Professional Documents
Culture Documents
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ALSO INSIDE:
July/ august 2012 DRiving BetteR Business DecisiOns
The Future of Forecasting
intersection of analytics and insight,
plus survey of software packages
Analytics & Big Data
skeptics vs. enthusiasts: Battle for
hearts and minds of decision-makers
Analytics at IBM
technology, consulting giants long,
rich history with advanced analytics
COMpETITIvE
CrOwDSOurCINg
ANALyTICS AS SpOrT:
A wIN-wIN FOr
CONTESTANTS AND
COrpOrATIONS
executive edge
aryng ceO
piyanka Jain
on what predictive
analytics is not
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1 | a na ly t i cs - maga z i ne . or g
the sport of data science
i ns i De s t ORy
How many analysts does it take to
solve a problem?
That may sound like the start of a bad
joke, but no one was laughing in 2006
when Netfix offered $1 million to any-
one who could come up with a collabora-
tive fltering algorithm that improved the
performance of Cinematch (Netfixs in-
house software) by at least 10 percent.
Cinematch predicts which movies Netfix
customers like and makes movie rec-
ommendations to customers based on
those predictions. The goal: boost cus-
tomer satisfaction and retention along
with sales.
Three years later, after receiving sev-
eral thousand entries from more than 100
countries, a winner was announced, the
$1 million prize was awarded and a cot-
tage industry online marketplaces for
business projects where companies post
challenges, provide data and offer prizes
for the best solutions took off.
While Netfix reportedly performed
no formal cost-beneft analysis on the
Netfix Prize, the company was clearly
pleased with the results. At the time,
Netfix CEO Reed Hastings said, You
look at the cumulative hours and youre
getting Ph.D.s for a dollar an hour.
In this months cover story, Margit
Zwemer, a data scientist and commu-
nity manager at Kaggle, provides an
inside look at crowdsourcing the
concept that turns complex analytical
problems into a competitive sport open
to analysts, astrophysicists or anyone
else who cares to submit a solution. As
Zwemer notes in her article, the con-
cept is not new; as far back as the 18th
century, the British government offered
more than 100,000 in prize money to
anyone who could come up with simple
and practical methods for measuring
longitude to assist maritime navigation.
The Netfix Prize, however, helped
turn crowdsourcing into a modern-day,
mainstream corporate strategy. Data
research competitions are a resource-
effcient way for organizations to solve
complex data problems, and they cre-
ate a meritocratic market for talent that
changes the way analysts work, Zwe-
mer writes. Kaggle, an online platform
for predictive modeling and analytics
competitions, was one of many compa-
nies that jumped on the crowdsourcing
bandwagon in the aftermath of the Net-
fix Prize. According to Zwemer, Kaggle
boasts a worldwide online community
of more than 40,000 data scientists and
predictive analysts, competing under the
slogan making data science a sport.
peteR hORneR, eDitOR
peter.horner@mail.informs.org
DRIVING BETTER BUSINESS DECISIONS
C o n t e n t s
FEATurES
ReseaRch as a cOmpetitive spORt
By Margit Zwemer
Crowdsourcing the full analytics value chain, starting with the
predictive model itself.
cOllaBORative fORecasting: fROm visiOn tO
Reality
By Brian Lewis
transitioning from periodic, isolated activities to a single, real-time
enterprise process.
fORecasting an upwaRD tRenD?
By Jack Yurkiewicz
survey of forecasting software reveals interesting trends and
new developments.
analytics & Big Data: skeptics vs. enthusiasts
By Gary Cokins
Acceptance of analytics to tackle issues related to big data
going through growing pains.
pReDictaBility Of time seRies
By Subir Mansukhani
statistical measure to infer the level of diffculty in choosing an
appropriate model.
cORpORate pROfile: iBm
By Arnold Greenland
technology, consulting giant boasts a long, rich history with
advanced analytics.
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20
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2 | a na ly t i cs - maga z i ne . or g
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INFORMS BOARD OF DIRECTORS
President Terry P. Harrison, Penn State University
President-Elect Anne G. Robinson, Verizon Wireless
Past President Rina R. Schneur,
Verizon Network & Technology
Secretary Brian Denton,
North Carolina State University
Treasurer Nicholas G. Hall, Ohio State University
Vice President-Meetings William Bill Klimack, Chevron
Vice President-Publications Linda Argote, Carnegie Mellon University
Vice President-
Sections and Societies Barrett Thomas, University of Iowa
Vice President-
Information Technology Bjarni Kristjansson, Maximal Software
Vice President-Practice Activities Jack Levis, UPS
Vice President-International Activities Jionghua Judy Jin, Univ. of Michigan
Vice President-Membership
and Professional Recognition Ozlem Ergun, Georgia Tech
Vice President-Education Joel Sokol, Georgia Tech
Vice President-Marketing,
Communications and Outreach E. Andrew Andy Boyd,
University of Houston
Vice President-Chapters/Fora Olga Raskina, Con-way Freight
INFORMS OFFICES
www.informs.org Tel: 1-800-4INFORMS
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Meetings Director Teresa V. Cryan
Marketing Director Gary Bennett
Communications Director Barry List
Headquarters INFORMS (Maryland)
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E-mail: informs@informs.org
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the editor, Peter Horner, peter.horner@mail.informs.org. The
opinions expressed in Analytics are those of the authors, and
do not necessarily refect the opinions of INFORMS, its offcers,
Lionheart Publishing Inc. or the editorial staff of Analytics.
