The Academy Awards and business analytics

Gary Cokins
Gary Cokins|February 21, 2012

A year ago I wrote a similar blog as this one based on my finding the acceptance speeches at Hollywood’s Academy Awards to be inspirational. The speeches I enjoy most are Oscar recipients who thank the teams that contributed to their receiving the award. Success comes much more from teams than from an individual’s performance.  This is my update for the 2012 best film nominees.  

My favorite acceptance speeches are from Oscar recipients in science and technology. In contrast to actors, directors and writers, these winners love pushing the envelope in fields like animation, special effects, costume design and sound editing. They are like NASA engineers enjoying the thrill of landing an astronaut on the moon or placing a telescope in orbit that can provide facts that answer questions that so many of us are interested in the answers.

 

How do film awards relate to implementing business analytics projects?

There is a tight connection between Oscar winners and project teams implementing business analytics and enterprise performance management methodologies (EPM). Examples of EPM are customer profitability analysis, driver-based rolling financial forecasts, strategic scorecards, and operational dashboards. Each EPM methodology is imbedded with business analytics of all flavors, such as regression and correlation analysis. Project teams also enjoy success seeing their business analytics and EPM solutions go live and being leveraged for employees to gain insights, make better decisions and align work activities and priorities with the executive team’s strategy.

Here are few examples of the Academy Award nominees with these connections:

 

  • Moneyball – In this film Brad Pitt performs as the general manager of Oakland Athletics baseball team in a true story. It is about how he was faced with a very limited budget for player salaries compared to the big budget trams, like the New York Yankees. In desperation he turned to a statistician who understood that the superior indicators for winning games were not the traditional ones like a player’s batting average but rather more insightful ones related to getting players on base and advancing them to score runs and win. This film has arguably given analytics more visibility to analytics than any other film.

 

  • The Artist – In this film about a silent film star whose career declines when sound is added to film as talkies. He reinvents himself with exceptional dancing skills to become a star again. The connection to analytics is that when traditional solutions become less effective, and even ineffective, one must shift to alternative and better ways to solve problems. On a personal career basis, one may have get educated and trained in new methods that are different from what previously advanced their career.  

 

  • The Descendants – In this film the actor George Clooney plays a father whose marriage failed and divorced. When his ex-wife unexpectedly dies he takes responsibility for his two teenage children who had been living with their mother. The children are initially rebellious, and he is able to tame them with love. The parallel to analytics is that when analysts are faced with executives and managers who are resistant to being receptive to new ways, are adverse to taking risks, or cannot adjust to new circumstances (e.g., market changes or new aggressive competitors), analysts must use behavioral change management techniques to get their buy-in and acceptance.

 

  • The War Horse – In this film that begins a few years before World War I in Scotland due to his family’s dire financial situation a boy is forced to sell his horse. As the years pass and the boy and the horse, still separated, both show exceptional strength fighting in the war. They are miraculously reunited at the end.  We learn how perseverance and hope can lead to victory. The parallel to analytics is that analysts and passionate middle managers should never give up on believing in and proving that what they do will lead to success. 

 

  • The Iron Lady – In this film the actress Meryl Streep plays Margaret Thatcher’s braking through social class and gender barriers to become the United Kingdom’s first prime minister. The parallel to business analytics is that analysts must always assess who they are attempting to influence and how to exhibit leadership through their own ideas.

 

  • Hugo – This film directed by Martin Scorsese tells the tale of Hugo who is an orphan boy living a secret life in the walls of a Paris train station. When Hugo encounters a broken machine, an eccentric girl, and the reserved man who runs the toy shop, he is caught up in a magical and dream-like adventure. The parallel is that everyone’s professional career is also an adventure. Like Hugo who exhibits fearless courage in the film, those who are brave and have nerve can help their organization attain superior performance. I have always felt that being a dreamer is integral to being innovative.

 

Implementing business analytics and EPM methodologies is a challenge that requires teamwork. The most motivating Oscar acceptance speeches for me are not self-serving but rather are speeches that humbly acknowledge that the collective effort of a team makes the difference.

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Watch my hips, not my lips

Gary Cokins
Gary Cokins|February 14, 2012

Many organizations over plan and under execute. The managerial styles I admire are ones with a bias towards action. Not wild actions to run the train off the tracks, but actions that move the train forward.

