Why Will Analytics Be the Next Competitive Edge?

 

Bob Thompson, the CEO and founder of the popular website CustomerThink.com has published an e-book, Profiting Big Data - 10 BIG Ideas, compiling ten articles from authors. I am honored to have my article as Chapter 1. You can download the e-book for free by clicking on the book title link in this paragraph. Below is a slightly expanded version of my article.

xxxxxxxxxxxxxxxxxxxxxxxxxxx

Analytics is becoming a competitive edge for organizations. Once "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 breakthrough movie The Graduate. It occurs when a self-rightrous Los Angeles businessman takes aside the baby-faved Benjamin Braddock, played by Hoffmans, 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 in that week's top three e-mailed articles as tracked by the New York Times. The article cites an examplr of a Google employee who "uses stastical analysis of mounds of data to come 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?

How do executives and managers mature in applying accepted methods?

Here is an observation on how managers mature in applying progressive managerial methods. Roughly 50 years ago CEOs hired accountants to do the financial analysis of a company, because this was too complex for them to fully grasp. Today, all CEOs and mainstream businesspeople know what price-earnings (PE) ratios and cash flow statements are and that they are essential to interpreting a business’ financial health.  They would not survive or get the job without this knowledge.

20 years ago CEOs of companies did not have computers on their desks. They did not have the time or skill to operate these complex machines and applications, so they had their secretaries and other staff do this for them. Today you will become obsolete if you don’t at least personally possess multiple electronic devices such as laptops, smart phones and PDAs to have the information you need at your fingertips.

Business analytics are the next wave

Today many business people 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. 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.

tags: analytics, business analytics

One Comment

  1. Posted July 4, 2012 at 9:38 pm | Permalink

    Great post, Gary. I agree with your views - especially the idea of analytics being the next wave of competitive advantage for companies.

    I would put it out there that many executives think that they are being "data driven" and using analytics, but in reality they are:

    1) Mostly just talking about business intelligence (BI) and reporting, and they don't really know what predictive modelling is about and how it can help them.

    2) Using analytics here-and-there for narrowly defined problems, but don't use analytics for the "real" big decisions.

    So, I find the challenge is often that the very organizations who could benefit from analytics are frequently of the opinion "we've got it covered". I don't see any easy answers, so this may just be an opportunity to observe "survival of the fittest" in action.

Post a Comment

Your email is never published nor shared. Required fields are marked *

*
*

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <p> <pre lang="" line="" escaped=""> <q cite=""> <strike> <strong>