Analytics copyright 2012 by the Institute for Operations
Research and the Management Sciences. All rights reserved.
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Predictive analytics is a powerful method
used by leading business organizations to pre-
dict future events and behavior in order to op-
timize current marketing, product, operations
and sales actions. The prediction is based on
a basic fundamental: past behavior predicts
future behavior.
As an example, lets take an e-commerce
company selling furniture online. The online
site has about a 10 percent contact rate, i.e.,
of the 100 people who come to the website,
about 10 people contact customer service
within 24 hours. The VP of Customer Service
Operations is looking to reduce the contact
rate as each contact costs the company incre-
mental dollars in operations. Lets say a 1 per-
cent decrease in contact rate would amount to
a savings of $1 million a year for the company.
The operations team decides to use predictive
analytics to understand the drivers of contact.
By using certain predictive analytics tech-
niques on historical data, a relationship is
identifed between help page visits and visitors
making a phone call to the customer service
department. Specifcally, 50 percent of visi-
tors, after having gone through three distinct
help pages, call customer service. This is a
very helpful clue. If the visitor can be inter-
cepted before he hits the third help page either
by providing better help content or a live chat
or a clarifcation window based on what he is
browsing, contact rate can likely be reduced. I
have seen organizations save and make mil-
lions by understanding this kind of pivotal rela-
tionships between behaviors and events.
On the fip side, predictive analytics, in spite
of being a powerful optimization technique, is
often left to the devices of data miners and
data scientists, and thus is often misunder-
stood and misused by businesses. Having a
frm hold on what predictive analytics is not will
make predictive analytics a more useful tool
for businesses.
1. Predictive analytics is not new. Some
news items such as the Feb. 16 New York
Times report on retail company Targets predic-
tion of teenage pregnancy implies that predic-
tive analytics is a new found technique. But in
fact predictive analytics is not new. Fischer and
Durand, founders of the Econometric society,
built one of the frst credit scoring models 80
years ago. But predictive modeling techniques
go back thousands of years Indian astrologi-
cal charts used to arrange marriages are one
such example.
2. Predictive analytics does not produce
perfect predictions. Often while building the
model, it is clear to all that model prediction has
a probability associated with it, but upon suc-
cessful use, there is often a misplaced sense
of perfectness in the scores. As in the case of
our e-commerce company, 50 percent of visi-
tors after visiting three help pages are going
to call, but the other 50 percent wont call. The
model predicts by maximizing the likelihood,
and a certain degree of misclassifcation al-
ways exists. By using other predictors, these
odds can be improved, but the prediction will
still not be a 100-percent accurate.
3. A good software tool does not mean a
good model. With tremendous develop-
ment on the software tool front with better GUI
as well as higher automation, people new to
the feld often mistakenly believe that a good
model can be automatically built by pressing
a build model button. A good model requires
proper technical skills and a proper model-
building process. Surprisingly, sometimes
even proper skills and a proper process does
not deliver a good model with decent lift and
low misclassifcation.
4. A good model does not always mean
better business results. This is one of those
highly prevalent myths that even experienced
analysts fall for, leaving them frustrated when
nobody in the business seems to care for the
amazing model they built. A good model gen-
erates business impact only when the right
stakeholders are brought into the analytics
process at the right time, thus building proper
4 | a na ly t i cs - maga z i ne . or g a na ly t i cs | J U ly / aU gU s t 2012
what predictive analytics
is not
By piyanka Jain
predictive analytics, in
spite of being a powerful
optimization technique, is
often left to the devices
of data miners and data
scientists, and thus is
often misunderstood and
misused by businesses.
e Xe cu t i ve e D ge
5 | a na ly t i cs - maga z i ne . or g
alignment toward actionability using a
framework. In our e-commerce exam-
ple, if instead of building a contact rate
prediction model, we had built a model
to predict visitors most likely to do live-
chat, would the VP of Operations care
for the model and the results? Prob-
ably not. Unless we can show the re-
lationship between what we (predictive
model/team) are trying to do and his
business goal (contact rate reduction),
the VP of Operations is not going to use
the model.
5. Models cant be built and forgot-
ten. Models become stale over time.
If not maintained, they often stop de-
livering the incremental value it start-
ed with. As organizations embark on
the journey of competing on analytics,
they need to be aware that it is not a
one-time investment. You cant hire ex-
ternal consultants, get the model built
and leave it at that. Model needs to be
tested, tweaked and then maintained
to continue delivering the incremental
beneft.
Piyanka Jain (piyanka@aryng.com) founder, president
and CEO of analytics training company Aryng, speaks
regularly at business and analytics conferences on
data-driven decision-making in an organization. Her
prior roles include head of NA Business Analytics at
PayPal and senior marketing analytics position with
Adobe. She is an INFORMS partner.
e Xe cu t i ve e D ge
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models become stale over
time. if not maintained,
they often stop delivering
the incremental value
it started with. as
organizations embark on
the journey of competing
on analytics, they need to
be aware that it is not a
one-time investment.
subscri be t o Anal yt i cs
Its fast, its easy and its FREE!
