Masterclass Davenport

Executive Masterclass Analytics at Work: Smarter Decisions, Better Results
Thomas H. Davenport President's Distinguished Professor of IT and Management Babson College
Thomas H. Davenport Analytics at Work
Analytics at Work y
Smarter Decisions, Better Results
Tom Davenport Babson College B b C ll SAS PBLS Hong Kong Masterclass 12 August 2010
From Where Do These Ideas Come?

Competing on Analytics: The New Science of Winning
Based on a Harvard Business Review article in 2006, and an initial study of 32 companies Strong focus on companies that had made analytics a key competitive advantage Led to study of many more companies companies, several surveys, and several industryspecific analyses
Analytics at Work: Smarter Decisions, Better Decisions Results

Addresses how any company can become y p y more analytical and fact-based Orientation to the linkage between analytics and decisions
3 | 2010 All Rights Reserved.
The Decisions Dishonor Roll

Private sector
Subprime real estate decisions at Lehman Brothers, Countrywide, Wachovia, Goldman, etc. The decision to expand in farm equipment at Tenneco The decision not to sell Yahoo to Microsoft A certain oil exploration decision by BP
Public sector
The decision to invade Iraq The decision to stay in Vietnam and escalate the war Th decision t i The d i i to invade C b at th B of Pi d Cuba t the Bay f Pigs The decisions to launch Challenger, and not to rescue Columbia
What Do Bad Decision-Makers Have in Common?
Failur F il e!
to use data and analytics y to examine decision alternatives to have clear decision roles to to acknowledge human irrationality to agree on the decision made t th d i i d to execute on the decision
New Decision FrontiersAre You Exploring?

Analytics and algorithms Intuition and the subconscious The wisdom of crowds Behavioral economics and nudges nudges Neurobiology Decision automation Etc.which are you using?
Deciding on Analytics vs. the Gut

40% of major business decisions are not based not on data and facts, but on gut i ti t t instinct
Accenture survey
Statistical predictions consistently outperform gut based predictions Extensive evidence that having experts is good, but experts using analytics is much better Expert intuition is best only when there is little time, limited data and few variables.
V The unexamined life isnt worth living V

-- S X Socrates
decision
making
7 Thomas H. Davenport Analytics at Work
DecisionDecision-Making in Your Organization

Do we spend enough time and attention on key decisions? Process Do we make decisions in a timely fashion? Do we have clear decision roles most of the time? Do we generate a variety of decision alternatives? Are our important decisions made using analysis and data? Inputs I t Do we usually have good information to support our decisionmaking? Are our decision outcomes usually p y positive?
Outcomes
Analytics at WorkThe Big Picture Work

Analytical Capability Organizational Context Desired Result
Data Enterprise p Leadership Targets T t Analysts .

Systematic Review Analytical Culture A l ti l C lt And Business Processes Better Decisions!
What Are Analytics? y

Analytics
Optimization Whats the best that can happen? What will happen next? What if these trends continue? What are the causes and effects? What actions are needed now? Where exactly is the problem? What information really matters? What happened?
Co ompetit tive Ad dvantag ge
Predictive Modeling Forecasting Statistical models Alerts Query/drill down Scorecards Standard reports
Reporting
Degree of Intelligence
The Planets Are Aligned for Analytics IT Data Skills Business need The evidence: Business intelligence intelligence was the top spending priority for CIOs in Gartners 06, 07, 08, 09 07, 08, and 09 global surveys
Levels of Analytical Capability What s Yours Now Whats YoursNow and Future?
Stage 5 Analytical Competitors Stage 4 g Analytical Companies Stage 3 Analytical Aspirations Stage 2 Localized Analytics Stage 1 g Analytically Impaired
Analytical Competitors Cut Across Industries

Consumer Products
Procter & Gamble Mars Unilever
Telecom
Nextel (not Sprint) Hutchison CSL
Financial Services
Toronto Dominion BGI/ BlackRock Progressive
Retail
J C Penney J.C. Hudsons Bay Kingfisher Asia
Government
New York Police Dept Dept. VA Hospitals Hong Kong Efficiency Unit
Transport / Travel and Entertainment

FedEx Hilton Octopus Cards
Analytical Companies Perform Better

15% of top performers versus 3% of low performers indicated that th t analytical capabilities are a key element of their strategy. l ti l biliti k l t f th i t t
37% 33% 27% 19% 12% 8% 0%

