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Analytics: The widening divide


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Analytics: The Widening Divide

By David Kiron, Rebecca Shockley, Nina Kruschwitz, Glenn Finch and Dr. Michael Haydock

Published in: Business, Technology

Analytics: The widening divide

  1. 1. In collaboration with IBM Institute for Business ValueRESEARCH REPORT FALL 2011 Analytics: The Widening Divide How companies are achieving competitive advantage through analytics By David Kiron, Rebecca Shockley, Nina Kruschwitz, Glenn Finch and Dr. Michael Haydock
  2. 2. ABOUT THE AUTHORSDAVID REBECCA NINA GLENN DR. MICHAELKIRON SHOCKLEY KRUSCHWITZ FINCH HAYDOCKis the Executive is the Business is an editor and is the Managing is the Chief ScientistEditor of Innovation Analytics and the Special Projects Partner for North for IBM Global Busi-Hubs at MIT Sloan Optimization Global Manager at MIT America for IBM ness Services’ Busi-Management Lead for the IBM Sloan Management Global Business ness Analytics andReview, which Institute for Busi- Review, where she Services’ Business Optimization prac-brings ideas from ness Value, where coordinates the Analytics and tice, where he worksthe world of she conducts fact- publication’s innova- Optimization with global clients tothinkers to the based research on tion hub activities. practice, where he develop advancedexecutives and the topic of busi- She can be reached works with global analytic solutionsmanagers who ness analytics to at business leaders that deliver businessuse them to build develop thought to transform their value by enablingbusinesses. He leadership for senior organization into organizations to bet-can be reached at executives. She analytically-driven ter understand can be reached at organizations. He interact with cus- can be reached at tomers. He can .com. glenn.f.finch@ be reached at mhaydock@us Balboni, Global Leader, Business Analytics and Optimization, IBM Global Business ServicesDeborah Kasdan, Writer, Strategic Communications, IBM Global Business ServicesChristine Kinser, Strategic Programs Global Leader Communications, IBM Global Business ServicesDavid Laverty, Vice President Marketing, IBM Software Group (Information Management)Eric Lesser, Research Director, North America, IBM Institute for Business Value, IBM Global Business ServicesMychelle Mollot, Vice President Marketing, IBM Software Group (Business Analytics)Katharyn White, Vice President Marketing, IBM Global Business ServicesCopyright (©) 2011 Massachusetts Institute of Technology. All rights reserved.The IBM case studies are © copyright IBM 2011, used by permission.For more information or permission to reprint, please contact MIT SMR at:E-mail: mitsmr@pubservice.comFax: +1 818-487-4550, attention MIT SMR/PermissionsPhone: 818-487-2064Mail: IT Sloan Management Review M PO Box 15955 North Hollywood, CA 91615
  3. 3. CONTENTS RESEARCH REPORT FALL 2011 Analytics: The Widening Divide 4 The gap is widening 4 Transformed organizations use analytics more widely 5 Transformed organizations leave others behind 5 Moving faster with analytics 6 Managing risk for strategic advantage CASE STUDY McKesson: Efficiency at Scale 8 Engaging Customers as Individuals 9 Mastering analytical competencies 9 Competency #1: Information management 0 1 Competency #2: Analytics skills and tools 11 Competency #3: Data-oriented culture 11 he Most Distinctive Characteristics T of Transformed Organizations CASE STUDY BAE Systems: A New Business Model Takes Flight 13 Two Paths to Transformation 14 The Collaborative Path Crosses Organizational Boundaries 15 Understanding the Path Ahead CASE STUDY Pfizer: Next Generation Sales Insights Through Analytics 16 Moving Forward with Analytics 19 Conclusion About the Research 4 20 Acknowledgments IBM INSTITUTE FOR BUSINESS VALUE • MIT SLOAN MANAGEMENT REVIEW 1
  4. 4. S P E C I A L R E P O R T A N A LY T I C S : T H E W I D E N I N G D I V I D EAnalytics:TheWidening DivideHow companies are achieving competitive advantage through analyticsIn this second joint MIT Sloan Management Review and IBM Institute for Business Value study,we see a growing divide between those companies that, on one side, see the value of business ana-lytics and are transforming themselves to take advantage of these newfound opportunities, and,on the other, that have yet to embrace them. Using insights gathered from more than 4,500 man-agers and executives, Analytics: The Widening Divide identifies three key competencies thatenable organizations to build competitive advantage using analytics. Further, the study identifiestwo distinct paths that organizations travel while gaining analytic sophistication, and provides Analytics:I The use of data and relatedrecommendations to accelerate organizations on their own paths to analytic transformation. insights developed through applied analytics disciplines n 1997, a computer named Deep Blue defeated Garry Kasparov, the world chess (for example, statistical, contex- tual, quantitative, predictive, champion at the time. In 2011, another computer, Watson, competed and won against cognitive and other models) to former champions of Jeopardy!, the popular U.S. television quiz show. Both events drive fact-based planning, deci- changed perceptions about what computers could do. Deep Blue demonstrated the sions, execution, management, measurement and learning. power of new parallel processing technology, and Watson showed that computers can Analytics may be descriptive, understand ordinary language to meet the challenges of the “real world.” predictive or prescriptive. In