Just visit: http://analytics.informs.org/
www. i nf or ms . or g
In the 2011 March/April issue of Analytics I
took a look at the question, What is analytics?
I shied away from proposing a defnition for a
host of reasons, many of which are illustrated
in the defnition of another discipline with a
long and distinguished history: mathematics.
So what is mathematics?
Thanks to our educational system, we all
have exposure to math from an early age. Most
of us associate it with numbers. Ask mathema-
ticians, however, and they may not even men-
tion numbers, focusing instead on abstract
symbol manipulation and sets. Yet even here
theres no uniform agreement. Consider this
rather striking passage from the Wikipedia
page Defnitions of Mathematics: Mathematics
has no generally accepted defnition. Different
schools of thought, particularly in philosophy,
have put forth radically different defnitions. All
are controversial.
Nonetheless, we speak cogently about
mathematics, and most people would argue
that mathematics is important, leading us to
conclude that an exact defnition isnt a pre-
requisite for a feld to stand on its own.
Still, the process of seeking a defnition is
invaluable. In my earlier article I focused on
the fact that discussing what analytics is and
isnt helps us come to a better understanding
of it even if we never converge on a precise
defnition that all businesses, vendors and ac-
ademics can agree on. Here Id like to focus
on another benefcial aspect of seeking a def-
nition: communicating one partys perspective
on analytics to the rest of the world. When
John says analytics, what does he mean?
INFORMS (the professional society that pub-
lishes this magazine; see Proft Center, March/
April 2012) recently undertook an extensive ef-
fort to arrive at its own defnition of analytics.
The process was spearheaded by the board of
directors, and the goal was to succinctly com-
municate INFORMS perspective on the topic.
Needless to say, getting an organization of more
than 10,000 members to agree on anything is a
challenge. And, not surprisingly, not every indi-
vidual member was personally contacted. An ad
hoc committee reviewed existing defnitions, dis-
cussed these defnitions and prepared its own. It
then sent a proposal to various subgroups with-
in INFORMS which in turn solicited comments
from their membership. Many strong, thoughtful
opinions were voiced. But in a matter of months,
a reasonable consensus had emerged. This was
the result:
Analytics is the scientifc process of trans-
forming data into insight for making better
decisions.
At the heart of the defnition is data, and
transforming that data into insight. Of the many
defnitions of analytics now in use, data is cen-
tral to most, as is using that data for a specifc
purpose. Interestingly, the INFORMS defnition
describes that purpose as insight for making
better decisions. INFORMS tends toward the
mathematical end of the analytics spectrum,
so a more technical term than insight wouldnt
have been surprising. The choice of insight
communicates that while the organization be-
lieves math is important, its subsidiary to the
insight aimed at making better decisions.
Even more interestingly in the defnition is
the focus on the scientifc process of transform-
ing data. Is this where mathematics enters the
equation? Not necessarily. Mathematical tools
can be very useful, but the explicit statement in
the defnition calls out the scientifc process, a
process that involves an informed, logical, or-
derly sequence of steps. The scientifc process
is powerful and is something thats all too fre-
quently overlooked in decision-making. Coupled
with data, the scientifc process is a juggernaut.
Aspects of INFORMS defnition arent
unique. All defnitions share numerous com-
monalities, which is reassuring. Where the def-
initions tend to diverge is over how much and
what type of mathematics is used. Is simple
reporting part of analytics? It depends upon
whom you ask.
INFORMS defnition certainly doesnt re-
solve the question, What is analytics? It
does, however, provide a thoughtful perspec-
tive to ponder. And it informs us of just where
INFORMS stands.
Andrew Boyd, senior INFORMS member and INFORMS VP of
Marketing, Communications and Outreach, has been an executive
and chief scientist at an analytics frm for many years. He can be
reached at e.a.boyd@earthlink.net.
6 | a na ly t i cs - maga z i ne . or g a na ly t i cs | J U ly / aU gU s t 2012
Revisiting what is
analytics
By e. anDRew BOyD
analytics is the scientific
process of transforming
data into insight for
making better decisions.
p R Of i t ce nt e R
www. i nf or ms . or g
Been cleaning out the home offce this
month. Apparently, this is the kind of thing that
is done by a newly tenured professor with no
summer teaching or administrative responsi-
bilities to avoid tackling the gnarly research
problems on his desk. In addition to the many
long-lost letters, books, papers, ticket stubs,
non-disclosure agreements, unmarked CDs,
forgotten photos, abandoned textbooks and
stray postcards, Ive also managed to un-
earth an impressive pile of discarded plas-
tic lanyards, the kind one acquires at events
such as orientations, new student dinners and
conferences.
In particular, the bright blue lanyards from
the INFORMS Conference on Business Analyt-
ics and Operations Research (BAOR) in 2011
and 2012 caught my eye. Ive been going to
the fall INFORMS conference for many, many
years [1], and its always a great pleasure to
catch up with familiar old friends there. But at
these past two BAOR conferences, the frst
ones that I have attended, I have also really
enjoyed meeting interesting people who are
new to INFORMS. At the 2011 BAOR confer-
ence in Chicago, I had my frst contact with an
analytics leader named Scott Friesen. At the
2012 BAOR conference in Huntington Beach,
Calif., I had a really interesting breakfast con-
versation with an auto industry pioneer named
Sandy Stojkovski.
