UK country report – Capitalising on the art & science in decision making: Exploring the agenda for big decisions in 2014-15 and the process that UK business leaders will go through in making these decisions.

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Gut & gigabytes

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Gut & gigabytes

PwC Foreword

PwC Foreword: Intuition in the machine-to-machine age

Tom Lewis PwC UK Data and Analytics LeadE: tom.e.lewis@uk.pwc.com

Yann Bonduelle PwC Data and Analytics ConsultingE: yann.bonduelle@uk.pwc.com

Tom Lewis

Upgrading the art and science of decision making Extracting insight from an organisation’s data and applying it to business decisions has long been a necessary business skill. But in the last few years, data analytics is appearing more and more as a top priority issue, perceived as critical to unlocking future growth, managing cost and decreasing risk.

We know our clients were increasingly using data in operational decision making – often using automated processes that respond in real time without human interaction. But we were interested to understand better how data and analytics is being used in the boardroom, to make those bigger strategic decisions that determine the future of organisations.

We wanted to understand what decisions were being made, how they were being made and how often – specifically including the relative importance of data and analytics, and business ‘gut instinct’.

We are excited to share our findings for the UK – placed in the context of our larger global survey results.

Its interesting to observe that UK organisations rate their data and analytics’ capabilities highly in a global context, believing that quality, quantity and reliability of the data they have is good and improving. And yet, the UK senior stakeholders are less likely than their colleagues elsewhere to use data and analytics as the main driver of strategic decisions. More than half remembered a bad experience where reliance on data analytics had been detrimental to their businesses in the past. It seems we are investing in sound data and analytics, but still rely upon intuition and experience to determine the big bets in business.

In many ways, this result is not a surprise. Good business is both art and science – rational and intuitive. The role of data and analytics is to improve decision making by making the rational element as well-informed and insightful as possible to reduce business risk. It works alongside experience and intuition, but not to replace it.

Yann Bonduelle

Capitalising on the art & science in decision making

Gut & gigabytes

About the report ...................................................................................1

Executive summary ..............................................................................3

Decision time – Big decisions are on business leaders’ agendas in the next 12 months ...............................................................................5

Augmented reality – Data and analysis can enhanceexperience and intuition .......................................................................9

Conclusion.......................................................................................... 13

PwC contacts ...................................................................................... 14

Contents

Capitalising on the art & science in decision making

1 Gut & gigabytes

About the report

Gut & gigabytes: Capitalising on the art & science in decision making. Explores the agenda for big decisions in 2014 – 15 and the process that business leaders will go through in making these decisions.

The report is published by PwC and written by The Economist Intelligence Unit (EIU), with the exception of the separately labelled boxes which are written by PwC. The views expressed by the EIU do not necessarily reflect those of PwC.

DefinitionsWe have used the following definitions for this report.

Big decisions: the most significant decisions about the strategic direction of the business (ie not concerned with day-to-day operations).

Big data: the recent wave of electronic information produced in greater volume by a growing number of sources (ie not just data collected by a particular organisation in the course of normal business).

Data analysis: the use of analytical techniques to generate new insights from data.

A note on sample size

In May 2014 the EIU surveyed 1,135 senior executives, over half (54%) of whom are C-level executives or board members. This sample also included 50 senior representatives from government and the public sector. Respondents came from across the world and represented 18 different industries. The majority of companies (74%) reported an annual revenue last year of at least US$1bn, and no company had annual revenue below US$250m. The ownership of companies in the sample is evenly split between publicly listed companies and private, family-owned or state-owned enterprises.

In the context of our global survey, the sample size of UK respondents, at 75, is relatively small. There is, as a result, a greater qualitative influence in this report compared with the global insights, especially when examining correlations between survey questions.

