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Originally published 24 June 2009
Recent technological breakthroughs have provided the ability to manage and make sense of vast amounts of hitherto unrelated data – and in the process have redefined what it means to be a smart organization. Aggressive competitors recognize these new capabilities and put them to work. They don’t just gather and report information – they leverage it through business analytics.
Business analytics involves using sophisticated technology to bring information together and sophisticated algorithms to filter and analyze that information. The outputs can include deep understanding of the workings of the business and its connections to the marketplace, key performance indicators to drive business decisions, and dramatic improvements in the performance of the most critical business processes. With business analytics, smart organizations are using the wealth of data being collected today to create powerful new ways to perform and compete.
1. Where should we leverage business analytics?
It’s tempting to say “all over the place,” because any part of a business can benefit from more systemic creation, gathering and interpretation of information. But in most cases, you will want to focus business analytics where you already have distinctive capability – the aspect of the business where you excel and where you have chosen to compete.
For Walmart, the distinctive capability lies in an efficient supply chain. For automobile insurer Progressive, the most distinctive capability involves the pricing of risk. For the gaming industry leader Harrah’s, the chosen distinctive capability for the past several years has been customer loyalty – a departure from construction of the lavish casino and hotel facilities that some other firms have selected as the basis for competition.
Focus business analytics where you already compete. The payoff is greatest where you are playing to your strength, not where you are playing catch up.
2. Why now?
Because the technology is ready. Because your competitors are likely exploring the possibilities of analytical competition, too. Because it may take a while to come up the learning curve and realize the payoff. And because it’s always risky to be slow in recognizing and capitalizing on a fundamentally new business capability.
Taking an analytical approach to the most important and complex business problems used to take an enormous amount of time, money and effort.
Recent technological developments have lowered that threshold of investment dramatically. Today’s information management technology at last enables dissimilar databases to talk with one another and contribute their information to common repositories, and many corporations are investing in the integration and quality of their data.
Today’s sophisticated analytical tools include not only the established statistical regression and time series methods, but also statistically based machine-learning techniques that partially automate the processes of pattern recognition and prediction.
Almost every industry today – from professional athletics to wine – features one or more organizations that are pursuing analytical competition. Even in the cement industry, the Mexican company Cemex – the third-largest global producer – is using analytics to coordinate supply chains. In industries with substantial amounts of online information, including travel and transport, financial services and e-commerce, virtually all leading players are emphasizing analytics.
3. What's the payoff?
Most analytical competitors are leaders in their industries and quite successful in financial terms. In a study of 32 corporations with varying degrees of analytical orientation, an increased focus on analytics correlated with stronger financial performance. In another study of more than 400 firms, analytical competitors were five times more likely to be in the top-performing quintile than the bottom-performing.
The improvements in performance for analytical competitors are often dramatic. For example:
4. What information and technology do we need?
For starters, you must have high-quality, integrated data about the aspects of the business requiring analysis. Most companies today do not lack for sufficient amounts of data, but many still suffer from a lack of integration (Can the information be used together?) – and a lack of quality (How well does the data measure and represent the business phenomena that you want to analyze?) Without good data, you simply can’t do good analytics.
Key technology components:
The most common issue relative to analytical information and technology is having too much of it scattered about. Large organizations typically have multiple business intelligence software packages installed in different functions across the enterprise. They have multiple data warehouses. They have multiple versions of data, even around key business entities like customers. And they lack an overall technology architecture both complete and flexible enough to organize and manage information and technology assets as an agile enterprise platform.
5. What kind of people do we need?
You’ve got to have trained and skilled analytical people to do analytical work – and to succeed in analytical competition. There are three levels of analytical people to consider:
The most critical role, however, is the analytical manager, who can focus the work of analytical professionals. These managers must be intimately familiar with the business, experienced with analytical applications, and knowledgeable enough to credibly lead the analytical professionals
6. What roles must senior executives play?
Another prerequisite for analytical competition is committed senior executives who provide the passion and the resources to drive their organizations in an analytical direction. In virtually every firm that has determined to leverage analytics, the CEO and senior management team set an analytical strategy in the first place and then continually pushed it forward.
Meanwhile, other executives play vital roles in analytical competition:
Analytical competitors that are successful over the long run keep working at it – they are never finished and can hardly rest on their laurels. Analytical firms must continue to invest in new capabilities and broaden the basis of competition by extending analytics to different business functions and units. They must explore new metrics. They must learn the lessons from successful and unsuccessful business experiments and embed the learning into ongoing and automated business processes. And they must, of course, monitor and respond to competitors who will constantly challenge an analytically derived lead.