Inspired by the discovery of these old lan-
yards, I recently caught up with Scott and
Sandy last week to answer a couple of simple
questions: Who are you? and How did you
end up attending an INFORMS conference?
Their responses were both fascinating and
instructive.
Scott Friesen is senior director of analytics
within the Customer Insights Unit (CIU) at Best
Buy. This is the latest in a series of roles that
he has played within that company since fnish-
ing his MBA in 2004. Over the past two years,
Scotts group has grown from 11 to more than
30 professionals by consistently demonstrat-
ing business value to its internal customers.
Scotts CIU is viewed within Best Buy as the go-
to place for executives and managers across
the company to understand customer behav-
ior, proftability models, competitive trends and
a number of other data-driven questions of in-
terest to executives, marketers, retail manag-
ers and strategic planners.
The journey that led him to this role as an
analytics leader has been unique and can be
traced at least as far back as his business
school statistics class with Paul Glasserman
at Columbia (he confessed to me that he
found Professor Glasserman and his course
to be inspiring). Along the way, hes worked
in strategy for BestBuy.com, been trained as
Six Sigma Blackbelt and Master Blackbelt,
launched a new services business within the
Geek Squad organization, and set up a claims
analytics function (complete with actuaries) to
manage risk in the companys extended ser-
vice warranty business.
Sandy Stojkovski is president of Scenaria
(www.scenaria.com), a consulting frm that she
founded with AVL (www.avl.com) in 2010. Sce-
naria develops sophisticated analytic models
to provide unique insights and strategy guid-
ance to its clients, who are typically executives
within the auto industry. Starting this company
is only the most recent time that Stojkovski
has broken the mold during her career in the
auto industry. She has also been a 22-year-
old greenfeld plant manager, gained exper-
tise in value engineering while working for a
parts manufacturer, and developed a global
power train strategy for a prominent automo-
tive brand. She also managed to complete a
graduate engineering degree and an MBA be-
fore turning 30 while working full-time.
Prior to starting Scenaria, Stojkovski de-
veloped deep expertise with vehicle fuel ef-
ficiency standards first while working on fuel
economy as an engineer at Ford and then
while launching and growing an energy ef-
ficiency practice at an engineering services
firm called Ricardo. Her bold vision to trans-
form the way that auto company executives
do strategic planning has in turn required
the company to develop a management
7 | a na ly t i cs - maga z i ne . or g a na ly t i cs | J U ly / aU gU s t 2012
Business analytics
conference builds
connections
By viJay mehROtRa
networking at infORms
conference on Business
analytics and Operations
Research pays dividends.
analy z e t h i s !
www. i nf or ms . or g 8 | a na ly t i cs - maga z i ne . or g a na ly t i cs | J U ly / aU gU s t 2012
science-based approach to manage-
ment consulting to help its clients intelli-
gently address the types of high-stakes
decisions that have to be made in the
capital-intensive automotive industry.
The companys projects typically fea-
ture a variety of analytic tools, includ-
ing experimental design and simulation
modeling and visualization.
At frst, I found it curious that neither
Scott nor Sandy had any degrees in math-
ematics, statistics or operations research
(though each of them appreciated what they
had picked up in their respective academic
programs). While both expressed genuine
respect for the mathematical techniques
underpinning this analytics revolution, nei-
ther felt that their relative lack of formal
mathematical training had handicapped
them professionally in any way.
Instead, what really stood out was that
each of them had an almost viscerally
strong inclination toward systems think-
ing. While Friesen attributed this to his
undergraduate roots in the liberal arts,
Stojkovski credits her engineering back-
ground for this orientation toward seeing
problems in the context of the larger sys-
tems in which they exist.
They also shared several other key
traits that are typical of successful leaders
in the analytics industry. Throughout their
careers, the interesting variety of roles and
assignments revealed both of them to be
voracious learners, as well as smart, judi-
cious risk takers. Friesen and Stojkovski
also both emphasized the value of building
strong relationships, with Friesen passing
along an important equation that a mentor
had shared with him (Trust = Credibility *
Intimacy/Risk). Each of them repeatedly
spoke of looking at problems strategically
and continually seeking to get closer to the
root of the problem because, as Friesen put
it, thats where the leverage is.
This search for valued relationships
and intellectual leverage is what led both
Friesen and Stojkovski to INFORMS and
in particular to the increasingly popu-
lar spring BAOR conferences. At the
2011 BAOR conference, Friesen made
a presentation [2] about leveraging tech-
nology and relationships to implement
analytic capabilities in the complex and
dynamic world of Best Buy, participated
in a lively panel session on Growing an
Analytics Capability, and enjoyed the
analy z e t h i s !
Join the Community
for inside information.
SECTION ON
ANALYTICS
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while both expressed
genuine respect for the
mathematical techniques
underpinning this analytics
revolution, neither felt that
their relative lack of formal
mathematical training
had handicapped them
professionally in any way.
hel p promote Anal yt i cs
Its fast and its easy! Visit:
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9 | a na ly t i cs - maga z i ne . or g
mix of industry and academic conver-
sations. Meanwhile, Stojkovski started
out reading Analytics magazine as part
of her ongoing search for new knowl-
edge and became intrigued with the
opportunity to leverage lessons from
different industries into Scenarias ap-
proaches. Eventually she made her
way to the 2012 BAOR conference in
Huntington Beach, where she delivered
a presentation [3] on a strategic plan-
ning, analysis and a data visualization
platform that her company had devel-
oped for the California Hybrid, Effcient
and Advanced Truck Research Center
to help the organization to jointly evalu-
ate technology and policy decisions.