The most memorable managers I have worked for were those with a ready-fire-aim approach to leadership. This does not mean they had little idea where they were going and were consequently flailing. It means they were anxious to make progress and realize measurable results. Today we are in a speed-up world. The countries and economies of our world have shifted from being disconnected to connected to inter-connected to interdependent. As this has occurred analytics provide insights for better and faster decision making.  

 

Pareto was right

I love Pareto’s principle, named after an Italian economist Vilfredo Pareto. It is known as the 80–20 rule which is the law of the vital few factors. The principle states that for many events, roughly 80% of the effects come from 20% of the causes. This acceptance of focusing on the vital few factors rather than the trivial many gets things done more quickly.

W. Edward Deming was an American statistician and consultant best known for his work with Japan companies in the 1950s. He taught top Japanese management how to improve through various methods, including the application of statistical methods. Deming was an advocate of the repetitive cycle to plan-do-check-act with its acronym PDCA. Improvement is aided by learning curves meaning that feedback from experience is a staircase to refining a process, product or service until it is good enough – until it meets the specifications. Just don’t define the specifications too tightly.  

Perfection and precision are not in my vocabulary. I believe there are diminishing returns of incremental improvement for the extra effort of work to make the improvement. I like managers who advocate quick pilots, proof of concept experiments, and rapid prototyping with iterative re-modeling methods. My standard test question for time and effort on a project is, “Is the higher climb worth the view?”

 

Gaining speed through granting decision rights

An obvious example of not getting sufficient traction to accelerate speed is long meetings. These are the meetings that neglect to conclude with defined next steps and may be dominated by one or a few who seem to like to hear themselves speak.

Another example of drag on action is the approval process. Too many managers may be involved. Performance improvement actions are the consequence of thousands of daily decisions made by employees. There are two powerful levers for performance improvement and more broadly execution of the executive team’s formulated strategy: (1) clarifying decision rights, and (2) designing effective information flows.

Clarifying decision rights – As organizations grow in size, the approval process gets complex and foggy. Employees become unsure where one person’s accountability begins and another’s ends. Work-arounds then subvert formal hierarchical reporting relationships. Clarifying who has what decision-making authority and empowering decentralized decisions lower into the organization brings mission-critical agility – as long as trust is given by the executives and second-guessing by supervisors is minimized.

Designing effective information flows – Decisions are based on information. Too often information flows are blocked by organizational silos. Collaboration is important. To complicate matters, logical and judicious decisions are constrained by the type and quality of information available to employees. Some organizations simply have inconsistent and poor-quality data. Even with a new transactional business system, such as an enterprise resource planning (ERP) or customer relationship management (CRM) system, organizations drown in oceans of data but starve for information in a form that business analytics can mine and that can be quickly interpreted in the context of a problem or needed decision.  

 

Capitalizing on big data and business and business analytics

Big data and business analytics are now frequently written about, embraced by the business intelligence community, and becoming a “hot” topic. But how hot? To become a rage – hot enough to become a raging fire – there will be more needed than hollow worded talk and lip service.

The type of management style I hope rises is one where employees are inspired by managers where you watch their hips and not their lips.

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Could Beethoven have implemented business analytics?

Gary Cokins
Gary Cokins|February 7, 2012

Could the great classical music composer Ludwig Beethoven successfully implement business analytics in an organization?

I was educated as an industrial engineer, and I do not view myself as a scholar of the performing arts, literature, or classical music. However I have always been a careful observer and listener of what I see and hear. As I continuously witness the success and failure of attempts to implement business analytics, I compare them with Beethoven. Why?

During Beethoven’s “middle period” of music composition he was attracted to heroes and heroic efforts. This was the time period around 1810 that he composed some of his most popularly recognized pieces such as Eroica (his Third Symphony), Egmont (from Goethe, and his Op. 84), and Emperor (piano concerto no. 5 in E-flat, Op. 73). What is common about Beethoven’s interest in heroics and champion-like project managers who take on the challenge to implement business analytics? It is these three heroic phases: crisis, struggle, and triumph.

 

(1) Crisis

The initiation of a business analytics project, such as credit scoring of individuals for bank loans, may not result from a crisis. But you could associate a quickly emerging organizational interest and eventual need in such a methodology to being a crisis situation. The spark typically occurs when an executive (or a champion or coalition of concerned managers) realizes disturbing deficiencies.

