Competing on Analytics

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Competing on Analytics

In the past two decades, IT tools such as spreadsheets, the Internet, and e-mail have boosted the productivity of knowledge workers dramatically. But all this time, we've been waiting for the second wave of the information revolution: the tools to improve the analytical productivity of managers and other decision makers. Now, those tools are finally emerging.

As The McKinsey Quarterly1 recently pointed out, new technologies are helping executives make sense of enormous amounts of data so they can make better decisions, target their customers, and customize their offerings. For example, Harrah's casinos give out loyalty cards to track the spending of each registered customer. This has allowed Harrah's to identify its most valuable customers and provide better service to them.

As The Wall Street Journal2 explains, if a customer is losing too much money at the blackjack tables, the casino can intervene with a $20 restaurant coupon that expires in an hour. If the customer is winning too much, Harrah's can send an instant message on his cell phone offering a 50 percent discount on tickets for a concert that night. Using analytics wisely has helped Harrah's to increase its revenues from $3.3 billion in 2001 to $7.1 billion in 2005.

What exactly do we mean by "analytics"? According to Thomas Davenport and Jeanne Harris, authors of Competing on Analytics,3 analytics simply refers to "a sophisticated analysis of data."

The lowest level of business intelligence is "access and reporting," which answers such questions as "What happened? How many, how often, and where?" By contrast, analytics reside at the high end of business intelligence. At this level, executives can answer such questions as "Why is this happening? and What will happen next?"

Among the companies that provide analytics services are Google Analytics, which is a free service that provides feedback for online advertisers and publishers. Another service is Catalina Marketing, which gathers data from a quarter of a billion transactions per week collected at more than 21,000 supermarkets. Catalina's database contains the purchasing histories of more than 100 million households.

What is making all of this useful is the growing sophistication of the ways that data can be manipulated and turned into insights that drive smarter decisions. This process, called "supercrunching" by Yale Law School professor and Forbes columnist Ian Ayres, can be more powerful than even the brightest human mind...

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