tives. For example, a marketing manager discovered softwaretools that showed how sales data could be displayed graphicallyin terms of geography on an interactive map. The company’s ITexecutives seized upon his interest and offered him some relatedgeographically oriented analytical capabilities so that he couldidentify underserved territories and plan the geographicalspread of new hires. These IT managers wisely refuse to waituntil more analytically oriented senior executives happen toarrive at the company.
The Right Talent Makes a Difference
Supplying the right kind of hardware environment and ana-lytical software is typically easier to address than creatingdemand, but just as important. While good data from trans-actional systems is increasingly available and analytical tech-nology has become easier to use,companies that compete onanalytics still require people with substantial quantitativeskills—either in-house or contracted from outside. The sta-tistical expert, in order to be useful, will also need to be famil-iar with the business problems in the function and industry;the quantitative skills of a good analyst are rarely equallyapplicable across diverse businesses. One pharmaceuticalcompany,for example,attempted to use several bioinformat-ics experts to pursue analysis of commercial problems in mar-keting and operations, and found thatthey were neithermotivated nor expert at the applications. Similarly, while sta-tistical analysts from India and China are increasingly avail-able from offshore outsourcing vendors, it’s unlikely that theywill know your business well.Indeed, several companieswe interviewed stressed the impor-tance of a close and trusting relationship between quantitativeanalysts and decision-makers. The need is for statistical expertswho also understand the busi-ness in general, and the partic-ular business need of a specificdecision-maker. As one man-ager at Wachovia Bank put it,“We are trying to build our peo-ple as part of the business team;wewant them sitting at thebusiness table, participating inadiscussion of what the key issues are, determining what infor-mation needs the business people have and recommendingactions to the business partners.”Aconsumer products company we interviewed hires whatit calls “PhDs with personality” for its analytical group—indi-viduals with not only heavy quantitative skills but also theability to speak the language of the business and market theirwork to internal customers. This company believed that therelational aspect of the job made it difficult to outsource ortake offshore. To find these people and develop these types of relationships would surely be much more difficult in an out-sourcing situation, and virtually impossible with analysts half aworld away from the decision-makers.
How Do You Know When You’re There?
There are several indications that a company is competing onanalytics:
THE CEOHAS AN ANALYTICAL BACKGROUND.
Harrah’sLoveman was a business school professor and has an MITPhD. Amazon’s Bezos was an A-plus student in electrical engi-neering and computer science at Princeton. When the CEO orvice chair of a company is arocket scientist, it’s a good bet thatthere will be other scientists on the payroll.
NOBODY’SASKING ABOUT THE ROI FOR EACH LITTLEINITIATIVE.
What’satstakein analytical competition is not anapplication, but a corporate strategy. If the analytical activitiesare succeeding,they will be manifested not in ROI calcula-tions, but in revenue and profits.
THE COMPANY IS VERY SUCCESSFUL.
Certainly there areindustries (for example,U.S.domestic airlines) where a lot of analytics don’tseem to be the critical success factor. It isn’t withSouthwest. But the great majority of highly analytical compa-nies that we studied are leaders in their industries and makinglots of money.As more analytically trained managers enter the work-force, it’s likely that analytical competition will become morecommon and intense. However, this capability can’t be devel-oped overnight. Most of the companies we interviewed tookat least five years to develop their analytical capabilities suf-ficiently to compete on that basis, and a couple of very suc-cessful companies (including Procter & Gamble and Mars)had been pursuing analytics for several decades. Assemblingthe right data, finding and using the right tools, and devel-oping the right relationships between analysts and decision-makers all take time. Therefore, it makes sense to start pullingthem together now. History seems to be onthe side of the numbers.
Tom Davenport is professor of IT and management atBabson College and an Accenture Fellow. He can bereached at
Most of the companies we interviewed took at least five years todevelop their analytical capabilitiessufficiently to competeon that basis.
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Restaurants,particularly the bigchains,havealsomade analyticsworktotheir advantage.Toread about
“TheBrain Behind the Big, Bad Burger andOther TalesOfBusinessIntelligence,”
Adapted from the October 1, 2005 issue of CIO magazine. Copyright © CXO Media Inc. All rights reserved.