I D C A N A L Y S T C O N N E C T I O N

Dan Vesset
Group Vice President, Analytics and Information Management

The Value of Data and Analytics in

Digital Transformation
April 2017

Digital transformation has become a board-level initiative at many companies. This board-level
mandate comes from the realization that most industries have reached the point of diminishing
returns for using cash hoards to increase dividends, buy back stock, or make acquisitions to keep
stock prices propped up. The opportunity for real growth, up to $20 trillion over the next five years by
IDC estimates, combined with the threat of new, digitally savvy competitors is driving established
enterprises to invest in digitally centric business models. A key part of this investment is being
focused on data and analytics.

The following questions were posed by SAP to Dan Vesset, group vice president of IDC's Analytics
and Information Management research, on behalf of SAP's customers.

Q. What examples of digital transformation, where analytics and data have played a
critical role, have you seen among your clients?

A. The tech and business media headlines about digital transformation mostly focus on
well-known consumer businesses. These are great examples, but they may be difficult to
relate to in the context of broader enterprise analytics and data requirements assessment
across nonconsumer verticals. The reality is that digital transformation is happening across
industries, company sizes, and geographic regions.

A media and entertainment company was challenged in providing its advertising sales staff with
granular and timely data that would help attribute results to specific client marketing campaigns
to help increase advertising revenue and market share. The company launched an initiative
that results in the accumulation and ongoing use of a new data set from 2,000 sources
provided by 13 internal and external data providers. Its internal analytics group was able to
capitalize on this data and achieve the company's desired goal, but in the process the company
was also able to turn the analytics group from an internal support center for advertising sales to
a profit center that provided analytics and data as a service to nonadvertising clients.

A healthcare provider was experiencing a challenge in handling the volume of emergency

room visits and lacked the data to provide administrators with the information needed to
make corrective decisions. This organization launched what it considered to be a digital
transformation effort by digitizing the patient registration process and integrated this data with
information related to type and duration of medical procedures provided to patients and
availability of medical staff. The resulting new data and analytics (including descriptive,

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 predictive, and optimization analytics) enabled administrators of this healthcare organization
to adjust and continue to readjust staffing levels; to understand the relationship and
dependencies between wait times in laboratories and the emergency room; and to better
understand the severity of patients' conditions as well as patients' insurance status. With the
new information, this healthcare provider not only addressed its emergency room efficiency
and productivity issues but also increased revenue from insurance reimbursements.

A manufacturer of power generators started to collect data about the performance of its
generators in the field. The analytics on the collected data enable the company to predict
potential maintenance problems and notify dealers with this predictive maintenance
information. The goal has been to provide its dealer network with actionable information to
help clients with preventive maintenance of generators. The result has been estimated at a
20% increase in post-installation revenue to dealers. For the manufacturer, this data and
analytics service has become a differentiator against its competitors.

These are just three recent examples among the many digital transformation efforts enabled
by analytics that IDC analysts encounter on an ongoing basis.

Q. What role does analytics play in these digital transformation efforts?

A. Digital transformation initiatives are first and foremost about change. Two quotes from
renowned experts help highlight this point and explain the value of analytics in digital
transformation. The economist John Maynard Keynes said, "The real difficulty in changing any
enterprise lies not in developing new ideas, but in escaping from the old ones," and
management consultant Peter Drucker said, "There is nothing so useless as doing efficiently
that which should not be done at all."

Digital transformation requires a break from the status quo by asking new questions.
Analytics helps organizations generate new questions and get answers to those questions.
Decision-making processes that were unarticulated or implicit in the past are now being
exposed explicitly through new analytics platforms and digitization of everything. Today's
analytics technology can process large volumes of diverse data very quickly to keep pace with
rapidly changing or iterative new questions of decision makers engaged in digital
transformation. When is the best time to launch a new product? What adjustment should we
make to our go-to-market strategy based on the latest customer input? What's the likelihood
that a new price will lead to revenue growth? How much is a data marketplace provider willing
to pay for our data? Will an offer on a Tuesday morning on a sunny day get a better response
than an offer on a rainy Sunday evening? These are just a few examples of questions that
decision makers at different levels of the organizations we have interviewed are asking as part
of their digital transformation initiatives.