These days, there is a great deal of
general talk about the rapid growth and
evolution of analytics. Friesen and Stojk-
ovski provide two specifc and optimistic
visions for the future. Scott and his group
have recently received management ap-
proval for a new multi-million dollar cus-
tomer information infrastructure that he
believes will lead to a quantum growth in
the types of insights his group can pro-
vide to its many business customers with-
in Best Buy. For Sandy, the progressive
tightening in the CAFE standards, which
are slated to increase by 80 percent by
2025, means complex investment deci-
sions and serious risks for the automotive
industry and great opportunities for
Scenarias industry expertise and analyt-
ics capability to make an impact.
For my part, I feel fortunate to be able
to engage personally and professionally
with these folks (I was taught long ago to
surround myself with likable people who
are different from me and smarter than
I am). In particular, I am thankful to IN-
FORMS for creating the BAOR confer-
ence and thus establishing a compelling
space for hatching these types of new
connections. Moreover, meeting people
like Scott and Sandy has also convinced
me that there are many different types of
analytic leaders out there and I cant
wait to see more of them at the next spring
party (April 7-9, 2013 in San Antonio).
We all have an awful lot to learn.
Vijay Mehrotra (vmehrotra@usfca.edu) is an
associate professor, Department of Finance and
Quantitative Analytics, School of Business and
Professional Studies, University of San Francisco.
He is also an experienced analytics consultant
and entrepreneur and an angel investor in several
successful analytics companies. He is a senior
INFORMS member.
analy z e t h i s !
General Chair
Ronald G. Askin
Arizona State University
Program Co-Chairs
John W. Fowler
Esma Gel
Arizona State University
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PHOENIX 2012
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NOTES & FURTHER READING
1. For the interested reader, heres a link to a story
about my frst fall conference: www.orms-today.
org/orms-12-03/frsomething.html .
2. A video of Scotts 2011 presentation is available
online at www.informs.org/Community/Analytics/
Videos/Analytics-Process-Presentations .
3. An abstract of Sandys 2012 presentation is
available online at http://meetings2.informs.org/
Analytics2012/analyticssustainability.html .
www. i nf or ms . or g
We all love the hard side of analytics. What
we often struggle with as analysts is what you
might call the soft side of analytics, which is
always more challenging than the hard stuff.
Here are a few of the reasons why.
Many times, the problem is not insuffcient
data, defective data, inadequate data models or
even incompetent analysis. Often, the reason
that better decisions are not made in less time
is that many companies of all sizes have some,
if not many, managers and leaders who struggle
to make decisions with facts and evidence . . .
even when it is spoon-fed to them. One reason
is that regardless of functional or organizational
orientation, some executives tend not to be ana-
lytically competent or even interested in analy-
sis. As a result, they tend to mistrust any and all
data and analyses, regardless of source.
In other situations, organizations still discount
robust analysis because the resulting implica-
tions require decisions that confict or contrast
with tribal knowledge, institutional customs,
their previous decisions or ideas that they or
their management have stated for the record.
Something to keep in mind is that at least some
of the analysis may need to support the current
thinking and direction of the audience that is an-
alytically supportable if you want the audience to
listen to the part of your analysis that challenges
current thinking and direction.
Understanding the context or the why? of
analysis is fundamental to benefting from it.
However, there are times when the results of an
analysis can be conficting or ambiguous. When
the results of analysis dont lead to a clear, un-
arguable conclusion, then managers or execu-
tives without the patience to ask and understand
why? may assume that the data is bad or, more
commonly, that the analyst is incompetent.
Perhaps the most diffcult challenge an or-
ganization must overcome in order to raise the
level of its analytical capability is the natural hu-
bris of senior managers who believe that their
organizational rank defnes their level of unaided
analytical insight. Hopefully, as we grow older,
we also grow wiser. The wiser we are, the slower
we are to conclude and the quicker we are to
learn. The same ought to be true for us as we
progress up the ranks of our organization, but
sometimes it isnt.
If these are the reasons for the organiza-
tional malady of failing to fully leverage ana-
lytics to make higher quality decisions in less
time, what is the remedy?
For the analyst, I recommend the following:
1. Put yourself in the shoes of the decision-
maker. Try to step back from the details
of your analysis for a moment and ask
yourself the questions he or she will ask.
2. Engage your decision-maker in the
process. Gather their perspective as an
input. Dont make any assumptions. Ask lots
of questions. They probably know things that
you dont know about the question you are
trying to answer. Draw them out. Schedule
updates with the decision-maker, but keep
them brief and focused on essentials. Ask
for their insight and guidance. It may prove
more valuable than you think.
3. Take time to know, explore and
communicate the why? of your analysis.
Why is the analysis important? Why are
the results the way they are? To what
factors are the results most sensitive and
why? Why are the results not 100 percent
conclusive? What are the risks and why do
they exist? What are the options?
4. Make sure you schedule time to
explain your approach and the why?
Your decision-maker needs to know
beforehand that this is what you are
planning to do. You will need to put the
why? in the context of the goals and
concerns of your decision-maker.
