From Data to Dollars: Unraveling the Effect Data-Driven Decision-Making Has on Financial Performance in Swedish SMEs

Abstract: Background: Data-driven decision-making (DDDM) has emerged as a primary approach to decision-making in many organizations. It uses data and analytics to guide decision-making processes and can lead to better business outcomes. Prior research has focused on DDDM in large corporations operating in large economies, and therefore this thesis will examine DDDM in small and medium enterprises in Sweden.  Purpose: The purpose of this research study is to examine the effect DDDM has on the financial performance of Swedish SMEs to investigate if the utilization of DDDM benefits companies financially and to understand the effect of managerial experience, technical skills, information quality, and firm size on the data-driven decision-making process. Method: This study is based on the positivism paradigm, following deductive reasoning and a quantitative approach of gathering data through digital surveys. The sample consisted of 55 Swedish SMEs gathered through simple random sampling. Further, the data was analyzed using Pearson correlation, Spearman rank correlation, and regression analysis to test hypotheses. Findings: The literature review identified a research gap on DDDM, factors that effect DDDM, and Financial Performance. Four hypotheses were developed to answer the research questions. The OLS regression found that DDDM had no significant effect on Financial Performance, the first hypothesis was not supported. The Information Quality variable had a significant positive effect on DDDM resulting in support for the second hypothesis. However, Managerial Experience and Technical Skills did not have a significant effect in the main regression model, hypotheses three and four were not supported. Conclusion: The thesis showed that DDDM did not have a significant effect on financial performance in Swedish SMEs. Additionally, managerial expertise and technical skills did not have an effect on DDDM. However, Information quality did have an effect on the DDDM process and was correlated with technical skills, which is in line with the theories used in the study: Organizational Information Processing Theory (OIPT) and Absorptive Capacity. This further supports that information quality is vital for the DDDM process and can explain why DDDM might not always lead to improvements in financial performance for Swedish SMEs.