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February 04, 2006

You Know You Compete on Analytics When...

1. You apply sophisticated information systems and rigorous analysis not only to your core capability but also to a range of functions as varied as marketing and human resources.

2. Your senior executive team not only recognizes the importance of analytics capabilities but also makes their development and maintenance a primary focus.

3. You treat fact-based decision making not only as a best practice but also as a part of the culture that’s constantly emphasized and communicated by senior executives.

4. You hire not only people with analytical skills but a lot of people with the very best analytical skills—and consider them a key to your success.

5. You not only employ analytics in almost every function and department but also consider it so strategically important that you manage it at the enterprise level.

6. You not only are expert at number crunching but also invent proprietary metrics for use in key business processes.

7. You not only use copious data and in-house analysis but also share them with customers and suppliers.

8. You not only avidly consume data but also seize every opportunity to generate information, creating a “test and learn” culture based on numerous small experiments.

9. You not only have committed to competing on analytics but also have been building your capabilities for several years.

10. You not only emphasize the importance of analytics internally but also make quantitative capabilities part of your company’s story, to be shared in the annual report and in discussions with financial analysts.

These points are from my January 2006 HBR article- "Competing on Analytics."

Posted by Tom Davenport on February 4, 2006 12:03 PM | Permalink

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» 10 Ways Not to Build an Analytics-based Business from Juice Analytics Weblog: The Art & Science of Data
Thomas Davenport published an article in Harvard Business Review entitled "Competing on Analytics." He concludes the article with a entitled "Competing on Analytics." He concludes the article with a [Read More]

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I confess to a lack of ambition. When Tom Davenport's article on "Competing on Analytics" came out in the Harvard Business Review in January. Zach and I critiqued Tom's list of 10 things that are "what it takes to be... [Read More]

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Comments

Great reprint of the article in 02/06 issue of Optimize Magazine. I noticed some people in the web analytics community seem to disagree with the points made, namely in this blog and this one.

I'm pretty sure that's because most web analytics practitioners don't "analyze" in the true sense of the word; they do a lot of "reporting" on a single subject without cross-functional data knowledge.

The only way to optimize on a meaningful scale is to go beyond silo reporting to do real analysis from an enterprise level; the only way to ensure the accountability and credibility of this analysis is to get the analysts out of the silos and roll them up into a single group reporting directly to the CEO or CFO.

On a personal note, I see we have lost Dr. Larry Isaacson, the man who taught me how to think analytically. Glad to see Babson has worthy replacements in the wings.

Jim

Posted by: Jim Novo Babson M '83 | February 19, 2006 10:58 AM

I'm glad you've raised the issue about what it takes to succeed as a analytics-based business. However, a number of the items on your list don't ring true based on our consulting experience.

The challenge of analytics is communication and creating a shared understanding. It’s about focusing on high impact areas, moving forward one step at a time, being skeptical, being creative, searching for the truth.

Here's our commentary on the list:

1. You apply sophisticated information systems and rigorous analysis not only to your core capability but also to a range of functions as varied as marketing and human resources.

Analytics is hard. Analytics takes resources. It takes effort for an organization to create and assimilate learnings from analytics. You need to focus your analytics at the key leverage points of your business. As Davenport points out in the HBR article, UPS focuses their analytics on knowing where packages are, Marriott focuses on revenue management. If you try to do everything, you won’t do anything well.

2. Your senior executive team not only recognizes the importance of analytics capabilities but also makes their development and maintenance a primary focus.

Of course analytics are good. But so is branding, innovation, operational excellence, customer focus. Companies are defined by what they don’t do just as much as what they do. If you’re going to make analytics a primary focus, you will need to make sacrifices elsewhere. Which of the above are you willing to de-emphasize?

Capital One, oft cited as the credit card king of analytics, aren’t customer service champions nor are they particularly innovative.

3. You treat fact-based decision making not only as a best practice but also as a part of the culture that’s constantly emphasized and communicated by senior executives.

This is hard to argue with. However, it’s easier said than done. In our experience, getting to a culture of decision making, requires your business to have real, solid wins using analytics to make people care from top to bottom.

4. You hire not only people with analytical skills but a lot of people with the very best analytical skills—and consider them a key to your success.

The problems raised by the Mythical Man Month apply to analytics. Just as doubling the number of programmers on a project won’t halve the time it takes to complete a project, doubling the number of analysts won’t make your company twice as smart.

What you need are well placed and versatile analysts. Analysts that are in constant communication and debate with key decision makers.

5. You not only employ analytics in almost every function and department but also consider it so strategically important that you manage it at the enterprise level.

What does this mean?

One thought: This refers to having a Chief (Analytics|Knowledge|Data) Officer. This may be a good idea. Here’s an interesting interview with Usama Fayyed, Yahoo’s Chief Data Officer about the value of having a chief data herder at a data intensive company.

If, on the other hand, this means centralizing analytics and building a single data warehouse, we disagree. For most companies, building a big “atomic baloney slicer” for analytics is not going to work out. These approaches take too long, are inflexible, and don’t adapt to your business.

6. You not only are expert at number crunching but also invent proprietary metrics for use in key business processes.

Why is “proprietary” a good thing? What you do want is to develop a few metrics which are core to the success of your business. If you are in a well established industry, it’s likely those metrics have been defined and are well understood. There’s a lot of value in well understood metrics that everyone in your business understands. The challenge with analytics is communication and creating a shared understanding.

7. You not only use copious data and in-house analysis but also share them with customers and suppliers.

Insight is not measured by volume. As for sharing with customers and suppliers, it’s a rare company that has evolved that far (e.g. Toyota). Focus analytics where you have the most leverage to change your business.

8. You not only avidly consume data but also seize every opportunity to generate information, creating a “test and learn” culture based on numerous small experiments.

There’s lots of ways to build insight from data. It can be test and learn, it can be customer visualization, it can be scoring systems.

9. You not only have committed to competing on analytics but also have been building your capabilities for several years.

Yes. Analytics is a learning process; a journey not a destination. The best companies have been working on learning for a long time. You can compete on analytics without having worked on it for years. Just get started.

10. You not only emphasize the importance of analytics internally but also make quantitative capabilities part of your company’s story, to be shared in the annual report and in discussions with financial analysts.

You risk hypocracy if you follow this advice. Culture starts with internal stories. External stories will arise naturally and organically from internal stories. If you focus on external stories the best you can hope for is to find yourself in a Harvard Business Review article.

Posted by: Zach Gemignani | February 14, 2006 10:26 AM

Just read the HBR article and found it very timely for a strategy that we're developing. Any resources you can point to for 1) mapping out the IT projects required and 2) managing the cultural change required to support the appetite for analytics within an organization with a long history of intuitive decision-making? I know. . . I don't ask for much.

Posted by: Lois | February 7, 2006 01:42 PM

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