The Hindu Business Line : `Analytics is the secret behind success stories'

Just what you want Analytics can tell how much personnel contribute, how salary levels relate to individual performance, predict when inventories will run low, predict problems with demand supply chain, etc.

Orlando , Sept. 24

If a cement manufacturer such as Mexican company Cemex uses analytics to compete successfully in the market place, then anyone can. It is not a company that is information-intensive. Still, it managed to do some pretty good things in supply chain management; so if Cemex can do it, you can do it too, says Mr Thomas Davenport, IT expert and business strategy analyst, who is often mentioned in the same breath as Peter Drucker and Tom Friedman.

Mr Davenport was the keynote speaker at the opening session of the Teradata USER Conference, 2006, in Orlando, Florida.

"What's the secret of this or that company that's successful seemingly overnight? The answer almost always is an information-based strategy," wrote Mr Davenport, in an article "Competing on Analytics" in Harvard Business Review. He (along with two others at the Babson College where he is professor) did a survey of 32 companies in which top performers had greater analytical orientation than low performers.

Analytics - in layman terms

In layman terms, analytics involves extensive computation that analyses the business data of a company in a sophisticated way. It could be used to generate the best pricing for a company's products, to maximise supply chain efficiencies, or to show the company how best to generate customer loyalty, and so on.

Analytics competitors cut across industries, said Mr Davenport. "But for it to succeed, an enterprise's CEO must passionately support it." The CEO cannot merely be knowledgeable.

Examples of success

Mr Davenport's examples of companies that had successfully used analytics were from diverse industries. While at one end of the spectrum there was Cemex, at the other end was Boston Red Sox, a major league baseball team in the US.

(The owners of Red Sox hired analytical experts, bought sophisticated scouting software, computerised video analysis and business intelligence tools for mining the statistics at their disposal. The goal: Identify the best talent available, get it before their rivals do, and then figure out just how long to keep it before it stops producing, says its Web site. There is even a term `Sabermetrics' in use now. It is the mathematical analysis of player batting and pitching performances.)

An enterprise must also identify its distinctive capability — and deploy analytics for that. It could be the best room price (for a hotel chain), building customer loyalty (for a mobile telephone company), or maximising supply chain efficiencies (for a retailer such as Wal-Mart).

"Organisations such as Amazon, Harrah's, Capital One and Boston Red Sox have dominated their fields by deploying industrial strength analytics across a wide variety of activities. In essence, they are transforming their organisations into armies of killer apps (applications) and crunching their way to victory," said Mr Davenport.

Other users of analytics

Among the other companies he mentioned are P&G, which has had supply chain analytics for 20 years now, Marriot International, which has had revenue management capabilities for 30 years, and Wal-Mart. The telecommunications company MCI, which had gone bankrupt, has turned around as a result of the efficient use of analytics. Companies such as Google and Yahoo and Amazon have had analytics since their very inception.

"At a time when firms in many industries offer similar products and use comparable technologies, business processes are among the last remaining points of differentiation. And analytics competitors wring every last drop of value from these processes," said Mr Davenport in the HBR article.

Vital statistics

Analytics can tell how much personnel contribute, how salary levels relate to individual performance, predict when inventories will run low, predict problems with demand supply chain, etc.

Companies have to invest in technology, accumulate huge reserves of data and strategise to manage this data. Analytic activity was always considered a bit of a backroom one, it did not come up to the boardroom or strategic table, said Mr Davenport.

Companies need to hire people, build systems, create processes, prove value. They must run a pilot, measure the benefit, try to spread it. In certain areas, gut-level decisions are not enough, it is important to know whether something is indeed a fact. "If none works, fine a new CEO," he said.

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`Analytics is the secret behind success stories'

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