computer science terms, Jeopardy! is much harder than chess. Whereas Deep Blue usedspecialized computer chips to calculate outcomes of possible chess moves, Watson answeredunpredictable questions put forward in peculiarly human speech patterns. Today, almost anycomputer can scan a database to match structured queries with answers. In contrast, Watsonwas able to “read” through a massive body of human knowledge in the form of encyclopedias,reports, newspapers, books and more. It evaluated evidence analytically, hypothesized re-sponses and calculated confidence levels for each possibility. It offered up, in a matter ofseconds, the one response with the highest probability of being correct. And it did all that fasterand more accurately than its world-class human opponents. New analytical tools for making decisions, such as Watson, are bringing about entirely new op-portunities. With the digitization of world commerce, the emergence of big data and the advanceof analytical technologies, organizations have extraordinary opportunities to differentiate them-selves through analytics. The majority of organizations have seized these opportunities, according IBM INSTITUTE FOR BUSINESS VALUE • MIT SLOAN MANAGEMENT REVIEW 3
  5. 5. S P E C I A L R E P O R T A N A LY T I C S : T H E W I D E N I N G D I V I D EAbout the to this study, “Analytics: The Widening Divide,” by the 2011 58% 57%Research MIT Sloan Management Review and the IBM Institute 2010 37% increaseTo continue to deepen for Business Value. Fifty-eight percent of organiza- Percentage who rated as “substantial” or “significant”our understanding of tions now apply analytics to create a competitive (4 or 5 on a five-point scale) the level that information andthe challenges andopportunities associ- advantage within their markets or industries, up from analytics is able to create a competitive advantage for their organization within their industry or marketated with the use of 37% just one year ago (see Figure 1).1 Significantly,business analytics, forthe second year in a these same organizations are more than twice as likelyrow the MIT Sloan to substantially outperform their peers. To under-Management Review, FIGURE 1: Creating a Competitive Advantage stand how organizations are using analytics today, we The ability of organizations to create a competitivein partnership with surveyed more than 4,500 executives, managers and advantage with analytics has surged in the pastthe IBM Institute for 12 months.Business Value, con- analysts from more than 120 countries.ducted a global surveyof more than 4,500 Our initial joint study in 2010 identified threebusiness executives, progressive levels of analytical sophistication: Aspi- Among all respondents, the number of companiesmanagers and ana-lysts from rational, Experienced and Transformed (see Figure using analytics to create a competitive advantageorganizations located 2).2 Year-to-year comparisons of these groups reveal has surged by 57% in the past year. Yet all of thearound the world.Thismarks a 50% that Experienced and Transformed organizations are gains in competitive advantage have been made byincrease in the num- expanding their capabilities and raising their expec- the Transformed and Experienced groups, whichber of respondents, tations of what analytics can do, while the grew by 23% and 66%, respectively, from 2010 tobroadening our analy-sis to include Aspirational organizations are falling behind. This 2011. The Aspirational segment, by contrast, fell 5%individuals in more growing gap has major implications for businesses behind during the same period (see Figure 3).than 120 countriesrepresenting more seeking to make the best possible decisions based on The widening divide between organizations isthan 30 industries, a flood of insight arising from the interconnected also evident in the use of analytics to inform coreand involving organi-zations of a variety of world. business strategy and day-to-day operations. Fullysizes.The sample was We closely examined what the Transformed or- 70% of the Transformed and 55% of the Experi-drawn from different ganizations, the most sophisticated users of enced groups say they have increased their use ofsources, includingMIT alumni, MIT analytics, are doing well and found three key compe- information and analytics in their business strategySloan Management tencies: (1) information management, (2) analytics and operations in the past 12 months. Only 34% ofReview subscribers,IBM clients and other skills and tools, and (3) data-oriented culture. Mas- the Aspirational group has done so (see Figure 4).interested parties. tering these competencies enables organizations to In addition to thesesurvey results, we also gain full benefit from analytics. Transformed Organizationsinterviewed We also found, however, that organizations take Use Analytics More Widelyacademic expertsand subject matter ex- one of two different paths to achieving analytics so-perts from a number phistication. Each path is comprised of a different Financial and operational activities have histori-of industries and disci- mix of competencies, so organizations choose the cally been data-driven, and are typically the firstplines.Their insightscontributed to a richer best route to follow based on their strengths and cir- areas where analytics is adopted.3 A majority of or-understanding of cumstances. The chosen path influences their ganizations affirmed they rely on data and analyticsthe data, and thedevelopment of rec- overall approach to analytics, the kinds of projects to manage financial forecasting, annual budget al-ommendations that they pursue — and the steps they will need to take to locations, supply chain optimization andrespond to strategicand tactical questions achieve full analytical prowess. streamlining operations. Among Aspirational andsenior executives Transformed organizations alike, these were theaddress as they opera-tionalize analytics The Gap is Widening four areas where leaders rely on analytics to makewithin their organiza- decisions (see case study sidebar, “McKesson: Effi-tions.We also drew The growing gap between Transformed and Experi- ciency at Scale”).upon IBM case studiesto further illustrate enced groups, on the one hand, and the Aspirational By comparison, analytics is less frequently reliedhow organizations are group, on the other, is evident on two fronts: using upon for decisions involving customers, businessalready using busi-ness analytics as a analytics to create competitive advantage, and inte- strategy and human resources. On average, fewercompetitive asset. grating analytics into strategy and operations. than one-quarter of Aspirational organizations said4 MIT SLOAN MANAGEMENT REVIEW • IBM INSTITUTE FOR BUSINESS VALUE
  6. 6. they rely primarily on data and analytics to make jectives are highly focused. Using an analyticalkey decisions in these areas, compared to one-half technique called binning, we found that Trans- Binning: An advanced analyt-of Transformed organizations (see Figure 5). formed organizations are concentrating on three ics technique that critical areas that span the enterprise: speed of de- analyzes the re- sponse of allTransformed Organizations cision making, managing enterprise risk and respondents to aLeave Others Behind understanding customers. series of direct and in- direct questions related to a specificToday’s business environment is characterized by Moving Faster with Analytics subject area. Re-increasing uncertainty and competition. At the sponses are thensame time, customer loyalty is eroding. All of this, Big data, and the fast pace and complexity of today’s categorized into bins based on the level ofand more, makes it very difficult for organizations marketplace, require that leaders make decisions interest. For thisto gain lasting benefits unless analytics is applied faster than ever before. Nearly 7 out of 10 CEOs in- study, the bins werebroadly. A piecemeal approach to analytics adop- terviewed for the IBM Global CEO Study 2010 told analyzed by sophisti- cation groups.tion misses the opportunity to link supply chains to us that they already face unprecedented uncertaintycustomer channels, for example, or financial fore- and volatility — and are expecting more ahead.4 Wecasts to more precise resource planning. found that Transformed organizations keenly ap- Most organizations are expanding their use of preciate the value of more precise and near-real-timeanalytics beyond finance and operations. However, decisions, and are more than three times more likelythe Transformed group has set the pace and has al- than Aspirational organizations to focus intenselyready distinguished itself in the marketplace. on the speed of decision making (see Figure 6). FIGURE 2: Analytics SophisticationOverall, organizations that used analytics for com- While proven instincts and experience were once Assessmentpetitive advantage were 2.2 times more likely to a leader’s best guides, decision makers are now in a Analytics competen- cies can be assessedsubstantially outperform their industry peers. position to use an extraordinary amount of data to by analyzing keyTransformed organizations in that group were 3.4 inform their choices. Decisions based on large attributes as they relate to the organi-times more likely to do so. amounts of data, however, can’t come at the price of zation, including While Transformed organizations use analytics speed. The digital transformation of business has put leaders’ reliance on fact-based decisionbroadly across the organization, their business ob- pressure on organizations to become more effective making. ASPIRATIONAL EXPERIENCED TRANSFORMED Percentage 32% 45% 24% of total respondents Analytic use Basic user Moderate user Strong and sophisticated user Reliance on To guide decision making in financial man- To guide future strategies, and increasing To guide decision making in day-to-day op- analytics agement and supply chain management reliance on analytics to guide activities in erations and future strategies across the marketing and operations organizations Information Few standards are in place; structured, Enterprise data integration efforts are Enterprise data creates integrated view foundation siloed data supports targeted activities underway of the business with an growing focus on unstructured data Analytics tools Primarily uses spreadsheets Expanding portfolio of analytics tools Comprehensive portfolio of tools to support advanced analytic modeling Analytics skills Ad hoc analysis is done at point-of-need; Analysts work in line-of-business units Many are combining line-of-business has difficulty hiring analytics talent with growing focus on cross-training and units with centralized units that provide hiring skills externally advanced skills and governance Culture Managers are focused on executing Open to new ideas but lacks top-line Strong top-line mandate to use analytics day-to-day activities leadership and champions to support supports a culture open to new ideas and changes champions who shepherd methodology and skills IBM INSTITUTE FOR BUSINESS VALUE • MIT SLOAN MANAGEMENT REVIEW 5
