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A recent study by the Accenture Institute for High Performance Business in Wellesley, Massachusetts, found high-performance businesses were five times more likely than low performers to cite analytics as a key contributor to their competitive edge. "Firms â€¦ are outsmarting and outmaneuvering the competition because they have made information analysis and management a distinctive capability, one that is fundamental to their formula for doing business," observes Paul F. Nunes, an executive research fellow at the institute.
"In earlier days, when companies have used business intelligence [BI], they have focused more on reporting, which is a backward-looking activity. Analytics lead us to look forward and make predictions," says Davenport. "Competing on analytics is building your strategy and the way you go to market around your analytical capabilities. It's not just using analytics, which has been going on for quite a long time, but instead giving them much more priority as a competitive resource than they have been given in the past."
"Analytic competitors" are companies whose exceptional market position and superior performance derive directly from their ability to collect, analyze and act on data (constitutes the business model). As one would expect, the change requires a significant investment in technology, the accumulation of huge stores of data, and the formulation of company-wide strategies for managing the data. But at least as important, it requires executives' vocal, unswerving commitment and willingness to change the way employees think, work, and are treated. As Gary Loveman, CEO of analytics competitor Harrah's, frequently puts it, "Do we think this is true? Or do we know?"
A traditional company will merge into an analytical one
One analytics competitor that's at the top of its game is Marriott International. Over the past 20 years, the corporation has honed to a science its system for establishing the optimal price for guest rooms (the key analytics process in hotels, known as revenue management). Today, its ambitions are far grander.
Widespread use of modeling and optimization: - Analytics competitors look well beyond basic statistics. The companies use predictive modeling to identify the most profitable customers--plus those with the greatest profit potential and the ones most likely to cancel their accounts. They pool data generated in-house and data acquired from outside sources for a comprehensive understanding of their customers. They create complex models of how their operational costs relate to their financial performance. Leaders in analytics also use sophisticated experiments to measure the overall impact or "lift" of intervention strategies and then apply the results to continuously improve subsequent analyses.
An enterprise approach: - Analytics competitors understand that most business functions--even those, like marketing, that have historically depended on art rather than science--can be improved with sophisticated quantitative techniques. A) Like, UPS embodies the evolution from targeted analytics user to comprehensive analytics competitor. UPS still lacks the breadth of initiatives of a full-bore analytics competitor, but it is heading in that direction. B) Even in the sales and marketing, analysts supply data on opportunities for growth in existing markets to analysts who design corporate supply networks. The supply chain analysts, in turn, apply their expertise in certain decision-analysis techniques to such new areas as competitive intelligence.
Senior executive advocates. A company-wide embrace of analytics impels changes in culture, processes, behavior, and skills for many employees. And so, like any major transition, it requires leadership from executives at the very top who have a passion for the quantitative approach. Ideally, the principal advocate is the CEO. Indeed, we found several chief executives who have driven the shift to analytics at their companies over the past few years, including Loveman of Harrah's, Jeff Bezos of Amazon, and Rich Fairbank of Capital One. Before he retired from the Sara Lee Bakery Group, former CEO Barry Beracha kept a sign on his desk that summed up his personal and organizational philosophy: "In God we trust. All others bring data." CEOs leading the analytics charge require both an appreciation of and a familiarity with the subject. But research shows that human beings can make quick, surprisingly accurate assessments of personality and character based on simple observations. For analytics-minded leaders, then, the challenge boils down to knowing when to run with the numbers and when to run with their guts.
If we consider products and quantity sold a traditional company will look into a products their customer's product where as the analytical one will consider the prices willing to be paid, how many items each customer will buy and what the customer wants.
The second one being the compensation turn-over the prior one looks into the exact numbers whereas the later one considers how would it affect bottom line and how to relate performance?
The third being inventory level the prior one looks into altering low levels of inventory whereas the later one predicts demand and supply related issues help forecast better to achieve low rates of inventory and low costs their by.
Companies in realty every industry, from retail to healthcare, are finding that their former competitive strategies no longer make the grade. Research has proven that companies that have embraced analytics as a new, creative strategy are consistently forging ahead of their competition.
