3 Steps to Exploiting Analytics
Moving beyond the basics will help you harness the potential of analytics to build a better future.
By John Lucker
By now, most businesspeople have heard of analytics -- it would be hard to miss the buzz in nearly every business publication, the airwaves, and even in hit movies. For many, analytics may have become just another business buzzword that doesn't really have relevance in their daily lives. If this is what has happened, perhaps those of us who do analytics professionally haven't done a good enough job explaining the true applicability and benefit that it can have -- if its potential is realized.
Analytics isn't just another management reporting or business intelligence (BI) application. It's not simply a way to find out what's happening in your business (and why). Analytics goes so far beyond BI that there's literally no comparison. Although the effectiveness of BI applications lies in their ability to help you understand the world around your business, analytics can help you visualize the world that could be or will be.
True, analytics tools can be used to provide business hindsight and insight into current events, but its effectiveness lies in its potential to help gain true foresight into what could happen -- to help model and build a better future for your business. With analytics, you don't have to let the future come to you; you can begin to build the future that you want.
How do you harness the potential of analytics to change the future? For simplicity in this discussion, let's focus on three things: asking the right questions, getting the right infrastructure, and building the right culture.
Ask the Right Questions
Let's start with the questions. With BI, you ask questions such as: "How do same-store sales compare, year over year, by region, by time?" If you work for a pharmaceutical company, you might ask: "Which physicians are prescribing which drugs in which areas, and in what quantities? Which areas are most profitable?"
With analytics, you can go beyond these contemporaneous questions to shape the future. You can ask questions such as:
- How can we alter the product mix at a local level to affect the sales of individual stores?
- Can we optimize product mix and product characteristics based on localized buying patterns, demographics, and psychographics?
- Which factors most influence customer loyalty, and why and how can this be leveraged for the future to increase retention, cross-sell, and up-sell?
- How are the physicians prescribing medications professionally connected? Which of those physicians could be considered an influencer of future prescribing behavior among their network of peers and what drives their behavior?
- Who are the downstream influencers that get others to buy specific, or a family of, products?
- What are the parameters that make some geographic areas more profitable than others and how should these insights be leveraged?
There are thousands of these so called "crunchy" questions that analytics can help answer and that help feed a new future vision for business management -- one built on facts and metrics versus subjectivity and assumptions.
Get the Right Tools and Learn to Use Them
The second key, critical ingredient to harnessing the power of analytics is to use the right tools to help answer all those crunchy questions. There are hoards of analytics tools on the market -- and more are emerging every month. However, the specific tools you use are not nearly as important as the diversity of methods you are capable of leveraging and how you use tools to accomplish your objectives.
The power of analytics is only limited by the imagination of the people asking the questions and their pragmatism solving the problem and leveraging the solution in the business. There are a multitude of proprietary analytic tools on the market with varying quality levels and at many price points. However, there are also low-cost or free open source tools that are rapidly leapfrogging the big names. No matter which tools you use, however, you can engage in activities such as:
- Predictive and prescriptive modeling: To look around the corner at the future and figure out how to build that future
- Text analytics: Techniques to turn free-form, unstructured text into structured data for analysis
- Visualization: Turning complex data and analyses into easy-to-understand graphics of varying forms so that less technical or non-technical business people can make better sense of intricate relationships between variables and patterns
- Geospatial analytics: Evaluating and visualizing the relationship between data and geography in time and space
These techniques are but a few of those available and are only the beginning of what the future likely holds. The potential of analytics is limited only to the imagination of the user, the data scientist, and their ability to ask and answer difficult questions.
Recruit -- And Reward -- Great People
Effective management of human capital and the intellectual property generated from it is important to business success. Critical to leveraging the power of analytics is the need to build a culture where people aren't afraid to take risks to reap rewards. At many companies, profit-and-production oriented culture can punish risk takers or, at the very least, not properly reward them.
If people are paralyzed by risk and fear of failure, political constraints, misaligned incentives, or lack of empowerment, they won't take chances. They won't innovate. They won't feel that potential rewards are greater than the risks. Analytics can serve as a catalyst for innovation by giving you the data to back up being rational and providing concrete metrics and methods against which performance benefits can be evaluated.
For instance, let's say you're considering investing in the creation of a new product. Your analytics-based benefit analysis tells you that there's a chance the product could add millions to the bottom line if you succeed, but a huge downside exists if you fail. The chance of failure is probably 10 percent. The flip side of that is a 90 percent chance of success. Your gut may tell you that the financial risk is too great despite the odds. Behavioral economic factors can influence the decision outcome and prevent the upside.
A more complex analytics-based benefit analysis can provide the rationale to take the chance and overcome the naysayers. The numbers tell you that 90 percent of the time you'll succeed, and the confounding factors don't drive the downside benefit negative. If you reward risks, analytics can increase confidence to head down the path to success.
The True Power of Analytics
The real value of analytics comes not from the vast amounts of data that can now be exploited. It's not the resulting decisions you can make. Rather, it's the power to revolutionize, to generate a better, more productive, and profitable future. The value comes from your ability to evaluate better outcomes. With analytics, if you get good people to ask the right questions using the right tools -- and reward them for taking the risk -- you put yourself in a better position to build the future you want and surpass your competition.
John Lucker is a principal and the global advanced analytics and modeling market offering leader in Deloitte Consulting LLP. He is also a U.S. leader in Deloitte Touche Tohmatsu Limited's Deloitte Analytics Institute. You can contact the author at JLucker@Deloitte.com.