Executive Edge: The Rise of Strategic Analytics
By Tom Davenport
Analytics isn’t a new subject, even for me. Like most professors, I did a lot of analytics in graduate school, and even had a real job as head of statistical computing at Harvard for a while. Then I lost interest for 20 years outside of an occasional correlation or regression analysis. I did work for several years as a consultant for a firm that did “decision support” consulting, but it wasn’t actually very analytical.
But in the late 90s, data mining got my dander up and resuscitated my interest in analytics. I was primarily doing work in knowledge management at the time, and unlike most in that field, considered data-derived knowledge to be an important type of knowledge for many organizations. I read and heard often that data mining was eliminating the need for humans and hypotheses.
Now I was trained as a sociologist, and I like humans. I get annoyed when I hear they are no longer necessary. So I began a research project (with Jeanne Harris at Accenture, who has been my frequent collaborator on analytics research) to see if highly analytical organizations still had a lot of smart people involved. It turned out that they did. We published this article in but still seemed a bit marginal to almost every firm’s strategy.
I might have spent another 20 years ignoring analytics if not for SAS and Intel, representatives of which approached me in late 2004. They asked if I was interested in doing research on how companies were using business intelligence, and offered to support my research center if I would. I wasn’t sure that I would find much of anything, but my research center needed financial help. So I went out and interviewed 32 companies about their use of BI and analytics.
From Backroom to Boardroom
Something seemed to have changed since I had last examined the topic. For some companies (about a third of the 32 I interviewed, though it was not a random sample), analytics had clearly moved from the back room to the boardroom. I concluded that such firms as Capital One, Progressive Insurance, Harrah’s, Netflix and Google were “competing on analytics.” So I wrote a Harvard Business Review article by that name in the January 2006 issue.
Somewhat to my surprise, the article was popular — so much so that it became the best-selling HBR reprint for the entire year. I could attribute that to my brilliant for a business.
I went on to write a book in 2007 called “Competing on Analytics” (with my former colleague at Accenture, Jeanne Harris). It too sold much better than I anticipated, and has been translated into 14 languages. I’ve spoken at many conferences in North and South America, Europe, Asia and Africa, at individual companies on multiple continents, and even at a series of dinner seminars in the U.S. and Europe (residents of Antarctica have thus far resisted the topic).
Since when did analytics become a suitable topic for after-dinner speeches? Again, I could credit the dulcet tones of my own voice, but I think it’s more the topic that has succeeded. Not so much the topic of analytics itself — I rarely digress on logistic regression or the power of Chi Square Automatic Interaction Detection — but on the role of analytics in business success, and how companies can build their analytical capabilities.
An executive from one of the highly analytical companies I’ve researched, Capital One, noted at one of these conferences, “It’s not about the numbers.” Sure, algorithms are important, but I’d argue that many non-numeric factors are just as important in analytical competition. One critical one is leadership. The companies I found that had built their strategies around analytics were passionate advocates of data, extensive analysis and fact-based decisions. Only a few had been converted to a belief in analytics; most had quantitative backgrounds and had been strong advocates of analytics their entire careers.
Another key factor in analytical competition that isn’t primarily quantitative is the selection of a target for analytics. Few companies can afford to be analytical about everything, so most need to pick an initial area of distinctive capability that analytics can support. For Harrah’s, the primary target was loyalty; for Progressive, it was the pricing of risk. Google started its analytical focus with page rank algorithms, and over time shifted to advertising-related analytics. Companies can eventually address multiple analytical domains, but they need to start somewhere, and the somewhere should be central to their strategy. In order to select the target, executives usually need not analytics, but a great understanding of where their industries and customers are going, and how their businesses fit into those directions.
Entire Enterprise Engaged
There are also all sorts of organizational considerations in firms that are heavily analytical. Back when analytics was a back-room activity, it tended to be quite siloed within particular functions and units. Analysts from different functions or different analytical traditions didn’t talk much to each other. But in most of the analytical competitors I’ve studied, the entire enterprise gets engaged with the topic. Separate groups start communicating and collaborating, and in increasing numbers of firms, they are combined into a central group. Just how to achieve that “enterprise” perspective on analytics is a serious issue involving politics, people, and processes.
The best news is that my research suggests analytics and quantitative analysts have nowhere to go but up in organizations. Organizations like INFORMS [Institute for Operations Research and the Management Sciences, www.informs.org)] can be very helpful in facilitating this rise. But rather than the old narrow focus on operations research, the current analytics environment requires combining multiple analytical tools and perspectives, effective framing of decisions, a strong focus on telling compelling stories with data and analysis, and extensive familiarity with current IT architectures. With a broad, “catholic” orientation to analytics, INFORMS and the people who comprise it will inherit the earth!
Thomas H. Davenport (www.tomdavenport.com/about.html) is the President’s Distinguished Professor of Information Technology and Management at Babson College. Professor Davenport has written, co-authored or edited 12 books, including the first books on business process reengineering, knowledge management and the business use of enterprise systems. His most recent book (with Jeanne Harris), “Competing on Analytics: The New Science of Winning,” was an immediate best-seller. In 2003, he was named one of the top 25 consultants in the world by Consulting magazine; in 2005 he was rated the third most influential business and technology analyst in the world (after Peter Drucker and Tom Friedman); and in 2007 he was the highest-ranking business academic in Ziff-Davis’ listing of the 100 most influential people in the IT industry.
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