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Business Analytics: Fad or Fundamental?

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  • 1. Business analyticsFad or fundamental?
  • 2. Table of contents 1 Fad or fundamental? 2 Encouraging factors 5 Thwarting factors 7 Preventing the fad mentality 8 A final word2
  • 3. Fad or fundamental?Chia pets, beanie babies, pet rocks, pogs, vegamatics, in the business community have articulated a “been-there,and silly bands. What is the common denominator seen-that-already” reaction toward it, but is that thebetween all of these? They exploded into the market, whole story? Beyond the hype, as, for example, Gartnerflourished, and then saturated our consciousness before categorizes trends with its “Hype Cycle,” what are we reallyfading into memory. talking about when we use the term Business Analytics? When the dust settles, will it be considered a fad or aNow that many businesses have implemented or are lasting capability?planning to implement complex business analytics (BA),it raises the question, “Is this a sustainable, value-driven Those answers depend almost entirely on the disciplinemovement or will analytics be headed the way of the brought to the field and the end-to-end capabilities thatFurby?” BA can provide to drive and realize tangible business value. Analytics, as it stands today, has the potential toThe fundamentals behind analytics have been around for become one of the most seminal movements in the huntmany years under various trends and names. The most for business excellence. However, if some confoundingrecent incarnation — “Business Analytics” — is currently factors overshadow analytic progression and adoption, thea hot buzz term used as frequently to sell magazines risk of a look-back in years to come on what analytics hasand products as to actually discuss the capabilities that accomplished could be less than satisfying.analytics can bring to an enterprise. As analytics evolves,it is likely that the terminology describing it will continue The following figure represents factors that will likelyto change. It should come as no surprise, then, that some encourage analytics to become a lasting capability or a fad:Figure 1: Encouraging and thwarting factors for Business Analytics Factors encouraging a lasting capability Factors encouraging a fad • The “Age of Empiricism” • Organizational inability to translate analytics • Imperative for new ways to solve business into a business benefit and value challenges • Business analytics as a “Software Story” • Fact-based approach to business decisions • Buzz without proven value • Declining technological barriers Business analytics Fad or fundamental? 1
  • 4. Encouraging factors If BA is to become a mainstay, it will likely be because what were once considered mild annoyances — pop-up of changes in the way organizations monitor and tackle ads that often seemingly read our minds and match our problems and how they adapt to the inevitable changes, interests — have now made way for services like Netflix, not because of the amount of information available or Amazon, and Pandora to gather information about our the current analytics software products on the market. tastes and suggest movies, music, services, and products Physicist Richard Feynman once remarked, “For a that we are apt to like. As consumers, as we move from successful technology, reality must take precedence over accepting to expecting the use of analytics, we enter public relations, for Nature cannot be fooled.” the “Age of Empiricism.” Here are a few other significant examples of analytics in critical daily services: • Politics — Real-time polling and reaction to international political issuesIn a business context, business analytics • Media — Custom services based on prior consumer choicesis not really an instant solution. It’s a • Weather — Predicting severe and daily weather patterns based on complex statistical models and theway of doing things. blending of historical patterns with chaos theory and ensemble models • Traffic — Calculating commute trends and merchandise So what is the reality? BA in the right hands, and applied movement efficiencies in the right way by an embracing organization, has shown • Advertising — Targeted ads based on specific to make businesses more profitable and successful. In consumer preferences and history fact, a recent MIT study indicates that an organization’s • Sports — Statistics to break down and improve per-share value can be increased by as much as $20 for outcomes/performance based on traditional and every one dollar spent on data-driven decision making.1 nontraditional data and patterns However, for BA to sustain the traction it has gained, the • Customer Service — Heightened service tailored people who employ the technology must get past the to each consumer — dynamic/adaptive services and business community and media hype and understand the next best offers nature of the capabilities that it can actually provide to an organization. Analytics, at its core, is a means of supplying People have come to depend on these things in order decision makers with the relevant data needed to make to make informed decisions throughout the day, and as more informed decisions. In today’s business world, an empirically enlightened business enterprises catch on, organization can be drowning in data and making sense they can also realize the benefits that come from using of it in a short time is becoming an increasingly important analytics to improve their products and services to gain a aspect of daily operations. competitive advantage over the competition. The “Age of Empiricism” Over the past decade, analytics has made inroads into many aspects of an individual’s daily life. Our newspapers, blogs, health studies, and the like are filled with data and resulting analytic statements. Over the past few years, “The most valuable there have been broad sweeping changes in the way people perceive value in analytics. When businesses learn commodity I know of to properly apply this technology to the problems at hand, the results can be exceedingly beneficial. For example, is information.2”1 trength in Numbers: How Does Data-Driven Decision Making Affect Firm Performance? Erik Brynjolfsson, MIT and BER; Lorin Hitt, University of S Pennsylvania; Heekyung Kim, MIT. p. 16.2 ichard Burger, George Davies, (2005) “‘The most valuable commodity I know of is information’”, Journal of Financial Regulation and Compliance, R Vol. 13 Iss: 4, pp.324–332.2
