The Wisdom of Crowds – Using Customer Data to Make Smarter Decisions
“In any moment of decision, the best thing you can do is the right thing, the next best thing is the wrong thing, and the worst thing you can do is nothing.” ~Theodore Roosevelt
The simplicity of Theodore Roosevelt’s quote on decision making may be desired in today’s more complicated world. The reality for banks and credit unions is that decision making is a spectrum. No longer is it about making black and white, right or wrong decisions. The challenge, and goal, for financial institutions is to make smarter decisions, leveraging continuous improvement within the decision making process.
In the book, “The Wisdom of Crowds: Why the Many Are Smarter Than the Few and How Collective Wisdom Shapes Business, Economies, Societies and Nations” author James Surowiecki demonstrates that the aggregation of information that happens in groups results in decisions that are better than could have been made by any single member of the group. This theory is not limited to investors looking to invest their money with the highest ROI. Banks and credit unions have access to an extensive amount of customer data that they are trying to effectively utilize. And in doing so, the fundamentals of the ‘Wisdoms of Crowds’ applies.
Here are three areas where banks and credit unions need to take into account about the wisdom of crowds, to make smarter decisions using customer data:
Diversity of Thinking
Diverse minds do better when their decisions are averaged, than expert minds. A 2004 study by Scott Page of the University of Michigan and Lu Hong of Loyola University, showed that, in a theoretical model of group decision-making, a diverse group of problem-solvers made a better collective guess than that produced by the group of best-performing solvers.
In today’s world, the decision-making processes leverage large amounts of data available. These decisions are often aggregated and automated. Conscious effort goes into ensuring a diverse representation of opinions make implementation decisions from this data. However, it the large number of ‘expert’ decisions made to aggregate this data is often missed. With this in mind, it is important that financial institutions consider the diversity in decisions made throughout the value chain. The purpose here is not to slow or bog down decision processes through incremental approvals, nor remove empowerment from your experts. INC suggests that this diversity of thought can be ensured through HR and management processes. By considering diversity of thought through hiring, promotion and day to day management it is more likely that the outcomes decisions of the team and individuals will be influenced positively by the wisdom of the diverse cloud. In fact, individual decision making is important, as we will illustrate in the next point.
One requirement for good crowd judgement is that the individual decisions are made independent from each other. The more social influence there is by others decisions the more likely there will be bias introduced. In 2011, researchers at the Swiss Federal Institute of Technology (ETH) in Zurich asked groups of participants to estimate certain quantities in geography or crime, about which none of them could be expected to have perfect knowledge but could hazard a guess. They found that, as the amount of information participants were given about each others guesses increased, the range of their guesses got narrower, and the centre of this range drifted further from the true value. In other words, the groups were tending towards a consensus, to the detriment of accuracy.
The good news is that in our day to day work environments we make informed decisions, rather than pure guesswork. In this environment the benefits of teamwork and brainstorming far outweigh the negatives of the social bias. Yet it is important to be aware of its existence as to be able to identify potential impacts in your data-driven decision making processes.
To enable group members independence and sharing of thoughts and ideas without influence, one option is to use sticky notes distributed at the start of a meeting to gather ideas before working through them, collaboratively. The goal is to develop better and smarter decisions, not consensus. In subsequent work, the researchers have confirmed this, adding that if a group generally has good initial judgement, social influence can refine rather than degrade their collective decision.
Build Trust in The Process
The availability of customer data provides a significant opportunity to develop better marketing strategies that build relationships while enhancing the customer experience. Missing this can cause marketing communications to be perceived as inauthentic, lacking the personalized approach required to build trust.
While personalization starts with data and insights of individual customers preferences and behaviours, proper segmentation is also an important step. Segmentation ensures that more personalized solutions can be identified because the challenge can be more uniquely articulated, accompanied by more targeted data and insights. This enables the wisdom of crowds to be accessed to build programs that meet the needs and goals of each segment, by repeating the approach for each. By ensuring teams clearly understand the unique features and challenges of the segment enables them to draw from their own personal knowledge more quickly, which enhances the diversity of the solutions put forward.
Segmentation also enables more targeted and unique sets of data and insights to support idea generation and enables a quantifiable assessment of ideas generated by the team. A clear process of collecting, categorizing and selecting ideas builds trust in the process which generates higher team engagement. It also helps your team pivot from individual idea
To access the wisdom of crowds, success comes from putting in place the right circumstances. As James Surowiecki states, “under the right circumstances, groups are remarkably intelligent, and are often smarter than the smartest people in them.” How is your organization unlocking this wisdom? We’d love to hear. Share you thoughts with us at firstname.lastname@example.org.