No analytical capability Minimal analytical capability Some analytical capability Above average analytical capability Analytic capability is a key element of strategy
9%
10%
Source: Accenture Survey of 205/392 companies 14 | 2010 All Rights Reserved.
The Analytical DELTA
Data . . . . . . . . breadth, integration, quality Enterprise . . . . . . . .approach to managing analytics p pp g g y Leadership . . . . . . . . . . . . passion and commitment Targets . . . . . . . . . . . first deep, then broad T t fi t d th b d Analysts . . . . . professionals and amateurs
Data
The prerequisite for everything analytical Clean, common, integrated Accessible in a warehouse Measuring something new and important
Industries and Their Use of Data
Extensive Data Streams from Operations p and Customer Relationships Limited
Underachieving Retail Health Care Disadvantaged
Analytical Competitors FS
CPG Overachieving
Limited
Extensive
Use of Data for Analysis and Decision-Making

What Gets in the Way of Great Data?

Not owning the data for key functions/relationships
Pharma, grocery/CPG, autos
Lots of M&A activity

Telecom, large banks
Rapid change in operational or delivery technologies g y g

Telecom, newspapers, retail
Lack of data standards across the industry

Telecom, health care, books
Data Through the Stages

Stage 5 Analytical Competitors Stage 4 Analytical Companies Stage 3 Analytical Aspirations Stage 5 Analytical Competitors Stage 4 Analytical Companies Stage 3 Analytical Aspirations Stage 5 Analytical Competitors Stage 4 Analytical Companies Stage 3 Analytical Aspirations Stage 5 Analytical Competitors Stage 4 Analytical Companies Stage 3 Analytical Aspirations Stage 5 Analytical Competitors Stage 4 Analytical Companies Stage 3 Analytical Aspirations
Stage 2 Localized Analytics
Stage 1 Analytically Impaired
Stage 1
Stage 2
Stage 2
Stage 3
Stage 3
Stage 4
Stage 4
Stage 5
Analytically Impaired to Localized Analytics Gain mastery over local data of importance, including building functional data marts. marts
Localized Analytics to Analytical Aspirations Build enterprise consensus around some analytical targets and their data needs. needs Build some domain data warehouses (e.g., customer) and corresponding analytical expertise. Motivate and reward crossfunctional data contributions and management.
Analytical Aspirations to Analytical Companies Build enterprise data warehouses and integrate external data. Engage senior executives in EDW plans and management. Monitor emerging data sources.
Analytical Companies to Analytical Competitors Educate and engage senior executives in competitive potential of analytical data. Exploit unique data. Establish strong data governance, especially stewardship. Form a BICC if you dont have one yet.
Enterprise
Enterprise perspectives on: Data D t Analysts Technology Which do you have? c a e
E Is also for Expense in 2010
Consolidate reporting and analytical software across the enterprise Use software you already have Apply analytics to particular decisions, so you can measure and justify the expense
Role of Leadership
What great analytical leaders do
Demonstrate persistence over time Push for more data and analysis Work along multiple fronts Build an analytical ecosystem Set strategy & performance expectations Hire smart people & give them credit for being smart Look for leverage Set a hands-on example Sign for Si up f results lt Know the limits of analytics Develop their people skills Teach
22
Analytical Leaders
Shannon Antorcha of Carnival Cruise Lines Analytical Department Leader
If youre going to be a change agent, you have to educate people and help them understand what youre trying to do. Eventually you will get their buy-in.
Greg Poole of The Talbots Business Function Leader

G eg pushes o o e Greg pus es for more data a d a a ys s by co u cat g key metrics a d posts c a ts a d g ap s in and analysis communicating ey et cs and charts and graphs his office.
Tom Anderson Division Head and Entrepreneur

The beauty of analytics, is that you find lots of things that can be incrementally improved
Jim and Chris McCann CEO and President of 1800Flowers

We have a culture of analytics and testing. I say I k W h lt f l ti d t ti know what you think t ll me what you can h t thi k tell h t prove.
23
Leaders Set an Example
24
Targets

