Business analytics make for smarter decisions

Every business can benefit from becoming more analytical across the board - understanding its customers, performing its operations, and making its decisions. But even the most analytically oriented company needs to target its analytical efforts where they will do the most good

Every business can benefit from becoming more analytical across the board - understanding its customers, performing its operations, and making its decisions. But even the most analytically oriented company needs to target its analytical efforts where they will do the most good, because resources, especially talent, are always...

constrained. And all business opportunities aren't created equal. Few confer breakthroughs in performance or differentiation in the marketplace.

For companies just embarking on the analytical journey, a specific business problem may be a good initial target. Perhaps customers are complaining about service or quality, or performance benchmarks show that a business process is wasting resources, or a competitor has raised the bar and you need analytics to determine and execute a response. At US cruise line Princess Cruises, for example, the initial target 10 years ago was revenue management. The CEO knew that other travel-oriented industries were managing revenues aggressively, but Princess's capability was only rudimentary, and it was easy to spot the lost revenue opportunity in every empty cabin as a ship left port.

As analytical experience and success grow, so targets become broader and more strategic: to optimise key business processes over time, and to innovate and operate in ways that differentiate the business in the eyes and experience of its customers. If they haven't already done so, companies should be targeting their analytical investments at their distinctive capabilities. These are the capabilities and integrated business processes that serve customers in ways that are differentiated from competitors and that create an organisation's formula for business success and therefore offer the richest targets. Princess, for example, began to focus on the analytical opportunities inherent in customer relationships: database marketing and targeted customer promotions.

A good target is so important to the business and so full of opportunity that it can engage top management commitment and create momentum. It focuses on generating insight rather than merely information, and is both ambitious and approachable: ambitious in that it impacts the business, and approachable in that it has access to the resources and capabilities to succeed.

For example, Sir Terry Leahy (if you do well with analytics, perhaps you too can land a knighthood), CEO of supermarket chain Tesco, says that the company's mission is to earn and grow the lifetime loyalty of its customers. Tesco's core aim, he says, is "to understand customers better than anyone". Having more information about customers is one side of the Tesco story, but Leahy says that information benefits customers as well: "Access to information helps retailers know much more about what their customers want and think. But it also gives customers a very powerful tool. They can compare prices and buy online at the click of a mouse. They can look at a retailer's ethical or environmental policies and find out what is being said about them anywhere in the world." Tesco's visionary target is world-class customer knowledge.

Finding Your Opportunities

Some organisations are content to take their opportunities wherever they find them. Their efforts are often misplaced. A much more purposeful approach is required.

The organisation's strategic plan, which is all about finding opportunities for business growth, innovation, differentiation and marketplace impact, may seem like a logical place to look for target opportunities. But you may not find what you're looking for when you pull a page from the strategic planning binder (or browse its PowerPoint or PDF). While the plan may indicate which business domain (customer service, product customisation, emerging market, etc) is important, it won't list which activities in that domain to target with analytics. Until the strategy formulation process incorporates an appreciation of analytics and gets specific about analytical targets (a point in time well beyond retirement for most of us), you may need to look in other places to discover analytical opportunities.

Most businesses also start looking for new ideas and practices by surveying what's happening elsewhere in their industries. What business and industry trends suggest the need or opportunity to change? Look across your industry and scrutinise the activities of your competitors on a regular basis. It keeps you alert and informed about what you must do to keep pace not only with the competition, but also with changing and rising customer expectations.

Looking within your own industry will only take you so far. In fact, it can be very limiting. Your industry will tell you what it takes to maintain parity of performance, but to discover opportunities for differentiation you need to be more creative. Following your industry means running with the pack, not getting out ahead. The most successful companies all strive to be first to market with analytical capabilities, not just to match their industries.

That's why two additional approaches to finding analytical opportunities should be adopted. Both are fundamental to understanding your business and its performance drivers, and should be exercised regularly.

First, do some big-picture thinking about the shape of your business and the trends affecting it: demographic shifts, economic trends, and changes in what customers want. This involves assessing where performance can improve and what factors drive performance. It also entails exploring your hunches about the business, what makes it tick, and where the next breakthrough may await.

Second, conduct a systematic inventory of your key business processes, the methods for decision-making within them, and the business decisions (from making an acquisition to issuing a line of credit) that could benefit from more and better analytics.

Practice Big-Picture Thinking

There are a variety of tools for big-picture thinking about your business, its performance drivers and its opportunities for differentiation. Use the tools that your company is familiar with and that have served it well. Most of them deconstruct your core processes in some way to explore how your many activities contribute to the overall results of your business. For example, managers at US gaming business Harrah's knew they wanted to drive growth through customer loyalty and data-driven marketing operations - the firm's distinctive capability. They used a "service-profit chain" model to understand and target key decision areas, with clear metrics for each activity.

High-potential targets for business analytics vary by industry dynamics and, of course, by how firms add value in the marketplace. Companies that produce physical assets (sometimes called value chain businesses) may want to focus on problems of supply/demand fluctuations, cost of assets, flexibility of operations, and interfaces with others in the supply chain. Pharmaceutical companies and others whose value is linked to the quality, quantity and marketability of their intellectual property ("value shops") should concentrate on analytical experimentation and decision-making. Internet businesses (like Facebook or eBay), financial institutions, telecoms companies and other "value network" businesses should examine how analytics can help them expand their customer and service networks.

This kind of value-based analysis can serve two important functions. First, it can help you focus on the fundamental objectives of the business and the ways analytics can serve them. A telecoms company that pursues efficient call centre usage over customer service might save money but might also shoot itself in the foot by driving customers away.

Second, it can suggest places to look outside your industry for fresh examples of analytical applications. When looking across industries for inspiration, your best hunting grounds are likely to be other industries with your value type (for example, telecom companies can learn from financial institutions). The best models are companies that face analogous business problems but in different contexts, and their analytical applications may be recognisable, relevant and transferrable.

You can find analytical opportunities by assessing your business decisions (regardless of their association with well-defined business processes) and asking how better information and analysis might yield better results. In general, look for the following conditions:

  1. complex decisions with lots of variables and steps
  2. simple decisions in which consistency is either desirable or required by law (such as non-discriminatory credit and lending)
  3. places where you need to optimise the process or activity as a whole (especially when decomposing and optimising locally cause you to suboptimise the whole)
  4. decisions in which you need to understand connections, correlations, and their significance
  5. places where you need better forecasts or anticipation

This is an extract from Analytics at Work: Smarter Decisions, Better Results, by Thomas Davenport, Jeanne Harris and Robert Morison

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