Strength in Numbers: How does data-driven decision-making affect firm performance?

TLDR

The study examines whether firms that emphasize data‑driven decision‑making (DDD) achieve higher performance. The authors surveyed 179 large publicly traded firms on business practices and IT investments, then used instrumental‑variable analysis to estimate the causal effect of DDD. Data‑driven decision‑making is linked to 5–6 % higher output and productivity, and improves asset utilization, return on equity, and market value, offering early large‑scale evidence of a causal connection. Acknowledgements: Thanks to Andrew McAfee, Roger Robert, Johnson Sikes, workshop participants, the 9th Annual Industrial Organization Conference, and the MIT Center for Digital Business.

Abstract

We examine whether performance is higher in firms that emphasize decisionmaking based on data and business analytics (which we term a data-driven decisionmaking approach or DDD). Using detailed survey data on the business practices and information technology investments of 179 large publicly traded firms, we find that firms that adopt DDD have output and productivity that is 5-6% higher than what would be expected given their other investments and information technology usage. Using instrumental variables methods, we find evidence that these effects do not appear to be due to reverse causality. Furthermore, the relationship between DDD and performance also appears in other performance measures such as asset utilization, return on equity and market value. Our results provide some of the first large scale data on the direct connection between data-driven decisionmaking and firm performance. Acknowledgements: We thank Andrew McAfee, Roger Robert, Johnson Sikes and participants at the Workshop for Information Systems and Economics and participants at the 9 th Annual Industrial Organization Conference for useful comments and the MIT Center for Digital Business for generous