Support a key strategic capability Engage top management commitment Create momentum for analytics across the y enterprise Have ambitious (business impact) yet pragmatic scope Are data rich or have the potential to be Dramatically improve effectiveness of asset and/or labor-intensive activities Have broad implications across functions, processes, geographies or business units.
The Best Targets
25
Targets TargetsHow High Are Your Sights?
Optimal response embedded in real time real-time process
Real-Time Optimization
Institutional Action I tit ti l A ti
Predictive Action
Predictions of response by target/ segment
Prediction and differentiated action embedded in process
Differentiated Action
Key Targets/Segments
Key targets and segments defined
Different approaches for h f different targets/ segments
Data in Order
Well-defined, common, clean, and integrated data
Targets Spread Across Industries

Yield management/price optimization
Airlines Agriculture g Direct il Di t mail Hotels Retail Retail Insurance Online
Randomized testing with controls

Pharma Online d O li ads
Behavioral targeting
Social di S i l media
What are other industries doing today that you ll youll do tomorrow?
Analysts
1%
Analytical Champions--Own Lead L d analyticall iinitiatives l ti iti ti Analytical ProfessionalsOwn/Rent Can C create new algorithms t l ith Analytical Semi-ProfessionalsOwn/Rent y Can use visual and basic statistical tools, create simple models Analytical Amateurs--Own Can use spreadsheets, use analytical transactions
5-10% 5 10%
15-20%
70-80% 70 80%
* percentages will vary based upon industry and strategy
Typical Skill Level by Type of Analyst

Quantitative Business knowledge and design Relationship and consulting Coaching and staff development
Amateur
Semi-professional
Professional
Champion
Basic
Foundational
Intermediate
Advanced
Expert 29
29
Five Ways to Organize Analysts
Analyst Organization and Engagement
31
Analyst Organization and Persistence
32
DELTA Stage Model

Success Factor Stage1 AnalyticallyImpaired Inconsistent, poor quality and organization; difficult to do substantial analysis; no groups with strong data orientation. No enterprise perspective on data or analytics. Poorly integrated systems. Stage2 LocalizedAnalytics Much data useable, but in functional or process silos; senior executives dont discuss data management. Islands of data, technology, and expertise deliver local value. Stage3 AnalyticalAspirations Identifying key data domains and creating central data repositories. Stage4 AnalyticalCompanies Integrated, accurate, common data in central warehouse; data still mainly an IT matter; little unique data. Key data, technology and analysts are managed from an enterprise perspective. Stage5 AnalyticalCompetitors Relentless search for new data and metrics; organization separate from IT oversees information; data viewed as strategic asset asset. Key analytical resources focused on enterprise priorities and differentiation.
Data
Enterprise
Process or business unit focus for analytics. Infrastructure for analytics beginning to coalesce. coalesce Senior leaders recognizing importance of analytics and developing analytical capabilities. Analytical efforts coalescing behind a small set of important targets.
Leadership
Little awareness of or interest in analytics.
Local leaders emerge, but have little connection.
Senior leaders developing analytical plans and building analytical capabilities. Analytics centered on a few key business domains with explicit and ambitious outcomes. Highly capable analysts explicitly recruited, developed, deployed, and engaged.
Strong leaders behaving analytically and showing passion for analytical competition. Analytics integral to the companys distinctive capability and strategy.
Targets
No targeting of opportunities.
Multiple disconnected targets, typically not of strategic importance.
Analysts
Few skills, and those attached to specific functions.
Unconnected pockets of analysts; unmanaged mix of skills.
Analysts recognized as key talent and focused on important business areas.
World-class professional analysts; cultivation of analytical amateurs across the enterprise.
Your Organizations DELTA

What are your organizations DELTA strengths? On which DELTA factors could you stand some improvement? Where are you currently focusing your efforts? Can you share some of your approaches to addressing a DELTA factor or two?
The Context: Analytical Culture

Facts, evidence, analysis as the p , , y primary y way of deciding Pervasive test and learn emphasis where there th arent f t t facts Free pass for pushbacksWheres your data? data? Still room for intuition based on experience A focus on action after analysis Never resting on your analytical laurels
The Context: Analytical Processes