  • 5. Imperative for new ways to make business • Sunk cost bias — “We’ve come this far so we can’tdecisions — the fact-based approach change course now…” — There is a natural tendencyMany business leaders would agree that their businesses within organizations to look at the amount of time andmake an enormous number of decisions based on gut money invested in their current practices and rule outinstinct or inherently subjective criteria. However, with alternative solutions, even if it is likely to become moremany documented advantages of doing so, today it profitable in the long term.is becoming increasingly critical for businesses to be • Availability bias — “Watch out for sharks! Swimming inable to use current information available to them and the ocean is dangerous!” — This speaks to the tendencymove, as much as possible, to more data-driven decision for a large area of beaches to close due to a single sharkmaking. For BA to become a mainstay instead of a fad, sighting. Within a business, one statistical anomalyorganizations should clearly understand the principles can have a far-reaching impact on a company’s short-beneath the hype and not expect more from the and long-term policy if the circumstances around thattechnology than it can deliver on its own. anomaly are not fully understood. • Confirmation bias — “That just proves my point.” —Remember, the most powerful computer in the world is It is proven human psychology for an individual (or auseless without the knowledge of how to properly take business) to try to interpret new information to furtheradvantage of the capabilities it offers. The value in BA lies demonstrate what they already believe to be true.not in the technology but in the way it is applied in an • Anchoring bias — “I think this weighs 150 lbs. What’send-to-end way, and the massive amount of information your guess?” — If a CEO says that they estimate a tableavailable at any given moment necessitates that an to weigh 150 lbs, and then invites employees to guess,organization reevaluate how it makes important decisions. there is a tendency for those answers to be closer to 150 lbs rather than a much higher or lower number.An organization looking to realize the full value of BA The 150 lbs becomes the anchor around which the othershould make it a priority to use it in an effective way — guesses are based. In business, it is easy to see howas a means of dissecting and compiling information to common this phenomenon can become if relevant datacontribute to a full, fact-based decision. A business that and a different prompt/response structure is not there toexpects perfect, automatically generated solutions is one provide context.that is likely to experience some disappointment as thehuman users of such solutions search for subtle flaws These are just a few of the many mistakes that canin results. Analytics is not a one-size-fits-all technology be corrected by properly utilizing BA to supplementthat provides the ideal solution to a problem, but rather current methods through an overall fact-based decision-is a toolset that helps put that problem in a clear light. making process. It will be up to individual businesses toAdditionally, the Law of Large Numbers is an important contemplate these examples and decide how BA can helpcore component of many analytic solutions, as results them avoid these behavioral, economic, and cognitive biasmust be viewed with a statistical versus an absolute eye. pitfalls in their own practices.An “informed decision” means just that the decisionmaker had the most current, relevant information athis/her disposal when making the decision. BA, whensupported by a fact-based decision-making process, So what does the ability to draw on aallows an organization to more readily make these types store of factual information mean for aof judgments. business in the most basic sense? That itMistakes, problems, and inefficiencies detected throughanalytics can be corrected with the potential to save is learning.millions of dollars. However, BA must be understood inthe context of it being an end-to-end process of askingquestions and solving problems through fact-basedmethods. This empirical approach helps decision makersavoid common biases, such as: Business analytics Fad or fundamental? 3
  • 6. Declining barriers in technology Another encouraging factor in the movement for BA to become a sustainable tool is that technology is continuously getting cheaper, smaller, and more efficient. For a capability that is largely dependent on computing power and disk capacity, the declining costs of hardware and software have greatly reduced the technological barrier that stands between an organization with successful BA and one without. The following figure represents the exponential growth in technology storage capacity: Figure 2: Growth in storage capacity: A declining technology barrier Moore’s law The fifth paradigm Logarithm plot 1010 108 Calculations per second per $1,000 106 104 102 1 10–2 10–4 10–6 Electro mechanical Relay Vacuum tube Transistor Integrated circuit 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 Year Source: Deloitte Development LLC 2012. Advances in modern technology make this aspect one This focus on return on investment (ROI), and the costs of the more significant factors in pushing BA toward that used to be associated with implementing a BA becoming a sustainable capability. Not many would process, is what kept many organizations from taking a argue that BA can be a beneficial tool; however, in the more active look at analytics in the first place. No more. past, the costs associated with obtaining, developing, Decreasing storage costs and increasing processing power and implementing the necessary technology had many reduce the required ROI to invest in BA infrastructure and executives pondering whether the value gained would related solutions. In business today, analytics has become actually be worth the hassle and expense of switching out the prime example of being able to do more with less. their current technology for more advanced analytics.4
