Competing on Analytics
W O R K I N G K N OW L E D G E R E S E A R C H R E P O RT
Competing on Analytics
THOMAS H. DAVENPORT, DON COHEN, AND AL JACOBSON MAY 2005
Executive Summary
This report describes the emergence of a new form of competition based on the extensive use of analytics, data, and fact-based decision making. The analytics— quantitative or statistical models to analyze business problems—may be applied to a variety of business problems, including customer management, supply chains, and financial performance. The research assessed 32 firms with regard to their orientation to analytics; about one-third were classified as fully engaged in analytically oriented strategies. Both demand and supply factors for analytical competition are described. Of the two, demand factors are the more difficult to create. The presence of one or more committed senior executives is a primary driver of analytical competition.
On What Basis Do Companies Compete Today?
In virtually every industry, many former strategic alternatives are no longer viable or likely to be successful. Today, there are few regulated monopolies, or companies with unique geographical access. Proprietary technologies are rapidly copied by competitors, and breakthrough innovation in either products or services is rare. Most of the competitive strateg ies organizations are employing today involve optimization of key business processes. Instead of serving all customers, they want to serve optimal customers— those with the highest level of profitability and lifetime value. Instead of receiving goods and services whenever they happen to arrive, they attempt to optimize supply chains to minimize disruptions and in-process inventory.
business performance and making ex post facto adjustments, they seek to understand how optimum nonfinancial per formance drives optimum financial per formance, and to make accurate forecasts of future per formance so they can react in advance of situations. Instead of throwing money at
Competing on Analytics
THOMAS H. DAVENPORT, DON COHEN, AND AL JACOBSON MAY 2005
Executive Summary
This report describes the emergence of a new form of competition based on the extensive use of analytics, data, and fact-based decision making. The analytics— quantitative or statistical models to analyze business problems—may be applied to a variety of business problems, including customer management, supply chains, and financial performance. The research assessed 32 firms with regard to their orientation to analytics; about one-third were classified as fully engaged in analytically oriented strategies. Both demand and supply factors for analytical competition are described. Of the two, demand factors are the more difficult to create. The presence of one or more committed senior executives is a primary driver of analytical competition.
On What Basis Do Companies Compete Today?
In virtually every industry, many former strategic alternatives are no longer viable or likely to be successful. Today, there are few regulated monopolies, or companies with unique geographical access. Proprietary technologies are rapidly copied by competitors, and breakthrough innovation in either products or services is rare. Most of the competitive strateg ies organizations are employing today involve optimization of key business processes. Instead of serving all customers, they want to serve optimal customers— those with the highest level of profitability and lifetime value. Instead of receiving goods and services whenever they happen to arrive, they attempt to optimize supply chains to minimize disruptions and in-process inventory.
business performance and making ex post facto adjustments, they seek to understand how optimum nonfinancial per formance drives optimum financial per formance, and to make accurate forecasts of future per formance so they can react in advance of situations. Instead of throwing money at