2Capitalising on the art & science in decision making

Figure 1Demographics of the global survey

UK Western Europe Global

Sample size 75 289 1,135

C-suite respondents

Function Operations and production Marketing and sales General management

Marketing and sales Strategy and business development Operations and production

Finance Operations and production Strategy and business development

Size of organisation (annual global revenue)

US$1bn-5bn US$1bn-5bn US$1bn-5bn

Geographical reach of organisation

Multinational Global Global

Global Multinational Multinational

Publicly listed

Location UK: 100% UK: 26% North America: 35%

Germany: 26% Western Europe: 25%

Netherlands: 11% Asia Pacific: 24%

Spain: 11% Rest of world: 16%

France: 10%

Italy: 5%

Rest of western Europe: 11%

44%

35%

25% 20% 21%

22% 22%

44% 54%

20%

51%

29%

65% 62%

28%

37%49%

49%

18% 19%

$ 52% $ 40% $ 43%

35%

3 Gut & gigabytes

Executive summary

Growth is top of the agenda, but cost pressures drive UK businesses to collaborate with competitors.Growing the business is regarded by senior executives in the UK as the single most important area for big decisions in the year ahead. However, because costs and margin pressure are identified as the main strategic motivations for big decisions, executives are looking for more creative ways to build their business without a large monetary investment. More than half of respondents (52%) expect to make big decisions in the next year that involve competitive collaboration, making this a much stronger trend in the UK than elsewhere.

This profile of big decision making in Britain looks at the changing nature of the typical big decision in the UK, what motivates it and how it is made. The key findings include:

The quality of big decision making is improving. British business leaders are more likely to report an improvement in the quality of decision making in the past two years than the global average, with 83% reporting an improvement and a third (32%) a significant one. Highly data-driven companies are more likely to report improvements in big decision making.

Experience and intuition are the main inputs into the big decision making process. Although all aspects of data and data analysis are rated highly in the UK, data and analysis are only the third most important input into the decision making process, after own experience/intuition and advice/experience of others internally.

Concerns about data quality and overload are the main barriers to the greater use of data. Despite the generally positive attitude towards data and analysis, many UK business leaders remain concerned about data quality, alongside data overload. Moreover, more than half of UK respondents (61%) feel that “relying on data analysis has been detrimental to our business in the past”. By contrast, there are few concerns about sufficient talent or skills to make the most of the data that organisations collect.

More people are involved inbig decision making at UKorganisations than before.The rise in more democratic decision making is not unrelated to the rise in the availability of data, which has encouraged a kind of evidence-driven, and more democratic, approach to big decisions.

4Capitalising on the art & science in decision making

Big decision-making is changing

5 Gut & gigabytes

Decision time Big decisions are on business leaders’ agendas in the next 12 months

As the UK economy has accelerated into 2014, growth has returned to the top of the agenda. For thesenior executives surveyed for this report, the most important big decision in the next 12 monthswill concern growing the business (see Figure 2).

Yet, it is not a straightforward picture. Cost and margin pressure, as well as structure of industry, are the top strategic motivations for the most important big decisions by UK business leaders, well above profitability and revenue. Indeed, only 13% of UK respondents cite profit and revenue as the primary motivation for their most important big decision. This is a considerably smaller share than in western Europe (33%), the US (30%), China (37%) and Japan (38%). In addition to cost/margin pressure and structure of industry, UK respondents are more likely to be swayed by regulatory or legal issues.

PwC perspective

A majority of the clients we spoke to about strategic decision-making were making decisions motivated by a balance of growth and cost and margin pressures. We spoke to manufacturers, for example, that were making decisions on where to focus sales and marketing efforts globally, driven by top-line revenue growth – but equally decisions on the location of production facilities were often influenced by cost factors, to ensure this growth was profitable.

6Capitalising on the art & science in decision making

Figure 2The big decisions agenda: Most important decisions

“In which of the following areas do you expect to make the most important big decision in the next year? Select the one most important decision you expect.”

Growing existing business

Collaborating with competitors

Shrinking existing business

Entering new industry or starting new business

4

1

3

2

Source: Economist Intelligence Unit survey, May 2014

Major investment in the business

££

£5

UKWestern Europe

Global

24%21%18%

21%13%12%

17%9%14%

12%11%15%

8%10%7%

7 Gut & gigabytes

When you can’t beat them…This ongoing commitment to cost discipline also explains the willingness of UK executives to seek partnerships with other companies as a way of sharing the expense of investing for growth. Growth may be the top priorityover the next 12 months, but themost common big decision on the UKcorporate agenda is to collaborate withcompetitors (see Figure 3). A bare majority (52%) of UK respondents expect to make a decision in this area, 16 percentage points higher than the global average.