  7. 7. S P E C I A L R E P O R T A N A LY T I C S : T H E W I D E N I N G D I V I D E and lower costs,” he said, explaining the manpower to 2011 80% manually keep up with that level of demand is cost pro-Transformed 2010 65% 23% increase hibitive. In a $112 billion company, he noted, even a 99.9% degree of accuracy in execution can lead to the 2011 63% loss of more than $100 million. “We need to reduce ourExperienced 2010 38% 66% write-offs to the millions, not hundreds of millions. increase And when you’re talking about that level of accuracy, 2011 37% you have to rely on data and analytics.”Aspirational Analytics confers greater agility, acuity and cer- 2010 39% 5% decrease tainty in today’s fast-changing business environment. It allows leaders to isolate the components of com- Percentage who cited a competitive plex activities and ecosystems, as well as to see and advantage using analytics understand the dynamic interrelationships of their businesses and the markets they operate in. Detect- ing and analyzing trends and patterns, they canFIGURE 3: in their reactions to market shifts and to shorten the predict what is most likely to occur next. Using mod-IncreasingCompetitive time to market for new products and services. eling techniques and what-if scenarios, they can evenAdvantage Organizations focused on the speed of decision prescribe the next best action.The ability of organi-zations to create a making are using analytics to manage operationscompetitive advan- and improve output levels based on real-time sup- Managing Risk fortage with analyticshas surged in the ply and demand management. They automate their Strategic Advantagepast 12 months. inventory replenishment processes and optimize production by doing things such as embedding Propelled by the digital transformation of entire in- triggers that signal maintenance needs before dustries and the globalization of business equipment breaks down. operations, leading organizations continuously re- We found that two-thirds of Transformed organi- evaluate and re-define the strategic decisions that zations are relying on analytics to manage day-to-day underpin their success. Almost 3 out of 4 Trans- operations, more than four times the percentage of formed organizations use analytics to guide their Aspirational organizations. In some ways, using ana- future strategies compared to fewer than 1 in 7 As- lytics for these immediate operational needs can be pirationals. These new business and operating more difficult than crafting long-term strategies. Whereas future strategies are typically iterated over Transformed 70% time, operational decisions require precise and accu- rate insights to be available much more quickly: Experienced 55% hence, the need for analytics speed. Aspirational 34% The speed at which some organizations operate today outpaces the processing capacity of the human Percentage who reported their organization had brain. McKesson, for example (see case study side- increased the level to which analytics and information was integrated into the business strategy bar), processes more than 2 million orders per day. and day-to-day operations in the past 12 months To operate at this speed, McKesson has embedded algorithms into the intake process to manage orders, issue stockroom holds and process inventory replen- FIGURE 4: Increasing Analytic Integration ishments without human intervention. Into Strategy and Operations The rate at whichTransformed and Experienced When a pharmacist re-orders at the end of the day, organizations have integrated analytics into their the product arrives by 10 a.m. the next day. “That’s what core business strategies and operations during the past year indicates that the competitive and we do,” said Robert Gooby, vice president of process re- performance gaps between these organizations and design. “We need to be outstanding in our execution, Aspirational organizations will continue to widen.6 MIT SLOAN MANAGEMENT REVIEW • IBM INSTITUTE FOR BUSINESS VALUE
  8. 8. McKESSON: Efficiency at Scale Improving process efficiency within the supply “But where most models are simplifica- workforce. It has used the Six Sigma program chain has been standard practice in the last tions of the physical world, this one has all of as a consistent way of thinking about, and ap- several years, particularly for those organiza- the complexities and all of the data of our re- proaching, data-related issues. The ability to tions that operate in high-volume, low-margin ality. It allows us to quantify in extreme detail weed out extraneous activity, minimize de- businesses. McKesson, a U.S.-based pharma- the impacts of making fundamental changes fects and reduce inventory through these ceutical distribution and healthcare technology to our operation, Gooby explained. “This ” structured improvement methodologies has company, ranks among the largest companies model is not a simplification. ” had significant payback in terms of time, re- in the world, and has gone farther than most in Another area where McKesson has ap- source allocation and capital. incorporating advanced analytics into a supply plied advanced analytics is simulating and Just as importantly, company leaders now chain operation that processes over 2 million automating the physical placement of inven- recognize that the company’s operations are orders per day, and oversees more than $8 bil- tory within its distribution centers. The ability so complex they can no longer be managed lion of inventory. to assess changes in its policies and supply without analytics. “You reach stages where For management of in-transit inventory, chains has helped it increase customer re- your intuition is no longer enough. You have to McKesson