A Special Report titled “Analytics: The new path to value” was released this week by the MIT Sloan Management Review. They conducted a global survey of nearly 3,000 executives, as well as in-depth interviews with leading researchers, in collaboration with the IBM Institute for Business Value.
According to the report, the smartest organizations are using analytics to transform insights into action. Over the next two years, executives will supplement historical reporting with emerging approaches like data visualization, process simulation, text and voice analytics, social media analysis, and other predictive and prescriptive techniques. This adoption is driven by the growing pressure to not only know what is happening now (descriptive), but what is likely to happen next (predictive), and what actions should be taken to get optimal results (prescriptive).
A large percentage of survey respondents stated that their organization has more data than it can use effectively. Half said that information and analytics improvement was a top priority in their organizations. More than one in five said they were under intense or significant pressure to adopt advanced information and analytic approaches. The survey indicated that the source of the pressure is the need for competitive differentiation through innovation.
The notion of data overload was echoed in a previous 2010 IBM CEO study titled “Capitalizing on Complexity”. In this study, a large number of CEOs described their organizations as data rich, but insight poor. Many voiced frustration over their inability to transform available data into feasible action plans. This notion of turning data into insight, and insight to action is a common and growing theme.
Findings in the MIT Sloan special report align very closely to those in the IBM CEO study. Senior executives want their businesses run by data-driven decisions. They want to understand optimal solutions and take action quickly; but as the authors point out, this is no small task. They suggest that in order for insight to drive action, the insight must be closely linked to business strategy, easy for end users to understand, and embedded into organizational processes. Clearly, analytics and the insight it derives must be an integral part of business process and not simply a bolt-on.
The authors through their analysis of survey results have created three levels of analytic capabilities:
- Aspirational – use analytics to justify actions
- Experienced – use analytics to guide actions
- Transformed – use analytics to prescribe actions
The report provides a very nice matrix that describes these levels in the context of a maturity model. In reviewing business challenges outlined in the matrix, I see one very interesting dynamic: the transition from cost and efficiencies to revenue growth, customer retention and customer acquisition. I’ve believed in this transition for quite some time and envisioned it happening sooner. The economic climate clearly slowed adoption, but the next 24 months should see analytics playing a major role in revenue generation and customer experience improvement.
The survey results support both an aggressive adoption of analytics and a shift in the analytic footprint. According to the report, many traditional forms of analytics will be surpassed in the next 24 months. The authors produced a very effective visual that shows this shift from today’s analytic footprint to the future footprint. The analytics identified as creating the most value in 24 months are:
- Data visualization, such as dashboards and scorecards
- Simulations and scenario development
- Analytics applied within business processes
- Advanced statistical techniques, such as regression analysis, discrete choice modeling and mathematical optimization
I believe the report understates the role of visualization. Although listed as number one, the authors describe dashboards and scorecards – the traditional methods of visualization. New and emerging methods help accelerate time-to-insight. These new approaches help us absorb insight from large volumes of data in rapid fashion.
The remainder of the report highlights additional findings, describes best practices, and makes recommendations for the successful use of analytics. Here is a summary of key points:
- The report supports the growing view that prescribing outcomes is the ultimate role of analytics; that is, identifying those actions that deliver the right business outcomes. The authors propose an approach that is fairly intuitive – but not often followed. Organizations should first define the insights needed to meet business objectives, and then identify data that provides that insight. Too often, companies start with data. The following very effective diagram was developed to depict the flow from data, to insight, to eventual action – all in the context of the desired business outcomes.
- The survey findings show that organizations wait until experience is gained before they apply analytics to growth objectives. The authors believe this is a common practice, but not necessarily a best practice.
- Organizations expect value from emerging analytic techniques to soar. The growth of innovative analytic applications will serve as a means to help individuals across the organization consume and act upon insights derived through complex analysis. Some examples of innovative use: 1) GPS-enabled navigation devices already superimpose real time traffic patterns and alerts onto navigation maps and suggest the best routes to drivers. 2) Analytic algorithms are used to forecast attrition probabilities, pinpoint at-risk customers and recommend precise retention strategies. 3) Dashboards that now reflect last quarter sales will also show potential next quarter sales under a variety of different conditions – a new media mix, a price change, or a larger sales team. 4) Simulations will automatically recommend optimal approaches – such as the best media mix to introduce a specific product to a specific segment, or the ideal number of sales professionals to assign to a particular new territory.
- Companies will embed insights into business applications and processes. This is critical to the realization of value from analytics. Insight must turn into action in real time as part of relevant business processes.
- This report effectively uses the maturity model concept to describe how organizations typically evolve to analytic excellence. The authors point out that organizations begin with efficiency goals and then address growth objectives. They see the traditional analytic adoption path starting in data-intensive areas like financial management, operations, and sales and marketing. As companies move up the maturity curve, they branch out into new functions, such as strategy, product research, customer service, and customer experience.
- In the opinion of the authors, these patterns suggest that success in one area stimulates adoption in others. They suggest that this allows organizations to increase their level of sophistication.
- The authors also found that as the value of analytics grows, organizations are likely to seek a wider range of capabilities – and more advanced use of existing ones. The survey indicated that this dynamic is leading some organizations to create a centralized analytics unit that makes it possible to share analytic resources efficiently and effectively. These centralized enterprise units are the primary source of analytics, providing a home for more advanced skills within the organization.
This report represents another fascinating look at the growing role of business analytics – and we’ve only begun to scratch the surface.