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Strength in Numbers: How Does Data-Driven Decisionmaking Affect Firm Performance?

33 Pages Posted: 24 Apr 2011 Last revised: 12 Dec 2011

Erik Brynjolfsson

Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER)

Lorin M. Hitt

University of Pennsylvania - Operations & Information Management Department

Heekyung Hellen Kim

MIT - Sloan School of Management

Date Written: April 22, 2011

Abstract

We examine whether firms that emphasize decision making based on data and business analytics (“data driven decision making” or DDD) show higher performance. 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. Furthermore, the relationship between DDD and performance also appears in other performance measures such as asset utilization, return on equity and market value. Using instrumental variables methods, we find evidence that the effect of DDD on the productivity do not appear to be due to reverse causality. Our results provide some of the first large scale data on the direct connection between data-driven decision making and firm performance.

Keywords: Data, Productivity, Data-driven Decion-making, Information Technology

JEL Classification: D2, L2

Suggested Citation

Brynjolfsson, Erik and Hitt, Lorin M. and Kim, Heekyung Hellen, Strength in Numbers: How Does Data-Driven Decisionmaking Affect Firm Performance? (April 22, 2011). Available at SSRN: https://ssrn.com/abstract=1819486 or http://dx.doi.org/10.2139/ssrn.1819486

Erik Brynjolfsson

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

E53-313
Cambridge, MA 02142
United States
617-253-4319 (Phone)

HOME PAGE: http://digital.mit.edu/erik

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Lorin M. Hitt

University of Pennsylvania - Operations & Information Management Department ( email )

571 Jon M. Huntsman Hall
Philadelphia, PA 19104
United States
215-898-7730 (Phone)
215-898-3664 (Fax)

Heekyung Hellen Kim (Contact Author)

MIT - Sloan School of Management ( email )

United States

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