  • 7. Thwarting factorsWith the many benefits suggested in the above dialogue, This failure to realize business value in analytics, foris there still a possibility that BA can become a fad? whatever reason, is the main factor for organizations toAbsolutely. However, organizations should first ask, “Is potentially dismiss BA as a fad. Even businesses that dothere something inherent in the technology that will keep the analytics correctly but do not embrace the results orit from becoming a mainstay in the business world? Or change their way of thinking can doom an otherwiseare we simply not attacking the problem from the right beneficial endeavor to failure.angle?” While analytics can be a complicated solution toimplement successfully, the problems arising from such BA as a software storyefforts usually come from one of two root causes: The As a quick experiment and to demonstrate a point, typefirst stems from an organizational inability to translate “Business Analytics” into an Internet search engine.analytics into business value; and the second can be Chances are that your search turned up more commercialbroken down into two main aspects: the “Software Story” softwares than actual discussions of BA as a capability. Thismisconception, and the “Blah-Blah-Blah” of overexposure is another leading cause for BA becoming a fad, and it tieswhere there is much discussion but little confidence in back into the previous discussion of businesses failing todemonstrable value. create the proper decision-making atmosphere to support the analytics technology.Inability to translate analytics into business valueA business that is not profitable will not be in business Purchasing the appropriate hardware and software to fitfor long. The number one reason behind most business an organization’s needs is an integral part of implementingpractices is that they generate value to invested a BA solution, but simply too many businesses stop at thatconstituents, and the main reason analytics could become point. BA software providers, in business to sell products,a fad is if businesses fail to realize the value that the can provide tools that overemphasize ease-of-use and “dotechnology can provide. BA can be a complicated process it yourself” features only to have customers find that thethat depends as much on human interpretation as it does devil-in-the-details issues are more than they thought. Aon core technologies and available internal, external, and result can be that such software ends up becoming moresynthetic data. “widgetized” than functional. The belief that the “widget” will get you there is mostly misnomer, and it can leadSo what is going to make this a fad? The biggest thing businesses to underinvest, undercommit, fail to realizeis not generating value. An organization’s inability to potential value, and ultimately dismiss BA as a fad.execute a BA solution is probably the biggest risk. Whenan organization fails to create the proper decision-makingatmosphere necessary to support the analytics technology,there is a tendency to blame the technology first. Whowants to admit that they could have done a better jobwith the technology and data they were given?The important thing to remember is that while the basicsbehind analytics go back decades or even centuries, thereis also a very human aspect to the whole endeavor. Whenan organization fails to realize certain goals it has set for “Knowing a great deal is not the sameits use of analytics, either through overestimation, human as being smart; intelligence is noterror, or organization change challenges, there is a naturaltendency to believe that BA is not really as beneficial as information alone but also judgment,envisioned. This can lead an executive, already skepticalfrom years of analytics hype and other less than fully the manner in which information issuccessful big initiatives, to look at these shortcomings and collected and used.”say, “See, I told you so.” It is this type of misconceptionthat can undoubtedly tip the BA scale to the “Fad” side. — Carl Sagan Business analytics Fad or fundamental? 5
  • 8. It should be understood that every business faces its own • Oversimplification — Some software companies, trying specific set of challenges. By expecting a software product to sell their products, can make BA out to be a simple to automatically solve these problems, organizations risk push-button process, inevitably leading to customer dooming analytics from inception — analytics should not mistrust when it fails to produce the expected results be considered a piece of technology but rather a complex due to misuse, overuse, underuse, or the product’s capability that businesses should build and a culture they intrinsic shortcomings. should live with. • Cheapening of effort and value — After being led to believe that a BA solution can “deliver the world” The “Blah Blah Blah” of overexposure by virtue of merely purchasing the software, a business “Business Analytics. Business Analytics. Business Analytics.” may neglect to put in the necessary time and effort to Some may believe that if said in the mirror five times, truly integrate the analytics technology into an overall the ghost of analytics will appear and solve all of an process. organization’s problems, while the executives kick back • Overselling — “It slices, it dices. It’s everything you and count stacks of money. Sadly, examples of this happen need!” Again, an example where software companies every day in business. The sheer volume of “software- may provide potentially seldom-used features to sell story” products and (mis)information that exists has left product. Overexpectation may lead to frustration at the a lot of executives either at a standstill, unsure of how failure to produce expected results. to best approach the situation, or blindly charging into • Paving the cow path — The story goes that when a complex process without being fully committed to the deciding the new street layout for a city, planners organizational changes that BA requires to generate value. decided to simply “pave the cow paths” instead of deciding on a new logical layout that would be more This media overdose on analytics has led to some troubling efficient for changing technologies. This failure to step misconceptions: back and think big picture in a new and fresh way • Poor-quality imitations — While success breeds is a common trap many organizations can suffer if imitation, and imitation is the sincerest form of flattery, they overly depend on the oversimplification or naïve poor-quality imitators can have a significantly negative interpretation of analytic possibilities. impact on an organization’s perception of the value analytics can generate.Think of analytics as a toolbox. Onescrewdriver of a particular size andstyle isn’t going to build you a chest ofdrawers — much less so in the hands ofan inexperienced carpenter.6