Defection Risk What is the customer status?
Creation Purchase Order
Creation Sales Order Fulfillment Request
Request R t Global ATP
Global Gl b l ATP Check
Inventory Forecast Will this be back in inventory?
Returns per Customer What is the customer history?
Creation & y Release Delivery Request CLTV Does this order justify extra efforts?
Delivery Execution
Releases ASN
Update Inventory Accounting
Update Inventory
Receives ASN
Delivery Performance How effective is our fulfillment process?
Source: SAP AG 2006

A Study of Decisions y
57 attempts to improve specific decisions p p p 90% of companies could name one
Decisions!
Most decisions were frequent and operational

Pricing ( consumer goods, industrial g g (of g , goods, g , government contracts, maintenance contracts, etc.); Targeting of consumers for marketing initiatives (by retailers, insurers, credit card firms); Merchandising decisions by retailers (what brands to buy in what quantity for what stores, shelf space allocation); L ti decisions (for bank b Location d i i (f b k branches, where t service h h to i industrial equipment)
Results in Make Better Decisions, Harvard Make Decisions, Business Review, Nov. 2010
Systematically Making Decisions Better
Identify Better Decisions Intervene
Inventory
Institutionalize
Identify Your Most Important Decisions

Which to decisions are most criticall t your Whi h 5 t 10 d i i t iti to strategy?
What businesses should we be in? What is the customer value proposition? How do we gain share and grow?
12 3
Which two or three operational decisions are critical to p the execution of each strategy decision?
What price should we charge? p g Which new product should we move forward?
2010 Thomas Davenport. All Rights Reserved.
Can you share any strategic or tactical decisions with us?
Identifying Key Decisions at a Pharma Firm

Strategic St t i
What product categories? What therapeutic areas? What geographical markets? What mix of project activities?
Led to new strategy process
Operational p
Which compounds to move through phases Which indications to pursue How to position drugs relative to competitors tit
Led to full lifecycle lifec cle responsibility
Inventory Key Decisions

Whos responsible for it (Who Has the D?) How ft i H often is it made? d ? How long does it take? What process is being used? How well does it work? Does it need an intervention?
How h H have you prioritized your d i i ? i iti d decisions?

Inventorying New Product Development Decisions at ETS

More competition for key test franchises made new product development decisions particularly important Long runway f new products iin th past L for d t the t Stage gate process, but matrix structure led to unclear responsibilities f gating d i i l ibiliti for ti decisions Lack of clear information about IP, potential partners, and likely markets, so created rubric Team examined process, and leaders of team took ongoing responsibility for decisions Greatest success so far: killing truly bad ideas quickly
Types of Interventions
New analytical techniques (telecom equipment firm) New metrics and data (e.g., optical firm) New data repositories (vaccine firm) New decision systems (P&C insurance information supplier) Knowledge sharing Knowledge-sharing approaches (tools firm) Change in the business process involved in the decision (retailer) Education of decision-makers and related function (insurance firm) Communications initiatives about the decision (ad agency) New methods and theories (brokerage firm) A culture of honesty and decisiveness (oil company) Which have you employed?
Most Common Decision Interventions

0,9 0,8 0,7 0,6 Frequency Mentioning y 0,5 0,4 0,3 0,2 0,1 0
Average number A b mentioned per decision: 5.3!
Type of Intervention
Linking Information and Decisions
Technologies Linking Information and Decisions
Your Organizations Linkage
How do you link information and decisions? Have you tried to create closer linkages? What technologies have you employed?
Multiple Interventions: Better Pricing Decisions at Stanley

Pricing identified as one of four key decision domains Pricing Center of Excellence established in 2003 Adopted several difference pricing methodologies Implemented new p p pricing optimization software g p Regular Gross Margin Calls for senior managers Offshore capability gathers competitive pricing data Some automated pricing systems, e.g., for promotions ti Center spreads innovations across Stanley Result: gross margin from 34% to over 40% in six years Thomas H. Davenport Analytics at Work
Institutionalizing Better Decisions

Decision coaches/consultants/analysts to help Decision improvement methodologies Education and guidelines for managers Post-decision reviews Which have you employed? Whats worked, what hasnt?
Key Decision Analyst/Coach Roles y y

Help to frame the decision
Stand firm when necessary Tell a story with data
Build a rapid prototype Build prototype