5. Consider the possible incentives
for your decision-maker to ignore
your recommendations and give him
or her reasons to act on your
recommendations that are also consistent
with their own interest.
6. A picture is worth a thousand words.
Make the analysis visual, even interactive,
if possible.
7. Consider delivering the results in Excel
(leveraging Visual Basic, for example), not
10 | a na ly t i cs - maga z i ne . or g a na ly t i cs | J U ly / aU gU s t 2012
why the soft side of
analytics is so hard to
manage
By aRnOlD maRk wells
however, there are times
when the results of an
analysis can be conflicting
or ambiguous. when the
results of analysis dont
lead to a clear, unarguable
conclusion, then managers
or executives without
the patience to ask and
understand why? may
assume that the data is
bad or, more commonly,
that the analyst is
incompetent.
f OR u m
11 | a na ly t i cs - maga z i ne . or g
just in a Power Point presentation or
a Word document. In the hands of
a skilled programmer and analyst,
amazing analysis and pictures can
be developed and displayed through
Visual Basic and Excel. Every
executive already has a license for
Excel and this puts him or her face-
to-face with the data (hopefully in
graphical form as well as tabular).
You may be required to create a
Power Point presentation, but keep
it minimal and try to complement
it with Excel or another tool that
actually contains the data and the
results of your analysis.
Frustration with your decision-mak-
ing audience will not help them, you
or the organization. Addressing them
where they are by intelligently and
carefully managing the soft side of
analytics will often determine whether
you make a difference or contribute to
a pile of wasted analytical effort.
Mark Wells (mark@arnoldmarkwells.com) is a
principal with End-to-End Analytics. For 20 years, he
has consulted with the management of global supply
chains in the chemicals, medical devices, consumer
goods, high tech, automotive and retail industries, as
well as the public sector. Wells holds an MBA (focusing
in operations management and operations research)
from Drexel University. He publishes a supply chain
action blog on supply chain and analytics, from which
this article is adapted. He is an INFORMS member.
f OR u m
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frustration with your
decision-making audience
will not help them, you
or the organization.
addressing them where
they are by intelligently
and carefully managing
the soft side of analytics
will often determine
whether you make a
difference or contribute to
a pile of wasted analytical
effort.
subscri be t o Anal yt i cs
Its fast, its easy and its FREE!
Just visit: http://analytics.informs.org/
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Competition in analytics is a
familiar concept on an orga-
nizational level. An analyt-
ics gap exists between the
predictive haves and have-nots: an insur-
ance company that accurately predicts a
new customers actuarial risk, a mortgage
lender that better predicts the probability
of default, a retailer that better predicts
its churn rate, a social network its num-
ber of followers or an ad platform its click-
through rates. If any of these companies
can accomplish their predictions better
than the rest of their industry, they gain a
distinct competitive advantage survival
of the analytic fttest.
What happens when this same ap-
proach is applied to the building of the
predictive models themselves? The rise
of competitive research has shown that
as much or more value can be derived
from competition between the predic-
tive analysts. In this article, well exam-
ine the past results of making analytics
By maRgit zwemeR
C
p R e D i ct i ve mODe l i ng
12 | a na ly t i cs - maga z i ne . or g a na ly t i cs | J U ly / aU gU s t 2012
crowdsourcing the full analytics value chain.
Research as a
competitive sport
The rise of competitive research has shown that as much or more value can be derived
from competition between predictive analysts.
www. i nf or ms . or g 13 | a na ly t i cs - maga z i ne . or g a na ly t i cs | J U ly / aU gU s t 2012
a competitive sport and see how this ap-
proach is affecting the full analytics value
chain, from problem identifcation to anal-
ysis to implementation, and even how
analysts might be recruited and compen-
sated in the near future.
ThE hISTOry OF INNOvATION prIzES
We tend to think of crowdsourcing as a
cost-effective way to accomplish low skill,
repetitive tasks, but a quick glance at the
history of innovation prizes shows that open
competition can achieve breakthrough re-
sults in high value-added areas. The tra-
ditional methods of allocating research
funding and corporate analytics budgets
can encourage a risk averse and cautious
mentality . . . and solutions that are good
enough but not great. The winner-take-all
nature of prizes breeds a form of intelligent
risk-taking that is particularly good at solv-
ing previously intractable problems. Essen-
tially, it is a way of crowdsourcing genius.
As far back as the 18th century, the
British government offered more than
100,000 in prize money to anyone who
could come up with simple and practical
methods for measuring longitude to assist
maritime navigation. A watchmaker, John
Harrison, won the task. Then there was
the very frst non-stop transatlantic fight in
1927, which awarded Charles Lindberg, a
relatively unknown aviator at the time, the
$25,000 Orteig Prize. In 2004, a privately
funded team led by engineer Burt Rutan
captured the $10 million Ansari X Prize
for becoming the frst non-governmental
organization to launch a man into space
not once but twice within two weeks using
a largely reusable spacecraft. The 2009
Netfix Prize demonstrated that this model
can be applied equally well to algorithmic
innovation. Netfix offered a million dollars
for a 10 percent improvement in its movie
recommendation algorithm. An estimated
80 percent of the movies that customers
watch on Netfix are found through the
recommendation engine, so, given the
number of Netfix customers, the million-
dollar prize was money well spent.