As the global survey indicates, for the pharmaceutical and healthcare sectors – prominent industries in the UK – such collaboration is the top priority. Patrick Vallance, president of pharmaceutical R&D at GlaxoSmithKline, recognises this strategic trend. “Organisations must form new partnerships and new approaches with a new mind-set – one which is more innovative, flexible and willing to take risks,” says Mr Vallance. “In recent years this approach has become fundamental to the way we research and develop new medicines, and we have more collaborations now than ever before.”

Other industries are forming strategic partnerships, too. Sainsbury’s, one of the UK’s “big four” supermarkets, has fought back against the rise of discount stores such as Germany’s Aldi and Lidl, which are increasingly cutting into its business, with a collaborative effort. Unlike Morrisons and Tesco, which have responded with aggressive price-cutting to compete, Sainsbury’s has teamed up with Dansk Supermarked, Denmark’s largest retailer, taking a half-share in the low-cost Netto chain of supermarkets and opening 15 stores in the UK. Sainsbury’s can take a slice of the low-cost opportunity by leveraging its extensive distribution network without diluting its premium brand.

However, working with competitors can be difficult, according to Martin Glenn, CEO of United Biscuits. “Every company needs an enemy,” he says, but collaboration can nonetheless be successful and lucrative for all. “It often works best when it is collaboration to benefit the overall industry.” Mr Glenn points to collaborative work on voluntary food labelling as a good example of such efforts in the food industry.

8Capitalising on the art & science in decision making

Figure 3The big decisions agenda: Most common decisions

“In which of the following areas do you expect to make big decisions in the next year? Select all that apply.”

Source: Economist Intelligence Unit survey, May 2014

UKWestern Europe

Global

Growing existing business

3 36%41%34%

Entering new industry or starting new business

4 36%35%30%

Shrinking existing business

5 29%25%30%

52%43%36%Collaborating with competitors

1

Corporate restructuring

43%42%33%2

9 Gut & gigabytes

Augmented realityData and analysis can enhance experience and intuition

Over the past two years a considerable majority of senior executives in the UK (83%) have noted an improvement in big decision making. More than the global average, the improvement has been “significant” for around a third. What has changed?

For some, the nature of decision making in UK business is changing. “Decision making has been better enabled by recent improvements in technology that supports idea-sharing and co-creation of innovative solutions,” says Mr Glenn.

Another variable is the role of data. For 40% of UK respondents, the use of internal and external data is the aspect that has changed the most in the past two years. Moreover, highly data-driven UK companies are more likely to report a significant improvement in their decision making in that time – and more so than their counterparts in western Europe.

Testing outcomes is one of the biggest benefits of big data, according to Richard Reeves, head of strategy at EE, the UK’s largest mobile network operator. “What we have now within industry is the ability to test hypotheses much more quickly, and validate the way forward much more quickly than we ever could before,” says Mr Reeves. The upshot is quicker decisions, better decisions, and typically more confidence in those decisions.

PwC perspective

Of the clients interviewed by PwC, a majority were making an increasing use of data and analytics. “We are making considerable investments in planning and analytics tools, reflecting the importance of data – especially external market data – to planning in our business,” commented Ryan Mangold at Taylor-Wimpey. At Channel 4, analytics is being used increasingly to influence a range of decisions including “programme commissioning, scheduling and the optimisation of advertising revenues”.

All aspects of data and data analysis as far as their use as a tool for decision making is concerned are rated highly among UK respondents, with more than three-quarters giving a rating of 4 or 5 on a 5-point scale (where 1 is poor and 5 is excellent) – well above the global and west European averages. Sentiment is similarly positive about the underlying quality – rating the sufficiency, timeliness and reliability of data used at their organisation relatively highly, as well as aspects of data analysis, including the ability to visualise the data and the quality of the insights derived.