An example of these crisis sparks is when managers realize they have little understanding of their customers’ profiles, preferences, and potential sales and profitability. Another example is when employees have little or no clue as to what the executive team’s strategy is. Another example is when an unexpected and damaging risk occurs that analytics would have detected. There are other similar types of deficiencies I could describe, but the point here is the crisis moment emerges when some motivated managers start asking, “How long do we want to perpetuate operating this way and making decisions with no or flawed and misleading information, measures, and financial reporting?”

This is when, in my opinion, Beethoven is at his best. It begins with the first of his four orchestral movements. The music starts with a single note or a few brief chords or with a melodramatic song giving the feel of a thunderstorm or being lost in a blinding snow storm.

 

(2) Struggle

The next stage of heroics in Beethoven’s works is the struggle. How do we get started? What is the road map? How do we get buy-in, both from executives at the top and co-workers and employees at the bottom? How do we get funding? How do we select a problem or opportunity to apply business analytics to? How do we select the correct key performance indicators (KPIs) that have correlation and explanatory value? Where do we get all the input data to feed our systems? Do we even have the data? If we have the data, are there quality and integrity problems with it? Is the data scattered about in disconnected and disparate data sources?

Life and work can be a struggle.

How did Beethoven compose his music to deal with this phase in his second and third movements? He did it by being sometimes moody and sometimes sad.

 

(3) Triumph

Not everyone wins. It is so tragic to me discuss with an organization that initiated and even completed a business analytics project, like for demand forecasting; and then discover they abandoned it. An executive pulled the plug on it. It may have been overly complicated. They may have concluded it is not worth the administrative effort to collect, calculate, and report the information. Alternatively the methodology may be something a new executive does not understand.

But you can triumph and win.

Beethoven provides us with the thrill of triumph in his fourth and last movement. The decibels grow louder. The chords are crisper. At this point you want to march with your feet to his music.

What are critical success factors to implement business analytics?

What does it take to triumph in successfully implementing business analytics? A few tips. Do not over-plan and under-execute. Analysis paralysis or brain-freeze. Just get going. Make mistakes early and often, to learn from, and not later when it is costly to make changes. Also, organizations often under-estimate the magnitude of peoples’ resistance to change. They need to master behavioral change management despite not being trained as a sociologist or psychologist.

So, how successful would Beethoven have been implementing business analytics? Read my article, Beethoven's Eroica Effect on Analytics-based Enterprise Performance Management, and you will know my answer.

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Accountants’ darkest time is just before the dawn

Gary Cokins
Gary Cokins|January 31, 2012

CFOs and their finance and accounting function have been distracted from being their coveted strategic partner role because they are mired with regulatory and compliance work. That is now changing. They are embracing business analytics.

The history of accounting

I will substantially oversimplify the history of accounting mainly for the purpose to provide perspective for a new era I anticipate will soon (or at least eventually) emerge. Here is all you need to know about accounting’s history:

1492 – The Italian Franciscan friar, Luca Pacioli, devises double-entry bookkeeping to track sailing ship cargo and for merchants.

1890s – Alexander Hamilton Church designs managerial cost accounting practices to mirror the industrial scientific revolution techniques of the famed industrial engineer Frederick Winslow Taylor.

1910 to 1985 – Accounting’s Dark Ages. Regulatory laws that were enacted in the USA following the Great Depression created new financial accounting rules to protect investors from abuses that contributed to the Great Depression. This shifted the emphasis from managerial accounting, developed by engineers to support analysis and decisions, to financial accounting and reporting performed by chartered accountants (e.g., CPAs).

1985 – Professors Robert S. Kaplan and Robin Cooper publish research about activity-based costing (ABC). Kaplan co-authors the book, “Relevance Lost” soon followed by “Relevance Regained.”

2001 – the Enron Corporation scandal. New regulatory laws are enacted, most notably Sarbanes-Oxley.

2002 to 2010 – Accounting’s Dark Ages resume. I have suggested to Professor Kaplan, who trained me on ABC when I was with KPMG consulting,  that he should write a third book in his series, “Relevance Re-lost.”

Accountants shift from financial to managerial accounting with analytics

So what is now the current situation regarding the health of accounting? Sadly, financial accounting (i.e., external compliance reporting; for valuation) remains dominant over managerial accounting (i.e., internal reporting; for creating value). You can read more in my blog “Does financial accounting deserve superiority over managerial accounting?” I am predicting a reversal shift in importance of these two branches of accounting and possibly a punctuated leap. In this shift organizations will advance beyond managerial accounting to managerial economics to support analysis and decision making powered by business analytics such as correlation and regression analysis.

