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Monday, February 20, 2006

Business Analytics : Game Changer – Stages Of Evolution

Last month, I covered on the topic of enterprise analytics. I also pointed out therein, the happening covered earlier here.Tom Davenport wrote in Jan issue of HBR an article titled competing on analytics. BAM, BI, CEP, analytics: whatever it might be – it is clearly making waves. We are seeing that industry after industry is beginning to heavily invest in enterprise data analytics. At a time when firms in many industries offer similar products and use comparable technologies, business processes are among the last remaining points of differentiation. And analytics competitors wring every last drop of value from those processes. Some companies have built their very businesses on their ability to collect, analyze, and act on data. I also wrote therein, while competing on analytics means competing on technology, these forward looking organizations apply technology - with a mixture of brute force and finesse - to multiple business problems, while directing their energies toward finding the right focus, building the right culture, and hiring the right people to make optimal use of the data they constantly churn. In the end, concludes Tom very rightly so, that people and strategy, as much as information technology, give such organizations strength. Most companies in most industries have excellent reasons to pursue strategies shaped by analytics.

Courtesy of Vinnie came across this followup article by Tom Davenport wherein he finds that a majority of companies pursuing optimization have failed to deliver the analytical capabilities necessary to make their strategies succeed. Most BI implementations have been Although typically marginal to the success of the business and are managed at the departmental level & in general these tools are invisible to senior executives, customers, and shareholders, and they don't propel the competitive strategy. Pointing out that a few businesses within financial services—particularly financial-investment and trading firms—have competed on analytics for decades, he sees the spread of analytical competition enterprisewide, to companies in a variety of other industries—including consumer finance, retail, and travel and entertainment. He reasons out for such organizations, analytics are becoming a primary competitive weapon. They use analytical tools to change the game, or to perform substantially better in the existing one. As Geoffrey Moore points out, business analytics needs to close the loop from generating the insights to using them to drive operating procedures that can systematically capitalize upon them in time and at scale has been the exception rather than the rule.When the exception happens, the results are transforming. But for the most part we see a landscape of intermittent connections, flashes of insight, but no systemic gain. He is on the mark in pointing out that most of the business analytics engagements inside enterprises represent a highly evolved form of corporate entertainment. Its core practitioners generate insights without accountability. They communicate those insights to business managers, who do have accountability and who are moved to act, but who are unable to do so in time.

Tom now identifies 5 stages in enterprise adoption of Business Analytics ranging from Stage 1 companies facing major barriers for implementation of analytics to Stage 5 companies that have embarked upon analytical competition as their primary dimension of strategy. He goes on to point to 11 of the 35 companies that he says he looked closely for assessing success of analytics initiatives : Apex Management Group, a health-care actuarial firm; Barclays Consumer Finance; Capital One; Harrah's; Marriott; Owens & Minor; Progressive; Wal-Mart; an unnamed consumer-products company; and two sports teams, the Boston Red Sox and the New England Patriots. Exhibiting all the attributes of analytical competitors he emphasises, these businesses are highly successful within their industries and attribute their good fortune at least in part to their analytical strategies. Barclays, for example, says its analytically oriented information-based customer management strategy let it increase revenue per active account by 25% while reducing delinquent accounts by 23%. He notes that these Stage 5 companies are committed to their analytical strategies from the bottom up, even to the level of the CEO. As the analytics industry is a mega segment and a fast growing one at that( repeated surveys show this as a high priority spend area for enterprises), and a very important technology that could be used for competitive differentiation by business , focus and research like this with linkages established to business results are highly encouraging. As consulting is all about delivered value, I strongly recommend more and more of such studies and results to be circualted and studied as the investments in IT keep increasing and Business demanding better and better returns out of such investments.

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