Institutionalizing Better Decisions at Chevron g

Decision analysis group gets attention by recommending against refinery project DA group begins to lead decision workshops Builds and refine economic and analytical models All projects over $100M require decision analysis j t i d i i l i Ex post facto assessment of decision quality required f llarge projects i d for j t DA group has trained more than 2500 decisionmakers, and has certified 10,000 (including the CEO) through online training module Culture of honesty and self-examination
Barriers to Better Decisions
There are too many decisions to address People dont want other people intervening in their mental processes don t Most decision-makers would rather avoid accountability Senior executives will feel that this is their territory Becoming too engineering-focused might limit creativity Decision technologies not well-developed
Roles for IT in Improving Decisions p g

Restructure the entire IT organization to emphasize decision-making
e.g., P&Gs Information and Decision Solutions
Establish a COE, competency center, or consulting group around analysis and decisions
e.g, Kimberly-Clarks BICC
Include analytics and decision p y processes in the broader information provision process
E.g., Cisco Advanced Services Production Analytics
At the very least, ask What decision does this support? when asked to provide information
Next Steps for Analytical Decisions

Continual pursuit of new p measures and data types
RFID and sensors Voice, video, text
Further integration with decision automation and decision management Knowledge management/analytical t/ l ti l resource management Social analytics
It Doesnt Happen Overnight Start Now!
Takes a while to put data and infrastructure foundation in place, and even longer to develop human capabilities, a fact-based culture, and success stories Barclays five-year plan for Information-Based Customer Management UPS Weve been collecting data for six or seven years, but its only become usable in the last two or three, with enough ti and experience t validate th ith h time d i to lid t conclusions based on data.

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Executive Masterclass Analytics at Work: Smarter Decisions, Better Results

Thomas H. Davenport President's Distinguished Professor of IT and Management Babson College

Thomas H. Davenport Analytics at Work

From Where Do These Ideas Come?

Analytics at Work: Smarter Decisions, Better Decisions Results

3 | 2010 All Rights Reserved.

The Decisions Dishonor Roll

4 | 2010 All Rights Reserved.

Thomas H. Davenport Analytics at Work

What Do Bad Decision-Makers Have in Common?

Thomas H. Davenport Analytics at Work

New Decision FrontiersAre You Exploring?

6 | 2010 All Rights Reserved.

Thomas H. Davenport Analytics at Work

Deciding on Analytics vs. the Gut

V The unexamined life isnt worth living V

7 Thomas H. Davenport Analytics at Work

DecisionDecision-Making in Your Organization

8 | 2010 All Rights Reserved.

Analytics at WorkThe Big Picture Work

Data Enterprise p Leadership Targets T t Analysts .

9 | 2010 All Rights Reserved.

Thomas H. Davenport Analytics at Work

What Are Analytics? y

Co ompetit tive Ad dvantag ge

Thomas H. Davenport Analytics at Work

11 | 2010 All Rights Reserved.

Thomas H. Davenport Analytics at Work

Analytical Competitors Cut Across Industries

Transport / Travel and Entertainment

Analytical Companies Perform Better

37% 33% 27% 19% 12% 8% 0%

Source: Accenture Survey of 205/392 companies 14 | 2010 All Rights Reserved.

Thomas H. Davenport Analytics at Work

The Analytical DELTA

15 | 2010 All Rights Reserved.

Thomas H. Davenport Analytics at Work

16 | 2010 All Rights Reserved.

Thomas H. Davenport Analytics at Work

Industries and Their Use of Data

Extensive Data Streams from Operations p and Customer Relationships Limited

Underachieving Retail Health Care Disadvantaged

Use of Data for Analysis and Decision-Making

Thomas H. Davenport Analytics at Work

What Gets in the Way of Great Data?

Lots of M&A activity

Rapid change in operational or delivery technologies g y g

Lack of data standards across the industry

18 | 2010 All Rights Reserved.

Thomas H. Davenport Analytics at Work

Data Through the Stages

Stage 2 Localized Analytics

Stage 2 Localized Analytics

Stage 2 Localized Analytics

Stage 2 Localized Analytics

Stage 2 Localized Analytics

Stage 1 Analytically Impaired

Stage 1 Analytically Impaired

Stage 1 Analytically Impaired

Stage 1 Analytically Impaired

Stage 1 Analytically Impaired

19 Thomas H. Davenport Analytics at Work

Enterprise perspectives on: Data D t Analysts Technology Which do you have? c a e