Leadership Accounting

Doug Hicks, founder and president of his consulting firm, DT Hicks & Company, who is one of the most astute practitioner sages of accounting is excellent at assessing the future potential of managerial accounting. He has coined the term “leadership accounting.”

Hicks has observed that the demands of external reporting, regulatory compliance, and financial administration have kept accountants from performing their role in driving economic value. In addition, GAAP-based financial and performance measurements obstruct accountants from contributing to economic value. Hicks views “leadership accounting” are these: to drive economic value (i.e., generating increasing income); to involve strategy management (actions with performance metrics and targets); and to apply principles-based managerial accounting (e.g., reflecting cause-and-effect relationships) to support analysis and decisions.

Decision Maker versus Decision Leader

Hicks describes a “decision maker” as one who has the ultimate responsibility for a decision. This contrasts with a “decision leader” as someone who ensures the quality and capability of decision making for all employees. The darkest time is before the dawn.

Hicks observed that the CFO and management accountants are well-positioned for a “decision leader” role because they already have much governance and oversight responsibilities. Further, they are the closest role of an economist for most organizations.

The “decision leader” role is to prevent dysfunctional managerial methods and incentives. This includes debunking the false assumption that financial accounting conventions result in valid economic data appropriate for decision making. It does not. Applying traditional standard costing for GAAP reporting to investors may be acceptable, but managerial accounting, including activity-based costing (ABC) principles should be used for internal analysis. I expand on this in my article “The Shift to Predictive Accounting.”

Accounting’s Dark Ages

I predict that the field of managerial accounting will lift from the stagnation since the early 1900s and re-balance. The shift in the CFO’s emphasis from financial accounting to managerial economics (e.g., incremental / marginal cost analysis in the “relevant” range) is now enabled with commercial software, such as from my employer SAS, to financially model physical operations.

As evidence, I participate on task force for the American Accounting Association comprised of leading university accounting faculty. The task force’s mission is to define reforms to accounting course curriculum correct this imbalance and prepare business students with competencies to manage organizations, not just to audit and prepare financial statements for regulatory agencies and investors.

As further evidence read my IIA Research Brief for the International Institute of Analytics on “Trends and Visions of Analytics in the CFO and Accounting Function.”

Just as the Dark Ages evolved into the Renaissance era, the shift to place much greater value on managerial accounting is sure to come.

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CFO.com’s CPM conference: CFOs see FOs

Gary Cokins
Gary Cokins|January 24, 2012

This January 30th the publisher CFO.com, that ranks roughly third of fifty financial media publishers in circulation behind the Wall Street Journal and The Economist, will host their popular CFO.com Corporate Performance Management (CPM) conference in New York City. The theme will be “Accelerating High Performance: Tactics, Tools, and Technology.” My blog title of “CFOs see FOs” means CFOs see financial opportunities (FOs). Some notable presentations will be from:

Harvard Business School Professor Robert S. Kaplan – Dr. Kaplan, who conducted the pioneering research on activity-based costing (ABC) and co-defined The Balanced Scorecard with Dr. David Norton, will describe why many companies today are struggling with unprofitable products, services, channels, and customers. He will explain how managerial accounting methods provide visibility to better rationalize the mix of products and customers to better utilize resources to maximize shareholder wealth.

Ed Barrows, Partner, Cambridge Performance Partners – Mr. Barrows will discuss topics from his book Managing Performance in Turbulent Times: Analytics and Insight that he co-authored with Dr. Andy Neely. He will describe CPM systems and tools.

David A.J. Axson, Partner, Accenture – Mr. Axson’s presentation, “Globalizing Performance Management in an Uncertain World,” will reference an Accenture research study related to the increased volatility of an increasingly digital and inter-connected world and how CPM methods help organizations to cope.

CFO trends with business analytics

The conference’s emphasis on tools and technologies is timely. Today there is substantial interest in Big Data and how Business Analytics and Information Management can cut through the treasure trove of raw transactional data to understand what is relevant for insights and decision making. Organizations are drowning in data but starving for information.

I describe this topic in an IIA research brief that I authored for the International Institute of Analytics. Its title is “Trends and Visions of Analytics in the CFO and Accounting Function.” My belief is the finance and accounting function may very well be the function in an organization that drives and accelerates the adoption rate of applying analytics.

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Who are the animals of analytics-based enterprise performance management ?