10Capitalising on the art & science in decision making

Figure 4The big decision making process

Which of the following inputs did you place the most reliance on for your last big decision? % of respondents

Own intuition or experience

Financial indicators

Data and analysis (internal or external)

Advice or experience of others internally

4

1

3

2

Source: Economist Intelligence Unit survey, May 2014

Other5

UKWestern Europe

Global

41%38%30%

31%22%28%

23%28%30%

5%5%9%

6%4%

For now, though, this confidence in data and analysis among UK executives has not translated into them relying on these tools as primary inputs in the big decision making process. In fact, a combination of experience and intuition is the most important input in the decision making process (for 41% of respondents), ahead of the advice or experience of others internally (31%) and data and analysis (23%). This is more so than in the rest of western Europe and globally.

PwC perspective

The CEO of Xchanging, Ken Lever, characterised this balance between data and business judgement as an inverse relationship between risk and time. “Incremental data collection and analysis, in general, reduces risk, but with diminishing returns over time,” he explained. “Business judgement is needed to decide when the point of diminishing returns has been reached….when incremental analysis will slow down decision making and add to, rather than reduce risk.”

Jeremy Vincent of Jaguar Land Rover agreed. “There is a threshold beyond which continuing to develop and optimise will achieve relatively little. There comes a point when a decision needs to be made and the business turns to implementation.”

11 Gut & gigabytes

A healthy dose of scepticismAt first glance, this survey result appears contradictory. Data and analysis only come third as an input in the big decision making process at UK companies, although – as mentioned above – increased use of data and data analysis is associated with improvements in big decision making, and all aspects of data and analysis are rated relatively highly by UK business leaders. But our suvey also shows that a healthy dose of British scepticism remains with regard to the use of data and data analysis. Indeed, the share of British business executives agreeing with the statement that “data analysis is undermining the credibility of intuition or experience” (59%) is 10 percentage points higher than the global average and 24 percentage points higher than the west European average. A similarly high percentage of UK respondents (61%) feel that “relying on data analysis has been detrimental to our business in the past”; again, a much higher share than in other west European countries (34%) and globally (46%).

Some of this scepticism may be rooted in remaining concerns about data quality – despite the above-mentioned generally positive attitude towards data and data analysis. The quality, accuracy and completeness of data are seen as one of the biggest barriers preventing UK companies from making greater use of data and data analysis when making big decisions (41% of respondents). Moreover, when asked about the aspects of the big decision making process that have changed the most in the last two years and those that need to change the most in the next two years, UK business leaders say that the quality of data analysis has changed little in the past, but a fifth (19%) feel it needs to.

Another major barrier to using data for decision making in the UK is the difficulty of assessing which data are truly useful (the same percentage as those who mention data quality). There is a temptation with large amounts of data to dive in and look for patterns and let that dictate the agenda. But it is easy to get lost without, first, a guide, and second, a reason for diving in.

Better, according to Mr Reeves, to start with a question and then use the data to answer it. “It’s got to be a solution-centric approach,” he says. “You can’t automatically just throw huge amounts of data at people, you have to understand what it is that you’re hoping to achieve.” And that takes experience, intuition and knowledge. Hence, the ability to use data in the decision making process has become an important factor in decision making at senior management level: 81% of UK respondents agree that familiarity with data-driven decision making is a prerequisite for senior management.

PwC perspective

PwC clients mention a range of factors holding back an even more widespread adoption of data and analytics in their businesses. Some cited structural factors in their industry – “House building is a traditional industry with reluctance in some areas for new ways of thinking,” commented Ryan Mangold of Taylor Wimpey.

Other newer industries can be similarly bound by precedent and a realisation that analytics cannot answer all questions “Analytics of individual customer viewing behaviour is transforming our business – but the industry isn’t used to thinking in this way quite yet – and certain decisions in the TV industry must always be made using intuition and creative judgement,” commented Sanjeevan Bala of Channel 4.

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PwC perspective

Some of our clients are finding ways to avoid skills’ shortages, “including partnering with local universities to attract and train talent,” commented Sanjeevan of Channel 4. Others are preparing themselves for these challenges to come. “We are not yet hitting skills constraints, but expect to do so as we develop more transformatory plans in data and analytics,” commented Chris Day of the Post Office.

In PwC’s experience, while technical data science skills’ shortages can be overcome in the short-term, the more pressing constraint is finding senior business leaders that span commercial, analytics and technology, that can champion and drive major transformations in the use of data and analytics in driving C-suite decision making.

