Competing on Analytics: The New Science of Winning

By Thomas H. Davenport and Jeanne G. Harris

Competing on Analytics: The New Science of Winning

Take some overweight players, batters that dont hit home runs and pitchers that dont strike out and what do you get? A winning Major League baseball team. Thats what the Oakland Athletics discovered in 2002 when they turned to analytics to make up for the second-lowest payroll in baseball. The team discovered that wins could be had by more affordable methods, such as hitters with high on-base percentages and pitchers who got lots of ground outs. As a result, the Oakland As reached the post-season playoffs three years in a row, despite having one-third the budget of the New York Yankees.
More and more organizationsas disparate as Netflix, Harrahs Entertainment and the global cement giant CEMEXhave discovered the power of analytics to out-think and out-execute the competition. These market-leading companies see their ability to exploit analytics as their distinctive capabilitythe integrated business processes and capabilities that together serve customers in ways that are differentiated from competitors and that create an organizations formula for business success. former director of the Accenture Institute for High Performance Business. Harris is executive research fellow and director of research at the Accenture Institute for High Performance Business. This is the first Accenture book to establish a quantitative link between information and technology and our high performance business research and brand positioning. It is also the first book describing how to use analytics as a distinctive capability to derive maximum business value from information. The analytical maturity model cited in the book will become the basis of a new diagnostic tool Accenture is developing to analyze an organizations analytical capability. Analytics are a vital element in each of our key growth platforms. Analytically intensive offerings already exist in every business capability, such as pricing strategy, customer insight, supply chain optimization and enterprise performance management. Every industry has analytically oriented offerings tied to its unique value proposition. In addition, Accenture Information Management Services was formed as a dedicated organization to further extend our commitment to integrate and manage all the diverse information assets necessary

to plan and run a high-performance organization, including analytics, data quality and cleansing, and structured and unstructured content. Further, analytics are a large market with plenty of room to grow. Accenture Institute research found that high performance businesses have a much higher analytical orientation than other organizations. Only a few leaders have realized the full potential of competing on analytics so far. According to recent Institute research, approximately 10 percent of company executives (15 percent of executives in high performance businesses) view their analytical capability as a key element of their strategy. But nearly every organization aspires to use analytics more effectively and expects to invest to upgrade analytical capabilities significantly over the next five years. Analytics and the broader field of business intelligence (BI) that encompasses it will require high-value consulting upfront for the strategy and analytics, systems integration to design and implement, and a cost-competitive delivery model to maintain and operate. BI also leverages and extends previous engagement experience and research, such as the New Growth from Enterprise Systems study and high performance business findings. In short, analytics play to Accentures core strengths. By integrating consulting, technology and outsourcing, analytics hit Accentures sweet spot and position the firm at the center of a major growth area. Analytics will form the core of enhanced analytical offerings in virtually every industry and service line. Importantly, analytics build on and extend high performance business

Why this book is important

Now, for the first time, the power of analytics will be addressed in a book that strategically positions and differentiates Accenture in a major growth area. Competing on Analytics: The New Science of Winning, by Thomas H. Davenport and Jeanne G. Harris, will be published by the Harvard Business School Press in March 2007. Davenport, currently the Presidents Chair in Information Technology and Management at Babson College, is the

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Competing on Analytics: The New Science of Winning

Quick Q&A
What exactly are analytics? Analytics are the extensive use of data, statistical and quantitative analysis, explanatory and predictive models, and fact-based management to drive decisions and actions. The analytics may be input for human decisions or may drive fully automated decisions. Analytics are a subset of what has come to be called business intelligencea set of technologies and processes that use data to understand and analyze business performance. What is an example of competing on analytics? Capital One conducts more than 30,000 experiments a year with different interest rates, incentives and direct-mail packaging to maximize the likelihood that potential customers will sign up for credit cards and pay the money they owe. The initiative has spurred at least 20 percent growth in earnings per share every year since the company went public. How can analytics create competitive differentiation? At a time when companies in many industries offer similar products and use comparable technology, many of the previous bases for competition are no longer viable. In a global environment, physical location is frequently not a source of advantage and protectionist regulation is increasingly rare. Proprietary technologies often can be rapidly copied, and attempts to achieve breakthrough innovations often fail. Whats left as a basis for competition is execution and smart decision making. Sophisticated analytics enable marketleading companies to generate a new and lasting competitive advantage. Who is this book written for? CEOs, COOs and CIOs in virtually every industry can learn important insights. Additionally, government agencies that are information intensive, such as homeland security, intelligence, the military, revenue and police, also compete on their ability to out-think and out-analyze their competition. Early adopters are likely to be in industries that have accurate and available data, including consumer goods, pharmaceutical and life sciences, retail, financial services and industrial products such as automotive. In addition, analysts and information workers can learn how to apply analytics more strategically. Major analytical software companies also will be interested, such as SAP, Oracle, Microsoft, SAS, SPSS, Fair Isaac and Business Objects. What are the three take-aways that people can expect from this book? 1. High performance businesses use analytics for competitive differentiation. 2. True competitive advantage comes when organizations apply analytics across the enterprise, as opposed to applying it only to segments of the organization. 3. More companies will choose to compete on analytics as their distinctive capability in the next five years as a way to outperform their competitors.

