Presents:

Analytics at Work:
How To Make Better Decisions
and Get Better Results

Tuesday, February 2, 2010

12:00 PM – 1:00 PM Eastern
11:00 AM – 12:00 PM Central
10:00 AM – 11:00 AM Mountain
9:00 AM – 10:00 AM Pacific

Featuring:
Tom Davenport

Program hosted by:

Angelia Herrin

16296
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 Analytics at Work
Smarter Decisions, Better Results

Tom Davenport
Babson College

Harvard Business Publishing

February 2, 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,
several surveys, and several industry-
specific analyses
• Analytics at Work: Smarter Decisions, Better
Results
• Addresses how any company can become
more analytical and fact-based
• Orientation to the linkage between analytics
and decisions

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Copyright © 2010, SAS Institute Inc. All rights reserved.
 What’s Wrong with Decisions Today?

► Decision outcomes are often bad!

► Decision processes are often bad!
► The body of knowledge on what works is often ignored
► Decisions take too long, get revisited, involve too many or few
► Over-reliance on intuition, under-reliance on data and analytics

► Little measurement/progress/accountability
► Weak ties between
data/information/knowledge inputs and
decisions
► If we’re not getting better at decision-making,
much is called into question
► Data warehousing, analytics, reports, ERP, knowledge
management, etc.
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The Decisions Dishonor Roll

► Private sector
► The decision to go deep and leveraged into real
estate loans at Lehman Brothers
► The decision to offer widespread subprime mortgage
loans with little documentation at Countrywide,
Golden West, etc.
► The decision to expand in farm equipment at
Tenneco
► The decision not to sell Yahoo to Microsoft

► Public sector
► The decision to invade Iraq
► The decision to stay in Vietnam and escalate the war
► The decision to invade Cuba at the Bay of Pigs
► The decisions to launch Challenger, and not to
rescue Columbia
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 The Upside—New Decision Frontiers

► Analytics and algorithms

► Intuition and the subconscious
► “The wisdom of crowds”
► Behavioral economics and “nudges”
► Neurobiology
► Decision automation
► …Etc.

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Analytics at Work—The Big Picture

Analytical Capability Organizational Context Desired Result

Data
Enterprise
Analytical Culture Better
Leadership And Business Decisions!
Targets Processes

Analysts .

Systematic Review

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 Levels of Analytical Capability

Stage 5
Analytical
Competitors

Stage 4
Analytical Companies

Stage 3
Analytical Aspirations

Stage 2
Localized Analytics

Stage 1
Analytically Impaired

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Thomas H. Davenport – Analytics at Work

Data

 The prerequisite for everything analytical

 Clean, common, integrated
 Accessible in a warehouse
 Measuring something new and important

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 New Metrics / Data

Wine Chemistry Optimized revenue Smile Frequency

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Data Through the Stages

Stage 5 Stage 5 Stage 5 Stage 5 Stage 5
Analytical Analytical Analytical Analytical Analytical
Competitors Competitors Competitors Competitors Competitors

Stage 4 Stage 4 Stage 4 Stage 4 Stage 4

Analytical Analytical Analytical Analytical Analytical
Companies Companies Companies Companies Companies

Stage 3 Stage 3 Stage 3 Stage 3 Stage 3

Analytical Aspirations Analytical Aspirations Analytical Aspirations Analytical Aspirations Analytical Aspirations

Stage 2 Stage 2 Stage 2 Stage 2 Stage 2

Localized Analytics Localized Analytics Localized Analytics Localized Analytics Localized Analytics

Stage 1 Stage 1 Stage 1 Stage 1 Stage 1

Analytically Impaired Analytically Impaired Analytically Impaired Analytically Impaired Analytically Impaired

Stage 1  Stage 2 Stage 2  Stage 3 Stage 3  Stage 4 Stage 4  Stage 5

Analytically Impaired to Localized Analytics to Analytical Aspirations to Analytical Companies to

Localized Analytics Analytical Aspirations Analytical Companies Analytical Competitors

•Gain mastery over local •Build enterprise consensus •Build enterprise data •Educate and engage senior
data of importance, around some analytical warehouses and integrate executives in competitive
including building functional targets and their data needs. external data. potential of analytical data.
data marts.
•Build some domain data •Engage senior executives •Exploit unique data.
warehouses (e.g., customer) in EDW plans and
and corresponding analytical management. •Establish strong data
expertise. governance, especially
•Monitor emerging data stewardship.
•Motivate and reward cross- sources.
functional data contributions •Form a BICC if you don’t
and management. have one yet.

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Copyright © 2010, SAS Institute Inc. All rights reserved.
 Enterprise

 If you’re competing on analytics, it doesn’t make

sense to manage them locally
 No fiefdoms of data

 Avoiding “spreadmarts”—analytical duct tape

 Some level of centralized expertise for hard-core

analytics
 Firms may also need to upgrade hardware and
infrastructure

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Leadership

 Gary Loveman at Harrah’s

 “Do we think, or do we know?”