However, lack of talent and skills does not seem to be a major barrier preventing UK companies from making greater use of data and data analysis when making big decisions. An overwhelming majority of UK corporate leaders (87%) believe that their organisation has a sufficient pipeline of talent to analyse the data it collects.

A rise in more democratic decision makingIncreased use of data is not the only reason why business leaders surveyed cite improvements in decision making. More people are also involved in big decision making. This more democratic approach to decision making may reflect a growing need for breadth in experience and expertise among those involved in the decision making process, in an uncertain world characterised by the increasing interdependence of industries, disciplines and difficult-to-spot, fast-developing disruptive trends.

The rise in more democratic decision making is also not unrelated to the rise of data. Indeed, data have encouraged a kind of evidence-driven, and more democratic, approach to big decisions. Big decisions at EE, says Mr Reeves, are made by “a few key decision makers”, but data does change the dynamic – allowing decisions to be open to challenge. “Some insights around analytics are available to a broad selection of the EE management team, and it allows them to come up with their own hypotheses and challenge the activity that’s being done.”

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Conclusion

This report on big decision making in the UK has highlighted a renewed sense of optimism among British companies. With the UK economy recovering, the most important big decision for UK senior executives in the next 12 months will concern growing the business. However, a renewed focus on growth does not mean UK business leaders are neglecting costs. Indeed, cost and margin pressures are the key strategic motivation behind big decisions in the UK, much more so than profitability and revenue. Cost pressures also drive the most common area of big decisions that UK senior executives expect to make over the next two years: collaborating with competitors.

We also looked at the big decision making process and noted that UK business leaders have seen major improvements in the quality of big decision making, especially among highly data-driven companies. However, data and analysis are only the third most important input into the decision making process for UK business leaders. Own experience and intuition, as well as the advice and experience of others internally, remain the main inputs into the decision making process at UK companies, and more so than in the rest of western Europe and globally.

Despite the generally positive attitude towards data and analysis in the UK, many business leaders are concerned about data quality and overload. By contrast, lack of skills or talent to make use of data is not seen as a major problem. This is crucial, as the survey shows that familiarity with data-

driven decision making is deemed a prerequisite for senior management.

Finally, the rise of data has gone hand in hand with the rise in more democratic decision making in the UK and globally. A kind of evidence-driven, and more democratic, approach to big decisions has emerged, allowing decisions to be open to challenge.

Making the most of data is becoming increasingly important to senior executives. It is often said that a rise in data-driven decision making puts a certain generation of experienced, go-by-the-gut decision makers under threat. Hence it is crucial, says Alan Gilchrist, a lecturer at Lancaster University Management School, that the C-suite responds to the demand for data-savvy managers, data scientists and statisticians at the top of the business.

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1

PwC perspective: We have the tools to make the best decisions

Businesses have often accepted “second best” because of lack of information, or believe thatinstinct and experience can step in and more than make up the difference. It’s time to challenge thatthinking. Here are four steps to successfully applying data and analytics to strategic decisions.

Identify the decisions that matterUnderstand the most important decisions for your business success – and those you make most often (they are often different). Focus upon the data insights that can make a difference to these decisions.

Gain C-suite commitmentEnsure all your senior stakeholders involved in making these decisions support and understand the role that data and analytics can play. Underlying resistance can undermine good work elsewhere in the organisation.

Begin small and learn by doingApplication of data and analytics can begin with small examples of new insight, gained via a test and learn approach. Technology is flexible and modular – using data no longer requires a 24-month investment in building an enterprise data warehouse.

Build confidence over timeOrganisations will use more data and analytics once some initial success has been seen – and decision making is perceived to be improving. Building a case study in one business unit can help inspire the wider organisation.

PwC contacts

2 3 41

Tom LewisUk Data and Analytics Leader

T: +44 (0) 20 7213 5911E: tom.e.lewis@uk.pwc.com

Yann BonduelleConsulting Data and Analytics

T: +44 (0) 20 7804 5935E: yann.bonduelle@uk.pwc.com

While every effort has been taken to verify the accuracy of this information, The Economist Intelligence Unit cannot accept any responsibility or liability for reliance by any person on this report or any information, opinions or conclusions set out in this report.

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