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Competing on Analytics: The New Science of Winning

research, showing organizations how analytics can support or drive a distinctive capability that delivers lasting competitive advantage. The book will receive major marketing attention that can reap business benefits for years. It will be the cornerstone of joint marketing efforts in a research consortium now being formed with Babson College, Harvard Business School Press, SAS, Intel and Concours. This consortium aims to build long-term strategic relationships and influence the market by creating branded thought leadership and becoming the authoritative center of the analytics community. Harvard Business School Press expects to turn the book into a long-term franchise, extending its impact through conferences, Webinars, newsletters, white papers and Harvard Business Review articles.

Dell Computer created a database of 1.5 million records of all its print, radio, broadcast TV and cable ads. Dell couples the database with data on sales for each region in which the ads appeared, both before and after their appearance. The information enables Dell to fine-tune its promotions for every medium in every region. Netflix uses analytics to predict customer movie preferences. Financial Services Barclays Bank applies analytics to the marketing of credit cards and other financial products in order to attract and retain the best customers at the lowest price. Progressive Insurance profitably insures customers in traditionally high-risk categories, such as motorcycle riders. It defines narrow customer groups, identifies the factors that most closely correlate with the losses that group engenders, sets a price for each group and then uses simulation software to test the financial implications of the hypotheses. Products Harrahs Entertainment used analytics to create the gaming industrys first loyalty program, emphasizing customer service, pricing and promotions over building megacasinos. Marriott Internationals analytical approach to establishing the optimal price for guest rooms has been expanded to cover the best way to acquire properties to manage. UPS not only tracks the movement of packages but also uses analytics to anticipate the likelihood of customer attrition so that targeted interventions can occur.

Resources CEMEX used analytics to optimize supply chains so that it could charge a premium for delivering readymixed cement sooner.

About the Authors

Jeanne G. Harris is an executive senior research fellow and director of research at the Institute. She can be reached at jeanne.g.harris@accenture.com

Analytics in action
Analytics may be applied to a variety of business problems, including customer management, supply chains and financial performance. Virtually every major company uses some form of statistical or mathematical analysis in its business, but some take analytics much further than others, as these examples show: Communications & High Tech Verizon uses analytics to speed up and broaden decision making. The company created a continuous scorecard broadcasting hundreds of performance metrics to PCs around the company, each occupying the screen for 15 seconds. The scorecard encourages everyonenot just senior executivesto address issues that appear in the data.

Thomas H. Davenport is the former director of the Institute. Currently, he is the president's chair in information technology and management at Babson College.

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Competing on Analytics: The New Science of Winning

Whats inside the book

Competing on Analytics: The Science of Winning answers six key questions: Who competes on analytics and why? What is the link between business performance and competing on analytics? How are top performers using data and sophisticated predictive analytics to out-execute the competition? What are the mindsets, strategic decisions and practices of top performers that compete on analytics and achieve high performance? What is the road map to develop an analytical capability? How do companies use analytics to create differentiating business processes in different industries? The forward is by Gary Loveman, CEO of Harrahs Entertainment. The body of the book is divided into two parts, encompassing nine chapters: Chapter 3 Analytics and Business Performance: Transforming the Ability to Compete on Analytics into a Lasting Competitive Advantage Chapter 4 Competing on Analytics with Internal Processes: Financial, Manufacturing, R&D and Human Resource Applications Chapter 5 Competing on Analytics with External Processes: Customer and Supplier Applications

Building an Analytical Capability

Chapter 6 A Road Map to Enhanced Analytical Capabilities: Progressing through the Five Stages of Development Chapter 7 Managing Analytical People: Cultivating the Scarce Ingredient That Makes Analytics Work Chapter 8 The Architecture of Business Intelligence: Aligning a Robust Technical Environment with Business Strategies Chapter 9 The Future of Analytical Competition: Approaches Driven by Technology, Human Factors and Business Strategy Back-of-the-book matter includes notes, an index and author biographies.

The Nature of Analytical Competition

Chapter 1 The Nature of Analytical Competition: Using Analytics to Support Distinctive Business Capabilities Chapter 2 What Makes an Analytical Competitor? Defining the Common Key Attributes of Such Companies

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About Accenture
Accenture is a global management consulting, technology services and outsourcing company. Committed to delivering innovation, Accenture collaborates with its clients to help them become high-performance businesses and governments. With deep industry and business process expertise, broad global resources and a proven track record, Accenture can mobilize the right people, skills and technologies to help clients improve their performance. With more than 133,000 people in 48 countries, the company generated net revenues of US$15.55 billion for the fiscal year ended Aug. 31, 2005. Its home page is www.accenture.com.

About the Accenture Institute for High Performance Business

The Accenture Institute for High Performance Business creates strategic insights into key management issues through original research and analysis. Its management researchers combine world-class reputations with Accentures extensive consulting, technology and outsourcing experience to conduct innovative research and analysis into how organizations become and remain high-performance businesses.

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