Field Experiment on the Profit Implications of Merchants’ Discretionary Power to Override Data-Driven Decision-Making Tools

Abstract

Data-driven decision-making (DDD) is rapidly transforming modern operations. The availability of big data, advances in data analytics tools, and rapid gains in processing power enable firms to make decisions based on data rather than intuition. Yet, most firms still allow managers to override decisions from DDD tools, as managers might possess private information not present in the DDD tool. We report on a field-experiment conducted by an automobile replacement parts retailer that examines the profit implications of providing discretionary power to merchants. We find that merchants’ overrides of the DDD tool reduce profitability by 5.77%. However, our analysis over product life cycle (PLC) reveals that merchants increase (decrease) profitability for growth- (mature- & decline-) stage products. This paper was accepted by Charles Corbett, operations management.