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Can Business Analytics Deliver Home Runs?

Mar. 1, 2006

Amazon, Harrah's, Capital One, and the Boston Red Sox have something in common. According to a recent article by Thomas Davenport in the Harvard Business Review, they are examples of organizations that dominate their fields by deploying industrial-strength analytics across a wide variety of activities.¹

In his HBR article, Competing on Analytics, Mr. Davenport differentiated between organizations that may have reports and analytics; and organizations like the BoSox that compete based on them. For Mr. Davenport, “analytics” captures the essence of business intelligence and performance management-creating an information environment that fuels fact-based decision making, company-wide.

For example, while many companies may know what products their customers want based on sales reports, analytical competitors know what prices those customers will pay, how many items each will buy in a lifetime, and what triggers will make people buy more.²

The article offers numerous powerful examples, including this one from UPS:

“The UPS Customer Intelligence Group, for example, is able to accurately predict customer defections by examining usage patterns and complaints. When the data point to a potential defector, a salesperson contacts that customer to review and resolve the problem, dramatically reducing the loss of accounts.”³

Few other reports or articles from analysts or experts present as clear a case for business intelligence as this one. But at the same time, Mr. Davenport's HBR article points out that buying technology is just one part of the solution. The experience of Cognos, an IBM company, with thousands of customers around the world confirms this. In addition to technology, companies that compete on analytics direct their energies to also developing:

• The right focus.
• The right culture.
• The right people.

Focus

While encouraging fact-based decisions enterprise-wide is a good thing, analytics competitors ensure they concentrate analytic resources where they can have the most impact. Entertainment and resort operator Harrah's focuses its efforts on how to improve customer loyalty and service. UPS focuses on logistics and customers. Mr. Davenport's article identifies these two and five other common targets for analytical activity.

Culture

Analytics competitors instill a tough equality based on facts. There is a company-wide respect for measuring, testing, and evaluating quantitative evidence. Senior executives show a desire for, confidence in, and reward for fact and analysis. As one CEO said: “If the decision is going to be made by facts, then everyone's facts, as long as they're relevant, are equal. If the decision is based on opinions, then mine is going to count for a lot more.”⁴ For analytics competitors, the culture clearly prefers the former approach.

People

Analytics competitors hire better analysts (and more of them) than other companies. They choose and train analysts with expertise in math, stats, and analysis, and who also speak the business language. Established analytics competitors such as Capital One employ squadrons of analysts to conduct quantitative experiments and, with the results in hand, design credit card and other financial offers. “We're really a company of analysts,” one executive noted. “It's the primary job in this place.”⁵

Technology

Competing on analytics means competing on technology.⁶ You need a data strategy that lets you present information in standard formats, integrate it, store it, and make it easily accessible. You also need business intelligence software that makes information available in reports, alerts, and scorecards. And you need computing hardware that can manage the volumes of data needed.

The secret of their success

One reason for the rise in companies competing on analytics, according to Mr. Davenport, is that many companies in many industries offer similar products and use comparable technologies. Therefore, business processes are among the last remaining points of differentiation.

And analytic competitors are wringing every last drop of value from those processes.

Where to apply the analysis⁷

Mr. Davenport's HBR article points out seven common areas of focus for analytics competitors and some of the companies pursuing them. These processes are great places to start for you to consider how better information and rigorous fact-based decisions can make a difference.

Supply chain

Simulate and optimize supply chain flows; reduce inventory and stock-outs.
(Dell, Amazon)

Customer selection, loyalty, and service

Identify customers with the greatest profit potential; increase likelihood that they will want the product or service offering; retain their loyalty. (Harrah's, Capital One, Barclays)

Pricing

Identify the price that will maximize yield, or profit. (Progressive, Marriott)

Human Capital

Select the best employees for particular tasks or jobs, at particular compensation levels. (New England Patriots, Oakland A's, Boston Red Sox)

Product and service quality

Detect quality problems early and minimize them. (Honda, Intel)

Financial performance

Better understand the drivers of financial performance and the effects of nonfinancial factors. (MCI, Verizon)

Research and development

Improve quality, efficacy, and, where applicable, safety of products and services. (Novartis, Amazon, Yahoo)

Find Out More Cognos Press Release, Cognos to Drive Performance Management at Amazon.com Harrah's Success Story

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Sources:

¹ Thomas H. Davenport, Competing on Analytics, Harvard Business Review, January 2006, p. 99.

² ibid, page 100.

³ ibid, page 102.

⁴ Jeffrey Pfeffer and Robert Sutton, Evidence-based Mangement, Harvard Business Review, January 2006, page 74.

⁵ Thomas H. Davenport, Competing on Analytics, Harvard Business Review, January 2006, p. 105.

⁶ibid, page 106.

⁷ibid, page 105.