How Analytics Make Companies More CompetitiveBy CIOinsight | Posted 02-07-2007
Who says I.T. is no longer a source of competitive advantage? Netflix inc., Amazon.com Inc., Capital One Financial Corp. and Harrah's Entertainment Inc. have all become industry leaders by finding new ways to use informationand the technology driving their strategy is analytics, according to Thomas Davenport and Jeanne Harris, coauthors of Competing on Analytics: The New Science of Winning. Davenport, a professor at Babson College in Wellesley, Mass., and Harris, director of research for the Accenture Institute for High Performance Business, in Boston, have written numerous books about new ways to compete by using technology. In this excerpt, the authors define what it means to be an "analytical competitor," and how these companies will compete.
From Competing on Analytics: The New Science of Winning:
What does it mean to compete on analytics? We define an analytical competitor as an organization that uses analytics extensively and systematically to outthink and outexecute the competition. Among the firms we studied, we found that the most analytically sophisticated and successful had four common key characteristics: (1) analytics supported a strategic, distinctive capability; (2) the approach to and management of analytics was enterprise-wide; (3) senior management was committed to the use of analytics; and (4) the company made a significant strategic bet on analytics-based competition. We found each of these attributes present in the companies that were most aggressively pursuing analytical approaches to business.
As more firms become aware of the possibilities for analytical competition, they will push the boundaries of analytics in their products, services and business models. Virtually every provider of data and information services, for example, will probably offer analytics to their customers as a value-added service. Data itself has become something of a commodity, and customers for data often can't find the time or people to analyze it themselves.
We also expect to see more analytics embedded in or augmenting products and servicesdescribing, for example, the optimum way to make use of those offerings within the customer's business processes. The golf club that tells you how well you are swinging it is a good example. We also expect to see automobiles (or insurance companies) that analyze how safely you are driving, health care providers that analyze how healthily you are eating and living, and industrial machinery that tells you how well you are using it. This trend will be only a part of a broader one involving supplying analytics to customers and suppliers. Marriott, for example, is beginning to share more analytical information with both channel partnersonline and traditional travel agencies, for exampleand major corporate customers. Channel partners get analyses involving pricing, joint promotions, and inventory; customers receive data and analysis that helps them with their own travel management.
Another strategic trend involves the content of analytics. Thus far, most quantitative analyses are about relatively tangible entities: inventory units, dollars, customers and so forth. Most organizations realize, however, that intangible assets and capabilities are extremely important in their competitive success. For more than a decade there have been arguments in favor of measuring and managing intangibles, which include such factors as human capital, intellectual capital, brand, R&D capability, and other non-financial assets.
Technology could play a substantial (but not exclusive) role in generating analyzing intangible capabilities. Honda uses text mining to identify and head off potential quality problems in its cars. Similar text and web-mining approaches could be used to, for example, better understand customer perceptions of service and brand value. Consultant and former academic Dick Hackathorn was writing as early as 1999 that "the web is the mother of all data warehouses," and even then described a web farming application for Eaton Corporation that was "monitoring hundreds of markets for technology shifts, emerging competitors, and governmental regulations." What could be more strategic and competitive?
Reprinted by Permission of Harvard Business School Press. Excerpt from Competing On Analytics: The New Science Of Winning By Thomas H. Davenport and Jeanne G. Harris. Copyright © 2007 Harvard Business School Publishing Corporation.