Gary Cokins
Gary Cokins|January 17, 2012

Ever notice how the personalities and dispositions of animals often resemble humans? An organization’s pursuit of adopting analytics-based enterprise performance management involves personalities of all types. How are they like the creatures that populate our planet? A blog is recommended to be less than 500 words, but I violate that suggestion for those readers who want some fun ! Here is a zoology of analogous types of employees that you might recognize.

Lions – These are the managers whom co-workers respect. They are bold and lead their pride. With analytics-based enterprise performance management, their boldness enables them to have the will to try emerging managerial concepts. These include strategy maps and their companion, the balanced scorecard; activity-based costing to measure product and customer profitability; and driver-based budgeting with rolling financial forecast updates. In the wild, males seldom live long due to injuries sustained from continuous fighting with rivals. In business, lion-like managers will encounter conflicts in their pursuit and support of these managerial concepts. 

Peacocks – These are those employees who like to look good to everyone. Peacocks cannot fly; this type of employee’s contribution to implementing analytics-based enterprise performance management is limited. They like to take credit and display their plumage, but they have not earned the credit they presume to claim.

Owls – These are those wise sages who truly understand what analytics-based enterprise performance management is all about. They tend to be quiet and are careful observers. An owl’s survival strategy depends on stealth and surprise. It would be nice if the owl-like employee would speak up more and tell the lions what is really happening. Who is on board, and who are the naysayer obstacles to applying progressive methods that can result in better decisions – like applying business analytics?

Rabbits – These are those ready-fire-aim project managers who are impatient with slow progress. Sometimes their sense of urgency is needed to quickly move things along. They endorse techniques like rapid prototyping with iterative remodeling to get sufficient results with speed so that others understand what benefits the methodology can bring. But sometimes, their haste can land the project in a ditch.

Tortoises – Like the owls, these are very smart workers. They move slowly, but they know where the project should go. Most everyone knows the tortoise and the hare fable. The tortoise won the race because it figured out that having perseverance and a sense of direction is best in the long term.

Skunks – These employees are bad news for analytics-based enterprise performance management projects. Just when there is some traction with getting organizational buy-in from others, they stink up the project with unsubstantiated fears that the project has little or no payoff. They need to be kept distant from the project.

Armadillos – These are thick-skinned employees whose egos are near impenetrable, just like an armadillo’s armor. They can handle attacks from naysayers who fear change. Armadillos are prolific diggers with sharp claws. Similarly, their analogous employees are heads-down hard workers who want to see the job done.

Crocodiles – These employees wait ever so quietly until they see an opportunity. Then, when the moment is right, they snap into a debate about whether the project is valid and will lead to improvements. They believe in the project and rarely lose.

Horses –Workhorses are invaluable. They work long hours making sure that correct and clean data is ready for input to drive the analytics-based enterprise performance management projects to yield the insights and actions the projects are designed to deliver. Horses can sleep standing on their legs. This is good for late-hour efforts. Thoroughbred racehorse-type employees are a special breed. They not only work hard but also fast.

Ostriches – Everyone immediately thinks the analogy for an ostrich might be employees who stick their head in the ground to hide and avoid confrontations. But that is a misconception. Ostriches can run 70 miles per hour and can viciously kick with their legs in conflict. They are nomadic. Ostrich-like managers are strong and also nomadic because they like to move from one functional area to another after they have made their mark. They make an impact at a crucial time in the analytics-based enterprise performance management project and then secure a new job elsewhere.

Snakes – Beware of these types of managers. Snakes can swallow prey much larger than their heads due to the flexibility of their jaws. Some have deathly venom to poison their prey. Analogous managers have similar traits but use office politics in place of venom. They are not interested in the success of the project and are self-centered with no hesitancy to derail a co-worker’s career.

Beavers – We like beavers. They love to construct dams. Analytics-based enterprise performance management is all about model building. For example, a managerial accounting system using activity-based costing principles is a model for measuring how an organization consumes resource expenses into calculated costs of outputs, products, services, channels and customers. A strategy map is a model of the executive team’s strategic objectives and how they causally link the behavior of employees with measures aligned with the strategy. You get what you measure. And beavers are busy workers.

Eagles – These are the true leaders. Eagles have extremely keen eyesight. Unlike managers who cope with complexity, eagle-like leaders cope with change and must exhibit vision and inspiration. The best leaders for analytics-based enterprise performance management have that vision to inform their organization with knowing the direction they want to go. The other managers and employees then determine the best ways to get there.