All of the prize contests mentioned
here produced remarkable accomplish-
ments, and while they could have or
would have been achieved without such
bounties to spur them on, it is unlikely
they would have happened so quickly.
MODErN INNOvATION prIzES
Using innovation prizes to not only
solve a one-off problem but as a regular
part of doing business is catching on in
many different areas. Topcoder is a well-
known community of more than 400,000
developers who compete in challenges
ranging from architecting an entire soft-
ware system to creating a Web site to
developing new algorithms. The commu-
nity competes to design and then build
each module of the product, with a prize
linked to each component based upon its
diffculty. Innocentive is another innova-
tion platform that hosts an even wider ar-
ray of challenges, from fnding biomarkers
for ALS (Lou Gehrigs disease) to invent-
ing a low-cost rainwater storage system.
From brainstorming, to theory, to blue-
prints, to code, all of these can now be
crowdsourced.
Before I dive more deeply into re-
search as a competitive sport, I should
tell you that I work for Kaggle, a predic-
tive modeling competition platform. If the
examples I bring up seem to tilt heavily
toward my own organization, its because
this is the area of competitive research I
know best, and for which I can marshal
hard evidence to back my claims.
Inspired by the Netflix Prize, Kaggle
was founded in 2010 to apply the innova-
tion prize model and digitize it, creating
cR OwD s Ou R ci ng
For many years, INFORMS has offered a Job Placement Service to connect
employers and qualified O.R. and analytics professionals. This service can be
used alone or in conjunction with the Annual Meeting Job Fair at the 2012 Annual
Meeting. Both give applicants and employers a convenient venue for meeting. JPS
is free to INFORMS member applicants.
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www. i nf or ms . or g 14 | a na ly t i cs - maga z i ne . or g a na ly t i cs | J U ly / aU gU s t 2012
a marketplace for data science. Kaggle
hosts prediction competitions that solve
large-scale data problems in areas such
as business, health, education and sci-
ence. The competitions lead to more
accurate algorithms for the companies
that sponsor them because they pit a
wide range of solutions and techniques
against each other on a data science
proving ground. The online communi-
ty has grown to more than 40,000 data
scientists and predictive analysts, com-
peting under the slogan making data
science a sport.
While the painstaking work of building
a great predictive model could not seem
further from the mud and sweat tradition-
ally associated with sports, the competi-
tive dynamic between Kaggle participants
is what has consistently produced models
that are not just better than the current
state of the art, but better than even the
analysts involved thought possible.
Kaggle competitions have dramati-
cally outperformed pre-existing bench-
marks in every competition run. For
example, the best performing algorithm
in Allstates Kaggle competition pro-
duced a 271 percent improvement over
the internal version and an 83 percent
improvement over the expected best-
case development of a similar model
using internal or traditional third-party
resources. Allstate has validated that
the Kaggle competition produced a
model that performed substantially bet-
ter than what they would have expected
to develop internally or with a special-
ized outside predictive modeling con-
sulting firm. In a competition for another
client, they allowed their internal ana-
lytics team to compete anonymously in
the competition. While they were not
the overall winners, their performance
well exceeded the benchmark that they
themselves had built before the compe-
tition started.
The Kaggle platform also includes a
real-time leaderboard associated with
each competition. Getting instant feed-
back on the accuracy of their models
against a hidden validation set, rather than
submitting models that are only judged at
the end of the competition, encourages
contest participants to push themselves
harder in order to leapfrog their competi-
tors. The competitive dynamic drives data
scientists to continue exploring ways to
improve predictive accuracy, spurred on
by the knowledge that someone else has
found something that makes their solu-
tion better.
Figure 1 shows the change in leader
and increase in predictive accuracy in the
Kaggle-NASA mapping dark matter com-
petition. Within a week of the competition
launch, the benchmark based on more
than 10 years of physics research was
beaten by a glaciologist. The same
asymptotic pattern occurs in all Kaggle
competitions and often with the same
surprising winners.
Participants are located all over the
world and often work in felds that are, on
the surface, completely unrelated to the
source of the data problem, such as the
hedge fund trader who recently won an
education technology challenge or the
cR OwD s Ou R ci ng
Figure 1: Predictive accuracy of the Kaggle-NASA
mapping dark matter competition over time.
Figure 2: The universe of Kaggle participants offers
a diverse skill set.
while the painstaking
work of building a great
predictive model could not
seem further from the mud
and sweat traditionally
associated with sports,
the competitive dynamic
between participants is
what has consistently
produced models that are
not just better than the
current state of the art,
but better than even the
analysts involved thought
possible.
cR OwD s Ou R ci ng
www. i nf or ms . or g 15 | a na ly t i cs - maga z i ne . or g a na ly t i cs | J U ly / aU gU s t 2012
neuroscience student solving an air pol-
lution problem (see Figure 2). Kaggles
focus on data competitions with real-time
leaderboard feedback brings out fresh tal-
ent and drives objectively better results.
prEDICTINg ThE FuTurE OF
prEDICTINg ThE FuTurE
Using competitions to crowdsource
analytic talent does not mean that in-
house analytics groups become obso-
lete, but it does change how they will
approach their role. In the future, the
most valuable skill may not be solving
the analytics problem itself, but being
able to clearly define and structure the
problem into a competition format and
evaluate the results to determine which
model can be most successfully applied
to your particular business. By introduc-
ing open, competitive research into the
analysts toolset, an opportunity arises
to leverage a large analytics talent pool
in a cost-effective, scalable way.