has developed a supply chain sponsiveness, as well as reduce working go into detailed analysis. There are too many model that provides a highly accurate view of capital. Overall, McKesson’s transformation things, too many opportunities that can exist its cost-to-serve – by product lines, transpor- of the supply chain has reduced more than undetected unless you dive into the details, ” tation costs and even by carbon footprint. This $100 million in working capital. said Gooby. detail provides the company with a more real- McKesson recognizes that analytic tools Together, the combination of process ex- istic view of how it is operating at any given are only part of the equation. The company pertise and advanced analytics capability has point in time, said Robert Gooby, vice presi- has invested significantly in building the ana- provided McKesson with the right formula- dent of process redesign. lytical skills and capabilities of its entire tion for supply chain success.tactics promise competitive differentiation. But the same level of focus (see Figure 7).they are not without risk. By using analytics across the enterprise to moni- A report from the Corporate Executive Board tor, detect and anticipate events, organizations arefound that strategic risks, rather than financial learning to avoid unnecessary risk. Armed withrisks, were responsible for 68% of severe market real-time information, they are monitoring supplycapitalization declines between 1998 and 2009. levels to help minimize disruptions. They are auto-These strategic risks include decline in demand and mating tasks — moving inventory from one locationcompetitor infringements on core products, de- to another when a trigger is set off, for example —structive price wars and margin pressure, and and using predictive analytics to anticipate needsfailure to expand new revenue sources.5 Yet a 2011 based on dynamic variables like weather or politicalAmerican Productivity and Quality Center (APQC) upheavals. The most adept are forging bold strate-study found that 56% of the respondents admitted gies, such as taking a risk-based pricing approach tothey were least prepared to manage these kinds of introduce services and products that once wouldrisks.6 Managing strategic risk calls for a better line have been deemed too risky to develop. Others areof sight into the organization and its markets, and anticipating regulations before they are enacted inan ability to anticipate and act ahead of events that their markets, proactively adjusting their productsmight derail progress. to get ahead of regulatory constraints. Transformed organizations understand that in Chevron Corp., a global energy company, un-the face of growing volatility and uncertainty, they derstands the link between risk and performance.must improve their abilities to anticipate and predict. Each drilling miss can cost the company upward ofWe found that 86% of Transformed organizations $100 million. But the seismic surveys it uses towere highly focused on understanding the full range evaluate potential drilling sites — each up to 50of organizational risks that can impact their busi- terabytes of data — take an enormous amount ofnesses. None of the Aspirational organizations had time and computing power to analyze.7 Chevron’s IBM INSTITUTE FOR BUSINESS VALUE • MIT SLOAN MANAGEMENT REVIEW 7
  9. 9. S P E C I A L R E P O R T A N A LY T I C S : T H E W I D E N I N G D I V I D E geologists always knew they wanted to do more, Engaging Customers as Individuals I but were restrained by one of the biggest challenges organizations face in using analytics: a lack of n addition to an intense focus on risk, our bandwidth to focus on analytics. analysis revealed Transformed organizations In the summer of 2010, the U.S. federal govern- pay more attention to understanding and en- ment temporarily suspended all deep water drilling gaging with their customers in new ways (see permits in the Gulf of Mexico, regulation that essen- Figure 8). They appear to be responding more perva- tially shut down all oil exploration in the region for sively to a profound market shift, namely the nine months. Rather than sit idle, geologists at Chev- explosion of new customer expectations generated in ron seized the opportunity. Using recent advances in part by our digital, social and mobile marketplace. computing power and data storage capabilities, as Likewise, Transformed organizations are also seizingFIGURE 5: Reliance well as refinements to their already advanced com- the competitive advantage created when they under-on AnalyticsThe majority of puter models, geologists were able to improve the stand their customers as individuals and engageorganizations rely odds of drilling a successful well at certain of its deep- them in more “authentic” or personalized ways.on analytics to makedecisions about water prospects to nearly 1 in 3, up from odds of 1 in Transformed organizations are learning to usefinancial and opera- 5 or worse. The intensive review led the company to customer analytics that yield something better thantional activities, buteven Transformed or- change the next year’s drilling schedule to explore broad statistical averages. Instead of segmentingganizations have several higher-probability wells first.8 customers along two or three dimensions — salesroom to increasethe use of analytics and interactions, for example, or income, age andin other areas. geography — they are analyzing a broader set of customer dimensions. These dimensions can in- clude everything from transactional patterns to psychographic profiles of how customers prefer to Enhance