Lemmings – The myth of lemmings is that they commit mass suicide when they migrate and mindlessly fall off cliffs. You might think my metaphor of them is the type of employee who goes along unquestionably with their co-workers’ opinions. But the truth is that lemmings are solitary animals who are good at focusing on primary tasks, like burrowing for food. Analytics-based enterprise performance management projects need this type of intensity in lemming-like employees.

Sheep – These are employees who are too timid to speak up when the project really needs their help. They are smart enough to differentiate good from bad, but when the project team really needs their support, they are unreliable. Sheep have good hearing. Sheep-like employees are sensitive to noise from the naysayers. Sheep have poor eyesight and tend move from darkness to lighted areas. If sheep-like employees cannot see the value in analytics-based enterprise performance management methodologies, they move to a comfortable area – the status quo.   

Elephants – Elephants are a symbol of wisdom and are famed for their memory and intelligence. Adult elephants have no natural predators (except humans). Elephant-like employees are important for analytics-based projects because their sharp memories can recall what works and what does not. They are typically veteran workers whose opinions are widely valued. If they buy in, the project has a good chance to succeed.

So, what animal-like types of employees do you work with? Probably all of the types above. The promise for the continued adoption of analytics-based enterprise performance management is that animals have prospered for thousands of centuries. They survive because there is some balance to how they coexist.

The same prosperity will apply to the increasing adoption rate of analytics-based enterprise performance management methodologies and the software systems that support the methodologies. Hundreds of types of animals coexist in the wild (mankind willing). Their generations continue. Organizations that maintain balanced and rational thinking will continuously learn and improve the same way that animal offspring learn from their elders.

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Ambiguity and uncertainty are your friends

Gary Cokins
Gary Cokins|January 10, 2012

If you are a business analyst or are responsible for enterprise performance and risk management, then ambiguity and uncertainty are your friends. Why? If getting answers were easy, your salary would probably be lower!

The search for surprises

Regardless how analytics might be defined there should be no argument about what its purpose is – better insights and better decisions. If we takes this reasoning further, we realize that analytics has much to do with problem solving and testing. It is about investigation and discovery.

I am stimulated to write this piece as a direct result of attending the annual conference of the American Association of Accountant’s Management Accounting Section. This group is comprised of university accounting faculty involved with teaching students and research. About three hundred attend it. Although I am not a professor or have a Ph.D., I have attended this conference about ten times since 1995 because the presentations, mainly research papers, stimulate me. Some topics are a bit esoteric for my taste, such as “The role of persistent information asymmetry and learning by doing,” but there are always a few gold nugget ones that excite me.

For example, one presentation proved that in charitable fund raising, the announcement of a wealthy donor’s matching grant substantially increases donations from others (no big surprise) however counter-intuitively increases of the match from “one to one” to multiples of more than one has no effect.

That is an example of what analysts and researchers seek – surprises. Having a surprise is not essential. Typically analysis simply confirms a hypothesis. But what drives analysts and researchers is to prove that just having a hunch or intuition for decisions is not good enough. They know if you do not test something that may be intuitive, then others will continue to believe that the something is untrue! If their hypothesis is confirmed, that is fine; but if the conclusion has surprises, then new knowledge has been uncovered.

 The quest for the truth

At this year’s conference, I was impressed by the passion of the presenters, and especially their innovative ideas. Make no mistake. These scholars are not financial accountants who produce external reports for investors, bankers, and regulatory agencies. These professionals have dedicated their lives to a combination of educating future CFOs and hypothesizing research and testing for results and conclusions. They explore social, economic, and political problems.

The younger faculty’s career advances depend on demonstrating good research, and the older ones maintain respect from their peers by acting as “discussants” following each research paper’s presentation. The latter one’s role is basically to provide constructive criticism and describe how the research contributes to the body of knowledge.   

Analytics not only proves or disproves hypothesis, but its truth-seeking tests can also reveal cause and effect relationships. Understanding causality serves for making better decisions. Ambiguity and uncertainty? The greater they exist, then the more challenging the problem for an analyst and researcher to undertake. They can be an analyst’s best friend.

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Joseph Farrell (1935-2011) / cinema analytics pioneer

Gary Cokins
Gary Cokins|January 3, 2012

History reveals numerous examples of how blind influential executives and managers can be to breakthrough advances in their industry. For example, Digital Equipment Corporation (DEC) had a dramatic rise and fall due to blindness and perhaps resistance to change. DEC was an entrepreneurial computer company that grew to $14 billion in sales and employed an estimated 130,000 people worldwide at one point. But Digital failed to successfully adapt after the personal computer eroded its minicomputer market. DEC’s CEO at the time is unfortunately famous for his quote, “There is no reason for any individual to have a computer in his home.”

