Competing on Analytics

Tom Davenport has a neat article in Optimize on creating an analytical culture and has a number of examples of (mostly) customer and profitability centric analyics. A few weeks ago, Businessweek had an even more fascinating article Math will rock your world which explored how "quants" are revolutionizing many aspects of CRM, search, other areas of pattern recognition.

When we look at how many cycles the average company spends in developing, revising, re-revising, politickng its annual budget, we know the state of analytics in most companies is frozen in the 80s. The new analytics, and those coming out of the supply chain (see LARTE - Location Aware Real Time Enterprise), are pretty revolutionary and I liked the portion where Tom talks about building an analytical culture. 

With one caveat. An earlier generation of analytics has destroyed many an airline. Using  yield management airlines still try and optimize inventory pricing. Many got too smart for their own good, and lost price leadership to the Southwests who delivered fairer and more predictable (and not always cheaper) pricing.

For all the left brain stuff these analytics deliver, organizations still need their right brain functions.

Comments

[Carole-Ann Matignon]

The use of analytics to improve strategic decisions is well established. I think the next big opportunity is to embed sophisticated analytics into operational decisions. This means focusing on decisions as things that can be managed and improved, using business rules to make this automation reasonable and predictive analytics to bring analytic insight to bear on these decisions.
There's a lot more on my blog - http://edmblog.fairisaac.com

[Kevin Strehlo]

Another area worth applying analytics to is system availability and troubleshooting. With distributed systems, the real vulnerability is no longer component failures but the interdependencies among the components of a system. It's a little disconcerting that IT is looking to virtualization to get them out of their complexity crisis, when virtualization just hides these interdependencies and makes it more difficult to troubleshoot. Resolving issues requires the ability to correlate all the interdependences. At Integrien, we've even coined the law of integrity, which says: "The vulnerability of systems to interdependencies increases geometrically with the increase in underlying complexity."