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October 11, 2005

Analyze This

I just wrote a short piece for CIO on business analytics.

One of the question I ask is - how do you know when you're there? In the article, I point to several indicators that a company is competing on analytics:

* The CEO has an analytical background. Harrah's Loveman was a business school professor and has an MIT PhD. Amazon's Bezos was an A-plus student in electrical engineering and computer science at Princeton. When the CEO or vice chair of a company is a rocket scientist, it's a good bet that there will be other scientists on the payroll.

* Nobody's asking about the ROI for each little initiative. What's at stake in analytical competition is not an application, but a corporate strategy. If the analytical activities are succeeding, they will be manifested not in ROI calculations, but in revenue and profits.

* The company is very successful. Certainly there are industries (for example, U.S. domestic airlines) where a lot of analytics don't seem to be the critical success factor. It isn't with Southwest. But the great majority of highly analytical companies that we studied are leaders in their industries and making lots of money.

As more analytically trained managers enter the workforce, it's likely that analytical competition will become more common and intense. However, this capability can't be developed overnight.

Most companies took at least five years to develop their analytical capabilities sufficiently to compete on that basis, and a couple of very successful companies (including Procter & Gamble and Mars) had been pursuing analytics for several decades. Assembling the right data, finding and using the right tools, and developing the right relationships between analysts and decision-makers all take time. Therefore, it makes sense to start pulling them together now.

History seems to be on the side of the numbers.

Posted by Tom Davenport on October 11, 2005 10:31 AM | Permalink

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