Thomas J. Watson, who became CEO of the Computing Tabulating Recording Corporation and renamed it International Business Machines (IBM), is tagged with an alleged 1943 statement "I think there is a world market for maybe five computers.” Historians debate if he actually said it. Regardless, the point is that tradition can block one’s vision of what the possibilities (and probabilities) can be.

A breakthrough for analytics in the Hollywood film industry

Joseph Farrell, who passed away on December 7, 2011 at the age of 76, is an example of someone who challenged traditional thinking in an industry. His story is similar to the recent Moneyball book and movie story about how Billy Beane, the general manager of the Oakland Athletics baseball team, challenged the traditional views of baseball scouts. Scouts relied on intuition whereas Beane believed in using performance statistics of players to assemble a winning team. (For more, read my blog “Moneyball: turning the odds on the casino with analytics.”)

Farrell is widely credited with applying the use of opinion-tracking strategies for all the major Hollywood film studios. This transformed the cinema industry in how to view audiences and pitted the art of film writing and directing against the business of selling tickets. With opinion-tracking focus groups, people would preview a movie prior to its release, and adjustments would be made.

Farrell demonstrated his impact by causing a change in the ending of the 1987 thriller film, Fatal Attraction. The original ending had the psychopathic woman, played by Glenn Close, who terrorized a married man played by Michael Douglas, commit suicide. The focus group was annoyed by this film ending because they wanted to see the woman killed rather doing it herself. The ending was changed, and the movie became a big hit.

Farrell’s career began with the Louis Harris polling firm. In 1978 he moved to Hollywood and founded his market research firm for films. He was described by a marketing director of the Paramount film studio, Sidney M. Ganis, as a “meddling numbers man” and was not initially welcomed by the Hollywood old-boy network. Ganis said, “He was different; he was intellectual. He was a suit to the nth degree, highly educated, highly verbal, and with this questionable program that none of us understood very well. We’d all been taught it all begins with the gut – and how you’re feeling about material, how a scene should look, and how a movie should be marketed.”

Farrell’s firm became the largest and most influential consulting firm in the motion picture industry. It provided studios with demographic analysis and tracking surveys to aid the studios to develop film trailers, advertising, and scheduling release dates. Farrell is noted for his quote, “The film is the athlete; I just give it every training tip I know.”

Sound familiar to advocates of analytics?

It is people like Joseph Farrell who inspire me. They demonstrated that relying on fact-based information derived from analytics for insights and decisions is much more superior to relying on intuition and gut feel.

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2012 New Year resolutions for CEOs and executives

Gary Cokins
Gary Cokins|December 27, 2011

January 1st, New Year Day, is a chance for proposing changes. The tradition is to make resolutions such as to lose weight or exercise more. Typically they are personal ones made by the individuals, but I have a new twist by making a resolution for CEOs, heads of government agencies and executive teams of all organizations.

I propose these types of managers enlist in a yoga class. My reasoning is that they need to periodically detach themselves from the hustle and bustle of the flurry of daily distractions and have some solitude and be introspective. I was inspired by this idea by reading a lecture by William Deresiewicz that was delivered to the plebe class at the United States Military Academy at West Point in October, 2009.

Deresiewicz began his lecture by asking, “What does solitude have to do with leadership? Solitude means being alone, and leadership necessitates the presence of others – the people you’re leading. When we think about leadership in American history we are likely to think of Washington, at the head of an army, or Lincoln, at the head of a nation, or King, at the head of a movement – people with multitudes behind them, looking to them for direction. And when we think of solitude, we are apt to think of Thoreau, a man alone in the woods, keeping a journal and communing with nature in silence.”

Solitude allows one to be alone with your thoughts. Arguably solitude is crucial to carry out the task of leadership. Executives need this, and a yoga class may provide them the chance to deeply consider the lasting improvements and skills their organization will need to for sustained organizational performance improvement. These include exploiting the emerging practices of business analytics and deploying and integrating enterprise performance management methodologies. These include strategy maps, scorecards, dashboards, risk management, activity-based costing, predictive analytics, rolling financial forecasts, and many others.