customers’Customer overall experience Percentage who shop, their likelihood of product purchases and indicated their Optimize the match of their cumulative value to the company. The result is organization relies sales reps to customers on data and a highly individualized understanding, otherwise analytics to execute Define marketing these activities (4 or known as a “market of one,” making authentic cus- campaigns 5 on a scale ranging tomer engagement possible.9 from 1=Intuition/ Identify target Experience to As one Australian respondent in the financial customers 5=Data/Analytics) services industry noted, “As interactions becomeHuman Allocate employees’ more electronic and distant from staff interactions, time and effortsResources Transformed insight to customer behavior and needs is increas- Evaluate employee Experienced ingly essential.” Analytical insights and actions help performance Aspirational restore the sense of a personal relationship thatStrategic Establish organizational human tellers once provided, he said. strategic objectives Transformed organizations are putting analytical Develop/refine new Majority of insights like these into the hands of customer-facing products or services Respondents employees. Two-thirds of them support these employ-Operational operational Streamline ees with insights to drive sales and productivity processes compared to one-fourth of Aspirational organizations. Manage supply Many organizations, for example, are learning to chain or logistics anticipate customer needs by understanding what AllocateFinancial annual budget customers actually do when they go online. Pfizer Inc., a global biopharmaceutical company, has Establish financial forecasts taken this approach. “What’s really changed this past year or so, as we continued to evolve to a digital 0 20% 40% 60% 80% Percentage of respondents interaction and multi-channel model, is the sheer8 MIT SLOAN MANAGEMENT REVIEW • IBM INSTITUTE FOR BUSINESS VALUE
  10. 10. Transformed 72% largely mastered the competency, with Aspirational organizations, which lack most of the key capabili- Information Experienced 49% ties. management competency: Aspirational 22% The use of methodolo- Competency #1: Information management gies, techniques and technologies that Percentage who exhibited an intense level of focus Companies with a strong information foundation address data architec- on the speed of decision making, assessed by analyzing a series of questions are able to tackle business objectives critical to the ture, extraction, future of the entire enterprise. Their robust data transformation, movement, storage, foundation makes it possible to capture, combine integration and gover-FIGURE 6: and use information from many sources, and dis- nance of enterpriseFocused on the Need for Speed in Decision Making seminate it so that individuals throughout the information and mas-An intense level of focus on the speed of making ter data management.decisions is one area where Transformed organiza- organization, and at virtually every level, have ac-tions are using analytics. cess to it. This ability to integrate information across functional and business silos is a hallmark of Trans-magnitude of data we collect directly about our cus- formed organizations, which are 4.9 times moretomers. It’s more activity-based,” says Dr. David likely to do this well than the Aspirational group.Kreutter, vice president of the company’s U.S. Com- The information management competency involvesmercial Operations. “We’re focusing on discerning expertise in a variety of techniques for managing datapatterns early, and using them in a predictive way.” and developing a common architecture for integra-As a result, conversations initiated by representa- tion, portability and storage. In a world where thetives are tailored and approved based on these quantity of data continues to rise astoundingly, stan-patterns, and consistent with policies to provide the dards for data quality must be established withinformation that busy physicians need and are likely rigorous consistency across all business units andto act upon. functions. Is data being extracted from disparate data Every organization, regardless of size, industry sources, both internal and external, accurately andor market, has an opportunity to benefit from the thoroughly? Can it be used by multiple business units FIGURE 7: Focusedpetabytes of new data being created. The impact of and functions? Is it compatible with existing pro- on Identifying and Managingthis information surge, of near real-time data and cesses? Can it be managed in real time, or nearly so? Enterprise Risksunstructured content, is only beginning to be un- This competency also involves a rigorous approach The vast majority of Transformedderstood. But the past 12 months have already to data governance, a structured management ap- organizations areintroduced some startling changes in what organi- proach designed to track strategic objectives against intensely focused on using analyticszations are doing, and underscore the growing gap the allocation of analytical resources. Decision makers to better addressbetween those who are standing still and those with at every level of the organization can then be confident enterprise risks.a sense of urgency to act.Mastering Analytical Competencies Transformed 86%To achieve analytics sophistication, we found, orga-nizations typically master three competencies: (1) Experienced 6%information management, (2) analytics skills andtools and (3) data-oriented culture. We then dug Aspirational 0%deeper to define the capabilities required to achieveeach one (see Figure 9). Percentage who exhibited an intense level of focus To help organizations improve on these compe- on using analytics to better understand and managetencies, we analyzed the specific capabilities enterprise risks, assessed by analyzing a series ofrequired for each and compared the proficiency lev- questionsels of Transformed organizations, which have IBM INSTITUTE FOR BUSINESS VALUE • MIT SLOAN MANAGEMENT REVIEW 9