  • 9. Preventing the fad mentalityThe recent explosion of analytics into nearly all aspects • Be a relentless missionary and evangelist —of our lives has become both a boon and a burden. The As BA continues to evolve, organizations and individualsbenefits are there, yet doubts about sustainability remain. passionate to further the cause should constantly andWith so much potential value resting on the perceptions of consistently talk, educate, and innovate to show theirthose who will be or already are investing significant time, company the appropriate way. BA is not a peoplemoney, and energy into analytics, it becomes the burden replacer — but rather often a people retooler. Analyticsof those who understand the process/technology to make leaders should work to excite and delight their companiesreasonably certain that BA does not become a victim of with new, innovative, and high-value business solutions.market oversaturation. By following a few of these basic • Self-police the industry — At the end of the day,principles, individuals “in-the-know” can have an impact there is no analytics guardian angel that will determineon whether analytics becomes a fad to be looked back on that people are making the appropriate judgmentsor a lasting value-driven capability: about BA. It is up to individuals who understand the• Deliver innovation with excellence and a keen eye concepts behind the technology to educate and redirect on value — Companies should be willing to design BA the potentially misinformed. Correcting misguided products, solutions, and processes with focus on ROI assumptions or long-standing tradition is often no easy rather than flash. As long as the focus on value remains task. However, for organizations to fully realize the an integral part of the equation, it can help rule out any value that BA has demonstrated, this type of grassroots misconceptions of “Is this really worth it?” groundwork is necessary.• Push for true creativity and push the envelope — For BA to help reach new frontiers of business performance, it may depend on the willingness of all of a company’s executives and their departments to truly push the boundaries of what is possible through analytics. Companies should think and go “outside the box” to approach increasingly complex problems.• Change people’s approach to business challenges — Change is consistently unsettling, even when it is for the better. For analytics to take hold, organizations should reevaluate the way they approach problems and how they adapt and change to solve them. Businesses should be willing to make changes in the way they operate if the analytics suggest better alternatives. BA has the potential to virtually eliminate many common malpractices within an enterprise. The caveat being that the organization must be willing to look at problems from new angles and understand that BA is not a “thing” but rather an end-to- end process that requires constant human involvement and feedback. Business analytics Fad or fundamental? 7
  • 10. A final word With the massive amount of literature being generated in relation to BA, it is a critical time to step back and take a look at the whole picture and ask many questions. For example, what really is BA? What do businesses expect from analytics technology? What are the fundamentals behind an organization’s current decision-making process? What value can analytics produce for a company? Are a company’s people ready for change? And on and on, the questions go. By making sure that these questions are asked and sufficiently answered from the beginning of a BA implementation, organizations can take steps toward getting past the misconceptions and fully realize the capabilities of the technology. Only then, can they make a careful assessment of the value BA can provide. The future of analytics lies in the hands of those using it. Whether it becomes a fad or a fundamental tool will depend on the discipline organizations can bring to the field and the degree of success with which they integrate BA into an overall culture of fact-based decision making. It is, at its core, a human story with an ending that has yet to be decided, but an ending that should be able to produce great value. Contact John Lucker Principal Global Advanced Analytics Modeling Market Offering Leader Deloitte Consulting LLP + 1 860 725 3022 jlucker@deloitte.comThis publication contains general information only and Deloitte is not, by means of this publication, rendering accounting, business, financial,investment, legal, tax, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor shouldit be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect yourbusiness, you should consult a qualified professional advisor. Deloitte shall not be responsible for any loss sustained by any person who relies on thispublication.About DeloitteDeloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms,each of which is a legally separate and independent entity. Please see www.deloitte.com/about for a detailed description of the legal structure ofDeloitte Touche Tohmatsu Limited and its member firms. Please see www.deloitte.com/us/about for a detailed description of the legal structure ofDeloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.Copyright © 2012 Deloitte Development LLC. All rights reserved.Member of Deloitte Touche Tohmatsu Limited

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