SAS Institute Chile 21 October 2010 Thomas H. Davenport Analytics at Work The Worst of Times for Decisions? 2 | 2010 All Rights Reserved.
Decision processes and outcomes are often bad! The body of knowledge on what works is often ignored Decisions take too long, get revisited, involve too many or few Many bad outcomes in the public and private sectors Little measurement/progress/accountability Weak ties between data/information/knowledge inputs and decisions If were not getting better at decision-making, much information work is called into question Data warehousing, analytics, reports, ERP, knowledge management, etc. Thomas H. Davenport Analytics at Work 3 | 2010 All Rights Reserved. The Best of Times for Decisions?
Analytics and algorithms Intuition and the subconscious The wisdom of crowds Behavioral economics and nudges Neurobiology Decision automation Etc. Thomas H. Davenport Analytics at Work
Analytical Culture And Business Processes
4 | 2010 All Rights Reserved. Analytics at WorkThe Big Picture Data Enterprise Leadership Targets Analysts .
Better Decisions!
Systematic Review Analytical Capability Organizational Context Desired Result Thomas H. Davenport Analytics at Work 5 5 What Are Analytics? Optimization Predictive Modeling/ Forecasting Randomized Testing Statistical analysis Alerts Query/drill down Ad hoc reports Standard Reports Whats the best that can happen? What will happen next? What happens if we try this? Why is this happening? What actions are needed? What exactly is the problem? How many, how often, where? What happened? Descriptive Analytics (the what) Degree of Intelligence Predictive and Prescriptive Analytics (the so what) Thomas H. Davenport Analytics at Work 6 Stage 5 Analytical Competitors Stage 4 Analytical Companies Stage 3 Analytical Aspirations Stage 2 Localized Analytics Stage 1 Analytically Impaired Levels of Analytical Capability Thomas H. Davenport Analytics at Work 7 Analytical Competitors Old Hands, Turnarounds, Born Analytical Marriott Revenue management UPS Operations and logistics, then customer Progressive risk, pricing Harrahs Loyalty and service Tesco Loyalty and internet groceries MCI/Worldcom Cost identification and reduction Capital One information-based strategy Google page rank, advertising, HR Netflix customer preference algorithms Thomas H. Davenport Analytics at Work 8 8 Analytical Competitors or Companies Across Industries Hospitality/ Entertainment Harrahs Entertainment Marriott International New England Patriots Boston Red Sox AC Milan Financial Services BancoIta Banco de Chile Banco Santander Capital One CMR Falabella Pharmaceuticals Astra Zeneca Merck Vertex Industrial Products CEMEX John Deere & Company Retail Falabella La Polar Tesco Wal-Mart Transport TurBus FedEx United Parcel Service Telecommunications EntelPCS Movistar/Telefnica Rogers Telecom Consumer Products E&J Gallo Mars Procter & Gamble eCommerce Amazon Ebay Expedia Thomas H. Davenport Analytics at Work 9 | 2010 All Rights Reserved. The Analytical DELTA Data . . . . . . . . breadth, integration, quality Enterprise . . . . . . . .approach to managing analytics Leadership . . . . . . . . . . . . passion and commitment Targets . . . . . . . . . . . first deep, then broad Analysts . . . . . professionals and amateurs DELTA = change Thomas H. Davenport Analytics at Work 10 | 2010 All Rights Reserved. Data The prerequisite for everything analytical Clean, common, integrated Accessible in a warehouse Measuring something new and important Thomas H. Davenport Analytics at Work 11 | 2010 All Rights Reserved. New Metrics / Data Wine Chemistry Smile Frequency Optimized revenue Thomas H. Davenport Analytics at Work 12 | 2010 All Rights Reserved. Enterprise If youre competing on analytics, it doesnt make sense to manage them locally No fiefdoms of data Avoiding spreadmartsanalytical duct tape Some level of centralized expertise for hard-core analytics Firms may also need to upgrade hardware and infrastructure Thomas H. Davenport Analytics at Work 13 | 2010 All Rights Reserved. Leadership Gary Loveman at Harrahs Do we think, or do we know? Three ways to get fired Barry Beracha at Sara Lee In God we trust, all others bring data Jeff Bezos at Amazon We never throw away data
Our CEO is a real data dog Sara Lee executive Thomas H. Davenport Analytics at Work 14 | 2010 All Rights Reserved. The Great Divide Is your senior management team committed? Full steam ahead! Hire the people Build the systems Create the processes Prove the value! Run a pilot Measure the benefit Try to spread it Thomas H. Davenport Analytics at Work 15 | 2010 All Rights Reserved. Targets Pick a major strategic target, with a minor or two 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 Thomas H. Davenport Analytics at Work 16 | 2010 All Rights Reserved. Analysts 5-10%
Analytical ProfessionalsOwn/Rent Can create new algorithms Analytical Semi-ProfessionalsOwn/Rent Can use visual and basic statistical tools, create simple models Analytical Amateurs--Own Can use spreadsheets, use analytical transactions 15-20% 70-80% * percentages will vary based upon industry and strategy 1% Analytical Champions--Own Lead analytical initiatives Thomas H. Davenport Analytics at Work The Context: Analytical Culture 17 | Facts, evidence, analysis as the primary way of deciding Pervasive test and learn emphasis where there arent facts Free pass for pushbacksWheres your data? Still room for intuition based on experience A focus on action after analysis Never resting on your analytical laurels Thomas H. Davenport Analytics at Work The Context: Analytical Processes 18 Source: SAP AG 2006 Receives ASN Releases ASN Delivery Execution Update Inventory Accounting Update Inventory Delivery Performance How effective is our fulfillment process? CLTV Does this order justify extra efforts? Inventory Forecast Will this be back in inventory? Defection Risk What is the customer status? Global ATP Check Request Global ATP Creation Sales Order Fulfillment Request Creation Purchase Order Creation & Release Delivery Request Returns per Customer What is the customer history? Thomas H. Davenport Analytics at Work Better Decisions Are the Goal of Analytics 19 | 2010 All Rights Reserved. Reports Scorecards Portals Drill-down Decisions! Thomas H. Davenport Analytics at Work Systematically Making Decisions Better Identify Inventory Intervene Institutionalize Better Decisions 20 | 2010 All Rights Reserved. Thomas H. Davenport Analytics at Work Most Common Decision Interventions 21 | 2010 All Rights Reserved. 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 F r e q u e n c y
M e n t i o n i n g
Type of I ntervention Thomas H. Davenport Analytics at Work 22 Multiple Interventions: Better Pricing Decisions at Stanley Pricing identified as one of four key decision domains by CIO Pricing Center of Excellence established in 2003 Adopted several difference pricing methodologies Implemented new pricing optimization 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: gross margin from 34% to over 40% in six years
Thomas H. Davenport Analytics at Work Keep in Mind 23 | 2010 All Rights Reserved.
Five levels, five factors for building analytical capability Data and leadership are the most important prerequisites Make sure your targets are strategic Tie all your BI and analytics work to decisions This is not business as usualthere is a historic opportunity to transform your industry!