Sadly, just as New Year resolutions are usually broken, my fear is that executives will not actively adopt these methods, despite their being proven as ways to advance their organizations. So similar to how individuals make a resolution to diet but then indulge in eating sweets and desserts, it will be unfortunate that executives will likely postpone initiating the methods and techniques that can sustain improvement. If they took a yoga class, that forced solitude may provide them the solitude to have the vision of what can be and inspire their workforce.

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Why will analytics be the next competitive edge?

Gary Cokins
Gary Cokins|December 20, 2011

Analytics is becoming a competitive edge for organizations. Once a "nice-to-have," applying analytics is now becoming mission critical.

An August 6, 2009, New York Times article titled, “For Today’s Graduate, Just One Word: Statistics” reminds me of the famous quote of advice to Dustin Hoffman’s character in his career breakthrough movie The Graduate. It occurs when a self-righteous Los Angeles businessman takes aside the baby-faced Benjamin Braddock, played by Hoffman, and declares, “I just want to say one word to you – just one word – ‘plastics.’” Perhaps a remake of this movie will be made and updated with the word analytics substituted for plastics. 

This spotlight on statistics is apparently relevant, because the article ranked in that week’s top three e-mailed articles as tracked by the New York Times. The article cites an example of a Google employee who “uses statistical analysis of mounds of data to come up with ways to improve (Google’s) search engine.” It describes the employee as “an Internet-age statistician, one of many who are changing the image of the profession as a place for dronish number nerds. They are finding themselves increasingly in demand – and even cool.”

Analytics – just a skill, or a profession?

The use of analytics that include statistics is a skill that is gaining mainstream value due to the increasingly thinner margin for decision error. There’s a requirement to gain insights and inferences from the treasure chest of raw transactional data that so many organizations have now stored (and are continuing to store) in a digital format.  Organizations are drowning in data but starving for information. The article states:

“In field after field, computing and the Web are creating new realms of data to explore – sensor signals, surveillance tapes, social network chatter, public records and more. And the digital data surge only promises to accelerate, rising fivefold by 2012, according to a projection by IDC, an IT research firm. … Yet data is merely the raw material of knowledge. We’re rapidly entering a world where everything can be monitored and measured, but the big problem is going to be the ability of humans to use, analyze and make sense of the data. … (Analysts) use powerful computers and sophisticated mathematical models to hunt for meaningful patterns and insights in vast troves of data. The applications are as diverse as improving Internet search and online advertising, culling gene sequencing information for cancer research and analyzing sensor and location data to optimize the handling of food shipments.”

The application of analytics is becoming mainstream, but will senior executives realize it?

Business analytics are the next wave

Today many businesspeople don’t really know what predictive modeling, forecasting, design of experiments or mathematical optimization mean or do, but over the next 10 years, use of these powerful techniques will have to become mainstream, just as financial analysis and computers have, if businesses want to thrive in a highly competitive and regulated marketplace. Executives, managers and employee teams who do not understand, interpret and leverage these assets will be challenged to survive.

When we look at what kids are learning in school, that is certainly true.  We were all taught mean, mode, range, and probability theory in our first-year university statistical analytics course. Today children have already learned these in the third grade! They are taught these methods in a very practical way. If you had x dimes, y quarters and z nickels in your pocket, what is the chance of you pulling a dime from your pocket?  Learning about range, mode, median, interpolation and extrapolation follow in short succession. We are already seeing the impact of this with Gen Y/Echo boomers who are getting ready to enter the work force – they are used to having easy access to information and are highly self-sufficient in understanding its utility.  The next generation after that will not have any fear of analytics or look toward an "expert” to do the math.

There is always risk when decisions are made based on intuition, gut feel, flawed and misleading data or politics. In Babson College Professor Tom Davenport’s popular book, Competing on Analytics: The New Science of Winning, he makes the case that increasingly, the primary source of attaining a competitive advantage will be an organization’s competence in mastering all flavors of analytics. If your management team is analytics-impaired, then your organization is at risk. Analytics is arguably the next wave for organizations to successfully compete and optimize the use of their resources, assets and trading partners.

Substantial benefits are realized from applying a systematic exploration of quantitative relationships among performance management factors. When the primary factors that drive an organization’s success are measured, closely monitored and predicted, that organization is in a much better situation to adjust in advance and mitigate risks. That is, if a company is able to know – not just guess – which nonfinancial performance variables directly influence financial results, then it has a leg up on its competitors.

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