  11. 11. S P E C I A L R E P O R T A N A LY T I C S : T H E W I D E N I N G D I V I D E they have the right information to do their jobs effec- essential for answering key business questions, canAnalytics tively and make informed decisions using analytics to be achieved through internal development andskills and guide day-to-day operations and future strategies. cross-training or external hiring and outsourcing intools com-petency: areas like advanced mathematical modeling, simu-Enhances perfor- Transformed organizations effectively manage lation and visualization.mance by applying data: (percent proficient, Transformed versus Aspi- Advanced skills and techniques also make it pos-advanced techniquessuch as modeling, rational organizations) sible to embed analytical insights into the businessdeep computing, Capability: Solid information foundation so that actions can take place seamlessly and auto-simulation, dataanalytics and optimi- •Integrate data effectively — 74% versus 15% matically. Embedded algorithms automatezation to improve •Capture data effectively — 80% versus 29%. processes and optimize outcomes, freeing employ-efficiency and guide ees from routine tasks (for example, looking forstrategies thataddress specific Capability: Standardized data management customer records to process a claim or repeatedlybusiness process practices recalculating variables to determine the best distri-areas. • se a structured prioritization process for proj- U bution route). As a result, individuals have time to ect selection — 80% versus 45% apply data and insights to higher-level business •Use business rules effectively — 73% versus 39%. questions, such as using analytics to detect fraud or finding patterns that yield new customer insights. Capability: Insights accessible and available One key success factor in achieving mastery of • ake information readily accessible to employ- M this competency is the creation of analytics champi- ees — 65% versus 21% ons. Transformed organizations have analytics • ake insights readily available to all employees M champions that initiate and guide activities by shar- — 63% versus 16%. ing their expertise to seed the use of analytics throughout the enterprise. These specialists pair ex- Competency #2: Analytics skills and tools Orga- pertise with a deep understanding of the business. nizations that deploy new skills and tools for They are able to provide guidance in getting started analytics can typically answer much harder ques- with analytics, as well as identifying resources forFIGURE 8: Focusedon Customers tions than their competitors. Which customers, for ongoing support. Without an established internalTransformed organi- example, are most likely to opt into high-margin competency, it’s harder for beginners to recruitzations are intenselyfocused on using services? What will be the impact of a delivery route needed to create change on customer satisfaction and on the compa-personalizedrelationships ny’s carbon footprint? How will specific shortages Transformed organizations understand the data:with customers. within the supply chain impact future delivery ca- (percent proficient, Transformed versus Aspira- pabilities? Competency in analytical skills and tools, tional organizations) Capability: Develop skills as a core discipline •Have strong analytical skills — 78% versus 19% •Have analytics champions — 59% versus 18%. Transformed 62% Capability: Enabled by a robust set of tools Experienced 49% and solutions •Excel at visualization tools — 74% versus 44% Aspirational 34% •Excel at analytical modeling — 63% versus 28%. Capability: Develop action-oriented insights Percentage who exhibited an intense level of focus • evelop insights that can be acted upon — 75% D on using analytics to better understand and connect versus 38% with customers, assessed by analyzing a series of questions • se algorithms to automate and optimize pro- U cesses — 68% versus 31%.10 MIT SLOAN MANAGEMENT REVIEW • IBM INSTITUTE FOR BUSINESS VALUE
  12. 12. MANAGE THE DATA UNDERSTAND THE DATA ACT ON THE DATA Information Management Analytics Skills and Tools Data-oriented Culture •Solid information foundation •Skills developed as a core discipline •Fact-driven leadership •Standardized data management practices •Enabled by a robust set of tools and solutions •Analytics used as a strategic asset •Insights accessible and available •Develop action-oriented insights •Strategy and operations guided by insightsCompetency #3: Data-oriented culture In a data- Capability: Strategy and operations guided by FIGURE 9: Analytics Competenciesoriented culture, behaviors, practices and beliefs are insights Organizations mustconsistent with the principle that business decisions • uide future strategies with analytics — 72% G master three analyt- ics competencies toat every level are based on analysis of data. Leaders versus 15% achieve competitivewithin organizations that have mastered this com- • uide day-to-day operations with analytics — G advantage.petency set an expectation that decisions must be 67% versus 15%.arrived at analytically, and explain how analytics isneeded to achieve their long-term vision. Capability: Analytics is