 “Three ways to get fired”

 Barry Beracha at Sara Lee

“Our CEO is a real  “In God we trust, all others bring data”
data dog”
Sara Lee  Jeff Bezos at Amazon
executive
 “We never throw away data”

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 Targets

Pick a major strategic target, with a minor or two

Harrah’s = Loyalty + Service
Patriots= Player selection + TFE
Google = Page rank/advertising + HR

Can also have two primary user group targets

Wal-Mart = Category managers + Suppliers

Owens & Minor = Supply chain managers + hospitals

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Analysts

Analytical Champions
1%
Lead analytical initiatives
Analytical Professionals
5-10% Can create new algorithms

Analytical Semi-Professionals
15-20% Can use visual and basic statistical tools,
create simple models

Analytical Amateurs
Can use spreadsheets, use
70-80% analytical transactions

* percentages will vary based upon industry and strategy

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 DELTA Stage Model
Success Stage 1 Stage 2 Stage 3 Stage 4 Stage 5
Factor Analytically Impaired Localized Analytics Analytical Aspirations Analytical Companies Analytical Competitors

Data Inconsistent, poor quality
and organization;
difficult to do substantial
analysis; no groups with
strong data orientation.
Much data useable, but in Identifying key data Integrated, accurate, Relentless search for new
functional or process domains and creating common data in central data and metrics;
silos; senior executives central data repositories. warehouse; data still organization separate
don’t discuss data mainly an IT matter; from IT oversees
management. little unique data. information; data viewed
as strategic asset.

Enterprise No enterprise perspective
on data or analytics.
Poorly integrated
systems.
Islands of data, Process or business unit Key data, technology and Key analytical resources
technology, and expertise focus for analytics. analysts are managed focused on enterprise
deliver local value. Infrastructure for from an enterprise priorities and
analytics beginning to perspective. differentiation.
coalesce.

Leadership Little awareness of or
interest in analytics.
Local leaders emerge, Senior leaders Senior leaders Strong leaders behaving
but have little recognizing importance developing analytical analytically and showing
connection. of analytics and plans and building passion for analytical
developing analytical analytical capabilities. competition.
capabilities.

Targets No targeting of Multiple disconnected Analytical efforts Analytics centered on a Analytics integral to the
opportunities. targets, typically not of coalescing behind a small few key business company’s distinctive
strategic importance. set of important targets. domains with explicit capability and strategy.
and ambitious outcomes.

Analysts Few skills, and those Unconnected pockets of Analysts recognized as Highly capable analysts World-class professional
attached to specific analysts; unmanaged mix key talent and focused on explicitly recruited, analysts; cultivation of
functions. of skills. important business areas. developed, deployed, and analytical amateurs
engaged. across the enterprise.

Thomas H. Davenport – Analytics at Work

The Context: Analytical Culture

Facts, evidence, analysis as the

primary way of deciding
Pervasive “test and learn” emphasis
where there aren’t facts
Free pass for pushbacks—”Where’s
your data?”
Still room for intuition based on
experience
A focus on action after analysis
Never resting on your analytical
laurels
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 The Context: Analytical Processes

Defection Risk
Creation
Purchase Order “What is the customer status?”

Creation
Request Global ATP Inventory Forecast
Sales Order “Will this be back in inventory?”
Global ATP Check
Fulfillment Request

Creation &
Release Delivery
Request
Returns per Customer
“What is the customer history?” CLTV
“Does this order justify extra
Delivery
Execution efforts?”

Update
Update
Releases ASN Inventory
Inventory
Accounting

Delivery Performance
Receives ASN “How effective is our fulfillment
process?”

Source: SAP AG 2006

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Better Decisions Are the Goal of Analytics

Processes Structures
Decisions!

Capabilities Transactions

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 A Study of Decisions

► 57 attempts to improve specific decisions

► 90% of companies could name one
► Most decisions were frequent and
Decisions! operational
► Pricing (of consumer goods, industrial goods, 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);
► Location decisions (for bank branches, where to service
industrial equipment)

► Results in “Make Better Decisions,” Harvard

Business Review, Nov. 2010
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Systematically Making Decisions Better

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 Most Common Decision Interventions

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Closing the Loop: Decision Review

► Tom Brady as “a student of error”

► Providence Regional Medical Center in
Everett, Washington
► “The hospital set up an independent panel to investigate
medical mistakes, disclose its findings to the patient, and
voluntarily offer a financial award if warranted. As a result,
Providence has only two malpractice suits pending, compared
with an average of 12 to 14 at other hospitals of similar size.”
(Business Week, Jan. 7, 2010)

► Chevron
► Mandatory “lookbacks” at decision quality on all decisions over
$100M (along with pre-decision review”
► “A culture of honesty and self-examination”

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 The International Institute for Analytics
 The first peer-based research
organization in the analytics world
 2010 research topics to include:
 Analytics in health care (clinical intelligence)
 Analytics in human resources
 Taking advantage of proprietary data
 The new roles of analysts

 All new Individual Members who register

in February receive a complimentary
autographed copy of Analytics at Work
 Go to http://iianalytics.com to join

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Questions & Answers

Thomas H. Davenport – Analytics at Work

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Copyright © 2010, SAS Institute Inc. All rights reserved.