Analytics plays the role of the engine propelling an organization's digital transformation efforts
with data-driven decision making. Don't get caught up in the industry lingo and veer from the
ultimate role of analytics into a technical quagmire. Often the use of terms such as big data,
analytics, and machine learning diverts attention from the fact that these concepts, processes,
and technologies are implemented to support and automated decision making. What's different
today in the role of analytics in digital transformation is this metaphorical engine is not simply
about driving faster using the same fuel (data) on the road; it's about taking flight and using a
new type of fuel (big data) to reach new heights faster.

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Q. The topic of decision support has been discussed for years, even decades. What has
changed?

A. Indeed, decision support as an IT theme has been discussed and addressed since the
1980s. The topic has gone through several iterations, starting with EIS and DSS and moving
into BI and now analytics. But several factors are different today.

First is the user interface (UI). Today's UI is finally easy for business users to use. Dynamic
data visualization (enabled by in-memory computing), touchscreens, mobile devices, and
now voice interactivity (made possible with machine learning) have made the technology to
support decision making accessible to everyone. This applies not only to analysts and
managers in the corporate world but also to those running small businesses, to nurses, to
delivery drivers, to law enforcement staff, and to teachers — in other words, it is now possible
to have decision support and decision automation pervasively available.

Second is that in-memory databases have ushered in the era of the analytic transactional data
platform, which is enabling the embedding of decision support functionality in enterprise
applications. This technology is supporting decisions in the moment by yet another group of front-
line and operational enterprise employees, who can now have access to the necessary support
for the tactical or operational decisions they need to make within their daily workflow in real time.

Third is the emergence of cloud computing. Here it's less about the off-premises aspect of
deploying on cloud infrastructure and more about the fact that modern analytics technology is
architected for the cloud. This makes it easy (or easier) to integrate closely related functionality
— whether reporting or ad hoc visual analytics or planning or forecasting or predictive analytics.
These tools and methods all serve discrete functions, but they need to interoperate. Today, we
have analytics platforms that finally make this a reality via the cloud architecture.

Fourth is the notion that decisions are not just points in the process where an executive renders
an opinion after evaluating a set of alternatives. Today, there is a strong focus on tactical and
operational decision automation based on adoption of machine learning, artificial intelligence, and
deep learning techniques to analyze large volumes of data from connected things and connected
people. The combination of internal data sets augmented with purchased third-party data and
greater processing power to support complex analytics is enabling a growing number of
organizations to train machine learning algorithms to uncover new insights. Supervised and
unsupervised machine learning has been unleashed on efforts to analyze medical images, to
predict equipment outages, to enable voice interactivity, to automatically identify data quality
problems, to recommend next best actions, and to accomplish many other tasks. These solutions
improve productivity through automation of previously time-consuming manual tasks and enable
analysis that was previously not feasible.

Fifth is not a technical point but an organizational issue that we have seen change over the years.
Today, there is significantly greater acceptance by IT that it shouldn't control all things analytics.
We see the emergence of the chief analytics officer role, which does not report to the CIO; we
see deployments of self-service analytics tools everywhere, including in the boardroom, where
executives can now "fly" through their dashboards rather than rely on static, printed reports. This
acceptance by IT has allowed it to focus on its core competency of provisioning data and
technology rather than trying to create reports, dashboards, and analytics for business users that
inevitably fall short of expectations because of the ever-changing analytics requirements.

By data provisioning, I mean data integration, data quality, data security, master data, and metadata
management as well as data governance and incorporation of external, third-party data. This
change has created a more collaborative attitude among IT, line-of-business, and analytics staff,
which is helping drive more pervasive analytics and greater opportunities to derive value from data.

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Q. What do you see as the biggest challenges or roadblocks to more pervasive and
effective analytics?

A. The three primary issues that surface in our market research are as follows:

 Taking a "big bang" approach to analytics. In other words, undertaking massive

projects that are dependent on getting "everything" right to produce an outcome down the
road. These projects are expensive and long-lasting — characteristics that are out of step
with today's needs for rapid prototyping and ongoing iteration of solutions to support
decision making. Only projects scoped to address a specific business issue, a question,
or a set of questions can produce the type of return on investment that is acceptable to
today's executives. Through iteration, analytics projects can demonstrate incremental
success (or contained failure), which leads to new funding (or redirected funding) and
subsequent projects.