A. The United Kingdom-based Barclays PLC, one of the world's largest global financial services providers, identifies minute behavioral changes through its Teradata Customer Management solution, which indicates changes in customers' financial interests. Equipped with this data, Barclays provides every customers with relevant, timely information on how the bank's products and services can help the customer's changing needs across multiple channels, including the Web, ATMs, telephones, letters, e-mail and face-to-face contact.
B. The business strategy at Applebee's International, the world's largest casual-dining chain, operating restaurants in 49 U.S. states and 16 countries, is to offer good food at great prices in a friendly, neighborhood atmosphere. Applebee's does so by knowing customer priorities and, at the same time, decreasing costs by accurately predicting product demand. Applebee's pulls data from different sources, including point-of-sale systems at each restaurant, customer satisfaction ratings, and food cost and labor management systems. Analysts use the data to determine customer food preferences and also how customers want their food presented when it is served. The company also uses this information to customize menus and plan staffing at the regional level. This strategy has improved the company's ability to accurately forecast product needs and reduce overall costs.
C. "The people working the call center, may not have to produce algorithms for deciding the next best product to offer to a customer, but they do require some idea of why that product is being recommended so they can explain it to the customer," he says. "That's the challenge." From a technological standpoint, analytical competitors are going to view numerous new data types emerging that need to be managed and integrated. The life sciences sector, for instance, will be faced with novel types of genomic data; organizations with supply chains will need to deal with radio frequency identification (RFID) data; in customer management, companies will see new data from customer touch points.
D. The online travel agency is installing new text analytics software that will automatically points the facts, opinions, requests, trends and trouble spots from the unstructured data and then link that analysis with structured data from its data warehouse to help knowing the trends.
Challenges faced by an Analytic Company
a. Increasing competition among analytical companies is also an issue. Many of the early analytical competitors have found that some companies that they were previously leading are excelling them. Those initial adopters know the ongoing need to find new data sources and analytical approaches. "You've always got to be thinking about, 'Do I have the right strategy? Do I have the right analytical capabilities? Do I have the right analytical capabilities for my strategy?'" explains Davenport.
b. Another looming challenge is the issue of data privacy. European governments are presently more focused on data privacy in terms of regulation and policy than the U.S., but Davenport points out that more restrictions are likely in the future and the smart organization will be prepared for that.
According to Tom Davenport, a distinguished professor of Information Technology Management at Babson College in Massachusetts, analytical competitors need to focus on the DELTA model, an acronym for five crucial analytical factors.
Data:-Successful analytics requires large volumes of high-quality data that is integrated and accessible, typically in a data warehouse. "One of the reasons why a lot of Teradata's customers have been focused on analytics is because they can use the data in their Teradata systems to analyze," says Davenport.
Enterprise:-In many organizations, analytics are fragmented and siloed within different parts of the business. Groups within the organization, don't share data and have different technological solutions for generating analytics. "The companies that I identified as analytical competitors are taking an enterprise approach with respect to all the key resources," explains Davenport. "They are combining people into more central organizations, or at least networked organizations, so they are talking to each other and sharing ideas about how to be successful with analytics. They need to have an integrated approach to data in an enterprise-level warehouse. In order to do that, they are typically standardizing on a few key technologies."
Leadership: - "This is something that historically is not discussed much with regard to business intelligence [BI] and analytics, but I would argue it's the single most important factor," says Davenport. Senior managers and leaders need to support and have a passion about the subject of analytics in order to move an organization's culture in a more analytical and fact-based direction.
Targets:-Successful organizations do not, at least to start with, take an analytical approach to every aspect of the business but instead select a particular set of relationships to focus on, such as suppliers, employees or customers. An automobile insurance company might target pricing risk,for Harrah's, the target is customer loyalty; and for a large North American bank it is understanding and optimizing customer relationships. "Over time, you do find that companies tend to take on more and more analytical applications, but at least initially they tend to have a target that is highly related to their predictive capabilities as a business," says Davenport.
