Some companies have built their very businesses on their ability to collect, analyze, and act on data. Every company can learn from what these firms do.
Competing on Analytics
by Thomas H. Davenport
Included with this full-text Harvard Business Review article: 1 Article Summary The Idea in Brief—the core idea The Idea in Practice—putting the idea to work 2 Competing on Analytics 11 Further Reading A list of related materials, with annotations to guide further exploration of the article’s ideas and applications
Competing on Analytics
The Idea in Brief
It’s virtually impossible to differentiate yourself from competitors based on products alone. Your rivals sell offerings similar to yours. And thanks to cheap offshore labor, you’re hard-pressed to beat overseas competitors on product cost. How to pull ahead of the pack? Become an analytics competitor: Use sophisticated data-collection technology and analysis to wring every last drop of value from all your business processes. With analytics, you discern not only what your customers want but also how much they’re willing to pay and what keeps them loyal. You look beyond compensation costs to calculate your workforce’s exact contribution to your bottom line. And you don’t just track existing inventories; you also predict and prevent future inventory problems. Analytics competitors seize the lead in their fields. Capital One’s analytics initiative, for example, has spurred at least 20% growth in earnings per share every year since the company went public. Make analytics part of your overarching competitive strategy, and push it down to decision makers at every level. You’ll arm your employees with the best evidence and quantitative tools for making the best decisions—big and small, every day.
The Idea in Practice
To become an analytics competitor: Champion Analytics from the Top Acknowledge and endorse the changes in culture, processes, and skills that analytics competition will mean for much of your workforce. And prepare yourself to lead an analytics-focused organization: You will have to understand the theory behind various quantitative methods so you can recognize their limitations. If you lack background in statistical methods, consult experts who understand your business and know how analytics can be applied to it. Create a Single Analytics Initiative Place all data-collection and analysis activities under a common leadership, with common technology and tools. You’ll facilitate data sharing and avoid the impediments of inconsistent reporting formats, data definitions, and standards. Example: Procter & Gamble created a centrally managed “überanalytics” group of 100 analysts drawn from many different functions. It applies this critical mass of expertise to pressing cross-functional issues. For instance, sales and marketing analysts supply data on growth opportunities in existing markets to supply-chain analysts, who can then design more responsive supply networks. Focus Your Analytics Effort Channel your resources into analytics initiatives that most directly serve your overarching competitive strategy. Harrah’s, for instance, aims much of its analytical activity at improving customer loyalty, customer service, and related areas such as pricing and promotions. Establish an Analytics Culture Instill a companywide respect for measuring, testing, and evaluating quantitative evidence. Urge employees to base decisions on hard facts. Gauge and reward performance the page 1
same way—applying metrics to compensation and rewards. Hire the Right People Pursue and hire analysts who possess topnotch quantitative-analysis skills, can express complex ideas in simple terms, and can interact productively with decision makers. This combination may be difficult to find, so start recruiting well before you need to fill analyst positions. Use the Right Technology Prepare to spend significant resources on technology such as customer...
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