 Underestimating the data integration and integrity challenges. Often well-intentioned

analytics projects get stuck because of incomplete or poor quality or data. You may ask,
why highlight these perennial issues that are not insurmountable but serve as detours or
road bumps that require extra investment in time, money, and human resources?
Although data integration and integrity has indeed been at the top of the list of challenges
for organizations involved in any type of data and analytics projects, now an additional
layer of complexity is associated with the ongoing migration of data sets and analytic
solutions to the cloud. IDC forecasts that adoption of cloud-based business analytics
solutions will grow five times faster than adoption of on-premises business analytics
solutions over the next five years. This means that for the foreseeable future, the
standard data and analytics architecture will be hybrid — with data sets and analytics
software on-premises and in the cloud (or in multiple clouds). Thus, data integration, data
governance, data quality, master data and metadata management, and related
processes will require even more attention than they have in the past. Answers to
questions such as how to minimize movement of data, how to bring analytics to the data,
and when to integrate versus federate data will determine the ability of the organization to
effectively manage a data and analytics platform that enables rapid prototyping as well as
operationalization of analytics in support of digital transformation initiatives.

 Not applying knowledge management concepts to analytics projects. Too often we

see great success cases with analytics projects that are contained to a single department
or business unit. Disseminating knowledge throughout the organization is often difficult
due to a lack of systems and processes for doing so. Another related shortcoming is not
tracking decision-making processes, including tracking how people interact among
themselves and with the analytics technology throughout the analytics life cycle.
Analytics leadership should take responsibility not only for addressing technology,
staffing, and data, but also for acting as an intermediary or a marketplace for best
practices in analytics as well as for sharing algorithms, KPIs, data, new analytic methods,
and other best practices throughout the organization.

Q. With these changes in technology and organizational behavior, what are some of the
best practices you have seen in the use of analytics?

A. More organizations have been able to eliminate what we have referred to as the "learning gap" in
business intelligence (BI) solutions of the past. The learning gap is created by BI tools delivering
information to individuals, but without support for evaluating decision alternatives (e.g., simulation),
without an easy way to collaborate with colleagues or partners, without a technical means to go
from insight to action (from analysis to decision execution in the various operational systems), and
without the ability to capture analytic processes and decision-making processes for future learning

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 and adjustment. By the way, that's another benefit of cloud-based solutions: They make it much
easier to track and analyze behavior of analytics technology users and incorporate that analysis
into decisions about how to improve analytic solutions.

We are also seeing clients design a new data management and analytics technology
architecture that extends the historical heavy reliance on ETL of structured data into an
enterprise data warehouse accessible by a few BI tools. The new hybrid architecture is
expanding into a modern data and analytics platform that includes a number of different
structured and unstructured, batch and streaming data integration, management, and
analysis components. These include in-memory relational databases, NoSQL data stores,
Hadoop clusters, predictive analytics, reporting and dashboarding, executive scorecards, text
and rich media analytics, streaming analytics, location intelligence, and other tools.

Another highly impactful best practice has been the recognition that data and analytics require
dedicated leadership in the form of chief analytics officers and chief data officers (or similar titles).
On the one hand, we see many more CEOs recognizing the value of analytics and being willing to
fund new analytics projects. On the other hand, not every organization is effective in capitalizing
on this newly found top-level support. Too many organizations still jump right into new technology
purchases without asking enough questions about their decision-making needs or goals. Today's
analytics solutions, especially in the cloud, are much better than their predecessors in enabling
rapid prototyping and dynamic scalability, but the fact that this capability exists doesn't remove the
responsibility on the part of business and IT to come together and understand the core project
goals and decisions that will help them achieve those goals.

Even organizations that have exhibited some of the best practices in analytics have only
scratched the surface of the potential benefits. Relatively few have adopted predictive
analytics to their full potential, fewer still are using optimization methods, and only early
adopters have begun to leverage artificial intelligence for decision support and decision
automation. Over the next few years, we'll see an acceleration in the pace of adoption of
both best practices and new analytics technology in industries such as retail, banking,
consumer packaged goods, telecommunications, and public sector.

A B O U T T H I S A N A L Y S T

Dan Vesset is group vice president of IDC's Analytics and Information Management market research and advisory practice,
where he leads a group of analysts covering all aspects of structured data and unstructured content processing, integration,
management, governance, analysis, and visualization. Mr. Vesset also leads IDC's global Big Data and Analytics research
pillar. His research is focused on best practices in the application of business intelligence, analytics, and enterprise
performance management software and processes on decision support and automation and data monetization.

A B O U T T H I S P U B L I C A T I O N

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