Analysts/Action:-Davenport says that an organization's analysts must be capable not only in terms of their analytical and quantitative sophistication but also in their ability to communicate results to the decision makers, persuading them to act on the basis of the analytics.
The sources of strength for an Analytical competitor
Right Focus, Right Culture, Right People and Using Right Technology
Right Focus: Analytics competitors encourage universal fact-based decisions, they must choose where to direct resource-intensive efforts. Generally, they pick several functions 0r initiatives that together serve an overarching strategy.
E.g. a) Harrah's has directed much of its analytical activity increasing customer loyalty, service, pricing and promotion. b).UPS has broadened its focus from logistics to customers as we already saw. c) Usage of the right tools: Marketing- Multi Attribute utility theory, Advertisements econometric- statistical techniques to measure lift received due to promotion.
The right culture: Culture is a soft concept; analytics on the other hand is a hard discipline. Analytic competitors must instill a company-wide respect for measuring, testing, and evaluating quantitative evidence. Employees are urged to base decisions on hard facts and they know that their performance is gauged the same way. Human resource organizations within analytics competitors are rigorous about applying metrics to compensation and rewards. These simply account for Decisions based on measurement, testing and quantitative backing.
E.g. a) HR and how it applies metrics to compensation and appraisal.
b) Some companies have their R&D also metric driven, this sometimes leads to clashes
between the organization and innovative or entrepreneurial pulses in the organization,
due to want of evidence like Yahoo, Progressive etc.
The right people: Analytical firms hire analytical people and like all companies that compete on talent, they pursue the best. The needs justify the demand. The needs include Conceptual, problem solving abilities, quantitative analytical aptitudes, ability to use various kinds of software's effectively, experience with project management etc.
Also a right mix "PhDs with personality" are in high demand. Some organizations outsource these jobs to countries such as INDIA, but the distance becomes an issue during various strategic decision making situations.
The right technology: Competing on analytics is directly related to competing on technology. How best and easily you convert available data into meaningful interpretation is the key- Data Strategy, Business intelligence software, Computing hardware.
One large U.S. bank performs about 60,000 experiments a year, and another does not move forward in any area without testing first. "If you have an analytical culture, the rest is much easier to fall into place," Davenport says. "It's much more difficult to change the human being than it is to gather the data and build the algorithms and so on."
By reading this article every one will be changing the opinion about traditional way of doing things like mere collection of data etc. Decision making is at the core of business management and, in fact, at the core of human existence. In a sense, the present is a result of our past decisions, and today's decisions will shape the future. This applies equally to individuals, organizations, companies, nations, and perhaps even the human race. It is important to note that decisions can sometimes conflict with morals and ethics. An ethical manager must seek to eliminate any such possible conflicts. By this, I came to a conclusion regarding the decision making in enterprise that each and every person irrespective of the position they hold, they should try to put their potential rather than their gut feelings, cultures, morals and believes. Steps to be followed in order to be a competitor analytic is to be able to implement what is learned, experienced and read, the second one being extensive training.
I confirm with the views about the analytic competitors from the reading as they play an important role for the organization we are working for and the wide range of competition we have to face in this part of era. I being from a different culture would strive hard not to hamper the beneficial aspects for the organization, but not to such an extent that I have to forgo my morals/beliefs.
I would like to quote an example, in our home country few organizations hire people in high positions on the basis of caste & creed. So, if I have to change that in order to see me in the position I dreamt of then I can't do it. It will be like cheating myself for the sake of bodily existence.
Becoming an analytical competitor (Teradata Magazine -June 2007). Leading organizations derive a distinct competitive advantage from finely tuned data analysis by Cheryl D. Krivda.
Davenport, T. (2006, January). Competing on analytics. Harvard Business Review, 84(1), 98-107.
Once a "nice-to-have," applying analytics is now mission-critical(Information Management Online, November 12, 2009) by Gary Cokins
"High Performance: Intelligent Use of Information Is a Powerful Corporate Tool," Peggy Anne Salz, WallStreet Journal Online, http://online.wsj.com/public/resources/documents/accenture_demo4.html.
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