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Britton Manasco specializes in customer-focused initiatives that build business credibility and strengthen sales growth. His articles have appeared in Harvard Business Review; The New York Times; Sales and Marketing Management; CIO Magazine; 1to1 Magazine; and many other media outlets.
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October 30, 2005

Competing on Analytics

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Posted by Britton

Ready for the next stage in the evolution of business? Tom Davenport, director of research at Babson College and author of the new book Thinking for a Living, contends it is "competing on analytics" (COA). This is the point when data- and fact-based decisions become the primary basis of competition. right

Speaking last week at the Better Management Live conference in Las Vegas, Davenport explained that analytics enable "the optimization of key business processes" -- whether in the realm of human resources, supply chains or customer relationships. As Davenport's research suggests, such moves are proving to be a key element of competitive differentiation and market growth.

In a study of 32 enterprises, Davenport found multiple organizations that are competing on analytics at this point. Among them: Marriott; Walmart; Mars; Dell; Procter & Gamble; Progressive Insurance; Harrah's; Gallo; Capital One; Amazon.com; Yahoo; Google; and Verizon. He also mentions sports teams -- such as the Oakland A's, Boston Red Sox and the New England Patriots -- that are thriving on statistical modeling and analysis. This suggests that analytical leadership has the potential to transform all industries and fields of endeavor in the coming years.

Davenport offers five stages of development in this regard:

Stage 5: Clearly competing on analytics (11 of 32) ;
Stage 4: Clear intent and almost there (6 of 32);
Stage 3: Have vision, but a long way to go (7 of 32);
Stage 2: Some local, non-strategic analytical activity (6 of 32);
Stage 1: Still wrestling with the basics (2 of 32).

Finally, Davenport offers some key factors associated with competing on analytics. He points to the importance of gaining senior management commitment, engaging in sophisticated analytics (such as predictive modeling) and being able to manage business intelligence at an enterprise level.

Harrah's, whose CEO has led the charge in this direction, is a triumphant exemplar of the approach. Indeed, the gaming giant is presently working on an initiative called "Project Moonshot" that would enable it to leverage cross-property intelligence to engage in real-time service interventions. Lose a bundle on the slots or at the craps table? You can expect an attractive host or hostess (who has just been flagged electronically) to step up beside you at the moment of disappointment and offer you a gift that reflects your personal preferences -- whether it's a spa day, a golf outing or tickets to Cirque Du Soleil. Now, every loyal and profitable customer -- who happens to be carrying a trackable "Total Rewards" card -- can feel like a high roller. Welcome to the future.

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COMMENTS

1. Neil Raden on November 5, 2005 11:55 PM writes...

There are two schools of thought when it comes to the value of BI in general. One is that it is best used by "quantitative" types and other analytical business people, who can spot trends and analyze patterns to assist in the big decisions and set and direct strategy. The other position is that BI is at its best when helping a broad range of people and processes at an operational level, marginally improving performance, repeatedly and often. The former is the commonly held view of management consultants and, previously, BI practitioners a decade ago. The latter position gained currency in the last few years and is now widely seen as borne out in practice. Using BI to form a new strategy for a global financial services firm makes for good marketing collateral, but when it comes to ROI, lots of small improvements are the way to go.

Tom takes the position that only a centralized cadre of statisticians is capable of providing the analytics necessary. I couldn't agree less and we disagree on this point. The difference is that Tom has surveyed 32 companies and I've been in the trenches as a consultant exclusively in this area for over 20 years. Basically, people in organizations only listen to their own kind. No one will run a company on the recommendations of a few rocket scientists in the basement.

I've offered, and Tom has more or less accepted, to provide some real counter-examples of companies where analytical capabilities are broadly dispersed and supported by software that can extend and adapt to a broad range of backgrounds and skill.

-Neil Raden
nraden@hiredbrains.com

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2. Britton Manasco on November 6, 2005 12:11 PM writes...

Neil,

Fascinating counterpoint. Please let me know if and when you publish your perspectives on this subject. I'd like to cite you and help "CI" readers/visitors/contributors understand that there is, in fact, more than one school of thought. It occurs to me, however, that the "third school" might advocate a synthesis of the centralized/decentralized approaches -- recognizing the necessity of a centralized role (engaged in boundary spanning projects and encouraging coordination) as well as decentralized action (where BI pervades the culture and is applied more broadly). Just as we have a supreme court and a congress; we also have state legislatures and district courts.

Britton

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3. Neil Raden on January 23, 2006 11:57 PM writes...

Britton,

I guess I wasn't very clear. I agree that advanced analytics, performed by people with the kind of exquisite training and background that is needed, are very useful. Insurance companies have been doing it for centuries - they're called actuaries. I used to be one.

What troubles me is that there is this theory running through the management consultants that just the way Wall Street rolled over in the 90's and went quant, the same thing is going to happen in the executive suite. Companies aren't Wall Street, they have real work to do inventing products, servicing customers, dealing with competitors, making long-term plans.

Of course I agree with your third alternative, I did not mean to preclude it. But have a look at the dozen or companies Tom singles out in the January, 2006 Harvard Business Review article. Only two of them outperformed the NASDAQ for 2005, and over half of them lost market cap. The proof of the pudding, as they say. Also, have a read of www.hiredbrains.com/davenport01.htm

-NR

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4. disgusted by analytics on July 25, 2006 10:02 PM writes...

That is some funny shit. But I'm not sure if I enjoyed Neil bitchslapping or Tom's silence throughout this ordeal.

Who won in the end? My money is on Neil.

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