” European Management Journal, Vo. 29.

Hodgkinson, G., E. Sadler-Smith. L. Burke, G. Claxton, and P. Sparrow (2009), “Intuition in Organizations: Implications for Strategic Management,” Long Range Planning Journal, Vol. 42.

Kyung, E. and M. Thomas (2013), “Knowing without Remembering: How Articulation Reduce the Accuracy of Numeric Comparisons,” Society for Consumer Psychology, San Antonio, Texas.

Liebowitz, J. (2014a), “Educating Informed ‘Intuitants’,” SAS Exchange, https://www.sas.com/sv_se/insights/articles/analytics/educating-informed-intuitants.html.

Liebowitz, J. (ed.)(2014b), “Bursting the Big Data Bubble: The Case for Intuition-Based Decision Making,” Taylor & Francis.

Matzler, K., F. Bailom, and T. Mooradian (2007), “Intuition Decision Making,” MIT Sloan Management Review, Fall.

Loechner, J. (2014), “Executive Decisions: Gut Feel, Big Data or Collaborative?”, Center for Media Research, June 18, http://www.mediapost.com/publications/article/228031/executive-decisions-gut-feel-big-data-or-collabo.html.

Parkinson, J. (2014), “The Role of Intuition in a World of Big Data,” www.cfo.com, Jan. 29.

Sadler-Smith, E. and E. Shefy (2004), “Developing Intuitive Awareness in Management Education,” Academy of Management Learning & Education Journal, Vol. 6, No. 2.

Sinclair, M. (ed.)(2014), “The Handbook on Research Methods on Intuition,” Elgar Publishing.

Williams, K. (2012), “Business Intuition: The Mortar Among the Bricks of Analysis,” Journal of Management Policy & Practice, Vol. 13, No. 5.

Woiceshyn, J. (2009), “Lessons from ‘Good Minds’: How CEOs Use Intuition, Analysis and Guiding Principles to Make Strategic Decisions,” Long Range Planning, Vol. 42.

 

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