Basic Apps Can Improve Business Decision-Making

Can technology make us smarter?

There’s a lot of concern about people constantly being on their phones. It’s true that they can be a huge distraction, but has their ubiquity blinded us to how useful they can be? We introduced smartphones in the context of small businesses in Rwanda, specifically those that typically do not have access to them. Within that narrow realm, we find that they can really improve how people think. 

We randomly assigned the entrepreneurs to one of three groups: the first got smartphones with an app we designed that collected data from the business and provided information about how it was doing; a control group did not get the same access; and a placebo group got access to the smartphone but not to the app. 

The app was aimed at getting businesses to record basic metrics like sales, products, prices, and promotions. For example, we asked the entrepreneurs about their three top-selling items, the prices they sold those at, and the cost it took to procure each product and sell it. The app then provided outputs from that information, such as the net margin on each of the products, to help improve the businesses’ decision-making. We find that getting the entrepreneurs familiar with whether they were making money on a product had a big impact on how they chose the products they stocked and the prices they set.

On top of that, interacting with the numbers on a regular basis boosted the entrepreneurs’ numeracy skills. When we measured their abilities with numerical tests, those in the treatment group improved their scores significantly compared with those in the control group.

This had a spillover effect on how they ran their businesses. The entrepreneurs in the treatment group started maintaining simple cash-flow statements, separating their business finances from their personal finances better, and keeping closer track of inventory. None of this information had been recorded in the app, but the improved numerical ability that the app inspired seemed to translate to other contexts such as accounting and finance. 

What does this tell us about how people develop professional skills?

There are many ways of building human capital. My research focuses narrowly on managerial capital, and it shows that there are different ways of developing that. Some programs aim to do it through remote mentorship programs, training, or consulting. 

This study demonstrates that there’s an important dimension to managerial capital: having the ability to use data in a way that helps business performance. It highlights that a technology as simple as the app we created can increase the ability of businesses to make better decisions. That feeds into a broader discussion about how various inputs, including the app in this study, enhance both managerial capital and human capital more generally. 

Pradeep K. Chintagunta is the Joseph T. and Bernice S. Lewis Distinguished Service Professor of Marketing at Chicago Booth.