Analytics at Work

How to Make Smarter Decisions and

Get Better Results

Tom Davenport
Babson College
PBLS Hong Kong
13 July 2010

The Downside
DownsideProblems in Decisions
Decision
D i i processes and
d outcomes
t
are often
ft
bad!
The body of knowledge on what works is often ignored
Decisions take too long, get revisited, involve too many or few

Little measurement/progress/accountability
p g
y
Weak ties between
data/information/knowledge
g inputs
p
and
decisions
getting
g better at decision-making,
g
If were not g
much of ITs work is called into question
Data warehousing, analytics, reports, ERP, knowledge
management, etc.

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Thomas H. Davenport Analytics at Work

The UpsideNew Decision Frontiers

Analytics and algorithms
Intuition and the subconscious
The wisdom of crowds
Behavioral economics and nudges
nudges
Neurobiology
Decision automation
Etc.

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Thomas H. Davenport Analytics at Work

Analytics at Work
WorkThe Big Picture
Analytical Capability

Organizational Context

Desired Result

Data
Enterprise
p
Leadership
T
Targets
t

Analytical
A
l ti l Culture
C lt
And Business
Processes

Better
Decisions!

Analysts .
Systematic Review

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Thomas H. Davenport Analytics at Work

Levels of Analytical Capability

Stage 5
Analytical
Competitors
Stage
g 4
Analytical Companies
Stage 3
Analytical Aspirations
Stage 2
Localized Analytics
Stage
g 1
Analytically Impaired
5
Thomas H. Davenport Analytics at Work

Analytical Competitors
Old Hands, Turnarounds, Born Analytical
 Marriott Revenue management
 UPS Operations and logistics, then customer
 HSBC risk, credit scoring, pricing
 Harrah
Harrahss Loyalty and service
 Tesco Loyalty and internet groceries
 CreditCorp
C ditC
D bt collection
Debt
ll ti
 Capital One
One information
information-based
based strategy
strategy
 Google page rank, advertising, HR
 ISM analytical services
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Thomas H. Davenport Analytics at Work

The Analytical DELTA

Data . . . . . . . . breadth, integration, quality

Enterprise
p
. . . . . . . .approach
pp
to managing
g g analytics
y
Leadership . . . . . . . . . . . . passion and commitment
T
Targets
t . . . . . . . . . . . first
fi t deep,
d
then
th broad
b d
Analysts . . . . . professionals and amateurs

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Thomas H. Davenport Analytics at Work

Data

 The prerequisite for everything analytical

 Clean, common, integrated
 Accessible in a warehouse
 Measuring something new and important

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Thomas H. Davenport Analytics at Work

New Metrics / Data

Wine Chemistry

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Optimized revenue

Smile Frequency

Thomas H. Davenport Analytics at Work

Enterprise

 If youre competing on analytics, it doesnt make

sense to manage them locally
No fiefdoms of data
Avoiding
A idi spreadmartsanalytical
d t
l ti l dductt ttape

 Some level of centralized expertise for hard-core

analytics
l i

 Firms may also need to upgrade hardware and

infrastructure

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Thomas H. Davenport Analytics at Work

Leadership

 Gary Loveman at Harrahs

Do we think, or do we know?
Three ways to get fired

 Barry Beracha at Sara Lee

Our CEO is a real
data dog
Sara Lee
executive
ti

In
In God we trust
trust, all others bring data
data

 Jeff Bezos at Amazon

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We never throw away data

Thomas H. Davenport Analytics at Work

The Great Divide

Full steam ahead!

Hire the people

Is your senior
management
team
committed?

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Build the systems

Create
C t the
th processes

Prove the value!

Run a pilot
Measure
M
th
the b
benefit
fit
Try to spread it

Thomas H. Davenport Analytics at Work

Targets
Pick
Pi k a major
j strategic
t t i target,
t
t with
ith a minor
i or ttwo
TD Bank= Customer service and its impact
Harrahs = Loyalty + Service
Google = Page rank/advertising + HR

Can also have two primary user group targets

Wal-Mart = Category managers + Suppliers
Owens & Minor = Supply chain managers + hospitals

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Thomas H. Davenport Analytics at Work

Analysts
1%

5 10%
5-10%

15-20%

70 80%
70-80%

Analytical Champions--Own
L d analytical
Lead
l ti l iinitiatives
iti ti
Analytical ProfessionalsOwn/Rent
C create
Can
t new algorithms
l ith
Analytical
y
Semi-ProfessionalsOwn/Rent
Can use visual and basic statistical tools,
create simple models
Analytical Amateurs--Own
Can use spreadsheets, use
analytical transactions

* percentages will vary based upon industry and strategy

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Thomas H. Davenport Analytics at Work

Better Decisions Are the Goal of Analytics

Reports

Portals

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D i i !
Decisions!

Scorecards

Drill-down

Thomas H. Davenport Analytics at Work

Systematically Making Decisions Better

Identify

Inventory
Better
Decisions

Intervene

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Institutionalize

Thomas H. Davenport Analytics at Work

Most Common Decision Interventions

0,9
0,8
0,7

Frequenccy Mentioning

0,6
0,5
0,4
0,3
0,2
0,1
0

Type of Intervention

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Thomas H. Davenport Analytics at Work

Multiple Interventions:
Better Pricing Decisions at Stanley
 Pricing identified as one of four key decision domains
 Pricing Center of Excellence established in 2003
 Adopted several difference pricing methodologies
 Implemented
p
new ppricingg optimization
p
software
 Regular Gross Margin Calls for senior managers
 Offshore capability gathers competitive pricing data
 Some automated pricing systems, e.g., for promotions
 Center spreads innovations across Stanley
 Result: ggross margin
g from 34% to over 40% in six years
y
Thomas H. Davenport Analytics at Work

Keep in Mind

Five levels, five factors for building

analytical capability
Data and leadership are the most
important
p
p
prerequisites
q
Make sure your targets are strategic
Tie all your BI and analytics work to
decisions
Never rest!

19 | 2010 All Rights Reserved.

Thomas H. Davenport Analytics at Work