Kaggles own expansion shows how
competitive research can be applied to
many other points along the analytics
value chain. In the past year, Kaggle has
introduced specially formatted, invita-
tion-only competitions in which a select
group of past competition winners are
invited under non-disclosure agreement
to work on sensitive datasets. Another
recently introduced type of competition,
marketed as Kaggle Prospect, extends
the crowdsourcing model to the prob-
lem identification phase that happens
before the competition can be defined.
Hosts share a sample of their raw data
with Kaggles participants, who can use
the data to suggest predictive models
that could be built, uncovering new
or less obvious questions that further
analysis of the data can explore. At the
other end of the analytics value chain,
Kaggle makes it simple to operational-
ize the best predictive models from the
competitions and integrate them into
existing systems by hosting and imple-
menting the model and making it acces-
sible to the client through an application
programming interface.
Competitive research has also
created a reputation engine for the
analytics industry. Recently, Kaggle in-
troduced recruiting competitions, which
allow companies to filter their data sci-
ence applicants on demonstrable skills
rather than resumes. Instead of leafing
through a stack of resumes and then
using 10-minute technical brain teasers
to determine if an applicant is skilled at
solving large, open-ended data prob-
lems, a recruiting competition allows
organizations to try before they buy.
The first competition of this type was
launched for Facebook and is one of the
most popular contests that Kaggle has
hosted. Competitive research, whether
based on past competition results or
a recruiting competition for a specific
company, in an objective and unbiased
way to filter talent. Screening applica-
tions through a data science competi-
tion decreases both the false positive
and false negative rates no more bad
interviews and no more having great
candidates waiting forever for the phone
to ring because they come from a non-
traditional background.
Another implication of competitive
research is in how analysts are com-
pensated. A hedge fund trader who is
great at predicting risk makes millions,
so why is an equally smart analyst in a
different industry, who is also great at
predicting risk, not compensated nearly
as well? In most industries, predictive
modeling is still treated as a cost center,
even if the results of the model have a
direct impact on the companys profit-
ability. The demand for people with the
skills to crunch large amounts of data
far exceeds the supply, but salaries are
much more sticky. The creation of com-
petitive marketplaces for analytics is
seeing the size of the prize pools start
to converge toward the business value
of the models as the hosts bid up prize
money to attract the best talent to their
problem.
CONCLuSION
Selecting the best predictive model
through a research competition is, as
Sloan School Professor Andy McAfee
so eloquently describes it, not picking
a horse, but hosting a horse race. Data
research competitions are a resource-
effcient way for organizations to solve
complex data problems, and they create a
meritocratic market for talent that chang-
es the way analysts work. As the crowd-
sourced model for competitive analytics
catches on, companies have less need
to build large, in-house analytics teams,
but the people they do hire need to un-
derstand how to structure their questions
for competitive research. May the best
model win.
Margit Zwemer (margit.zwemer@kaggle.com) is a data
scientist and community manager at Kaggle.
Request a no-obligation infORms member Benefits packet
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www. i nf or ms . or g
collaborative forecasting enables companies to transition from periodic, disparate and
isolated forecasting activities to a single, real-time enterprise forecasting process.
Forecasting is the foundation
of virtually all business plan-
ning. Scheduling production
requires a demand forecast.
Deciding between short- and long-term
investments requires a cash fow forecast.
You need a customer usage forecast in
order to buy enough servers to support
a growing cloud-based software applica-
tion. The list of forecasts that a company
must prepare is endless and, moreover,
the forecasts are intertwined.
One of the biggest problems when
forecasts are inextricably linked is the lack
of communication between stakeholders.
No one knows which assumptions have
been incorporated, whether they are up
to date or which data is relevant. The re-
sult is incomplete information and poten-
tially obsolete forecasts. This uncertainty
leads to confusion and mistrust in the
forecast. Stakeholders start looking for
alternative forecasts they can confdently
base key decisions on; sometimes this
means building their own models, spread-
sheets or local data systems. Other times
it means relying on their experience and
gut-feel alone. While they may feel more
confdent, they still have no assurance
that data and assumptions are correct
and up to date.
Because forecasting is so pervasive
and so important, it should be treated as
the plumbing application that it truly is.
Imagine if all forecasting activities were
integrated into a single, living enterprise
forecast. Data is automatically analyzed
as soon as it becomes available. People
with relevant insight about the business
and knowledge about planning decisions
input this information as soon as it chang-
es. The impacts of changes to data and
assumptions automatically fow through
the system in real time, updating all rel-
evant forecasts. You can see the impacts
on all areas of the organization as chang-
es happen. You can test and understand
the implications of what-if scenarios and
collaborative forecasting:
from vision to reality
By BRian lewis
F
B u s i ne s s p l anni ng
16 | a na ly t i cs - maga z i ne . or g a na ly t i cs | J U ly / aU gU s t 2012
17 | a na ly t i cs - maga z i ne . or g
cOl l aBOR at i ve f OR e cas t i ng
A leading marketing companys scoring models used to take
4.5 hours to process. Now, with high-performance analytics
from SAS,