used as a strategic asset Organizations with this culture are likely to excel • se analytics as core part of business strategy Uat innovation and strategies that differentiate them and operations — 72% versus 15%from their peers (see case study sidebar, BAE Sys- • ncreased use of analytics in the past year — Items: A New Business Model Takes Flight). They 70% versus 34%.typically benefit from a top-down mandate, andleaders clearly articulate an expectation for analytical Each of these three competencies — informationdecision making aligned to business objectives. management, analytics skills and tools, and data-Transformed organizations, in fact, are nearly five dr iven c u lture — is cr it i c a l to ana lyt i cstimes more likely to do this than Aspirational organi- sophistication. Mastery of these competencies iszations. how Transformed organizations manage, under- In these data-driven cultures, expectations are stand and act on data to create a competitivehigh. Before “giving the green light” to a new service advantage.offering or operational approach, for example, lead-ers ask for the analytics to support it. They express The Most Distinctive Characteristicstheir conviction in the value of faster and more pre- of Transformed Organizations Fcise decisions by using analytics to guide today-to-day operations. Employees are confident they or organizations seeking to emulate Trans-have the information to make data-based decisions. formed organizations, it is useful to knowThey are encouraged to challenge the status quo, and which actions have the biggest impact onfollow the facts in order to innovate. Transformed or- their level of sophistication. Analysis Data-ganizations are more than twice as likely as showed that of all the characteristics exhibited by oriented cul-Aspirational groups to be receptive to new insights. Transformed organizations, their proficiency (repre- ture: A pattern of behaviors sented by the percentages) in six characteristics and practicesTransformed organizations act on the data: (per- distinguished them the most (see Figure 10). by a group of peoplecent proficient, Transformed versus Aspirational The breadth of these leading characteristics who share a belief that having, under-organizations) suggests that excellence in all three analytics com- standing and using Capability: Fact-driven leadership petencies noted in our study is fundamental to the certain kinds of data and information plays • pen to new ideas that challenge current prac- O competitive use of analytics. An organization may a critical role in the tices — 77% versus 39% be able to capture, integrate and analyze its data, but success of their • ndividuals have data need for decisions — I it will not likely be able to act on what it finds unless organization. 63% versus 16%. it has a culture that is ready to embrace ideas that IBM INSTITUTE FOR BUSINESS VALUE • MIT SLOAN MANAGEMENT REVIEW 11
  13. 13. S P E C I A L R E P O R T A N A LY T I C S : T H E W I D E N I N G D I V I D E depart from intuition or experience. For example, a their business and operations, Transformed orga- leading global bank transformed its operations nizations embed data-based insights into every when it decided to analyze the impact of debit and process — from scenarios that manage risk, to al- credit card purchases on mortgage default settle- gorithms that process orders coming in through ments. The bank was able to use this new customer new digital channels. Going one step further, they information effectively because it developed a cul- also empower employees to act confidently and ture that encouraged multiple departments to decisively in a fast-paced marketplace. collaborate on managing, understanding and acting For example, a global telecommunications com- quickly on data and ideas that went above and be- pany faced customer attrition that was rising by yond traditional approaches to lending decisions. double-digit percentages. It quickly succeeded in In using analytics as a strategic asset core to stemming these defections after using social net- BAE SYSTEMS: A New Business Model Takes Flight Like most organizations, BAE between cost, performance, support the business’s priority “When we first modeled a per- Systems once used analytics pri- revenue and risk. programs. formance based ‘availability’ marily for the basics – modeling Peters put together a meth- At the same time, Peters’ project in the air sector, it took a costs and analyzing other financial odology and a small team to team began developing and dem- considerable period because we information. However, when the support the new business onstrating a whole suite of training had to learn, develop and adapt global defense contractor moved model. His analytics champions courses. Best practices were new techniques, and because it into long-term “performance- from across the business units put into the company’s Life Cycle was such a huge program, Pe- ” based” contracts for its military showed leaders in the major pro- Management processes, with ters said. “After several iterations and technical services it needed grams that a common method- techniques regularly shared at with similar projects and the to strengthen its analytical capa- ology, which worked for the air communities of practice events. reuse of models developed over bility. The new performance- sector, would also work for its After five years, the goal of all the last five years, the air sector based contracts shifted long-term land and sea divisions. Now, these activities remains the same: can now do its modeling and risk of equipment availability from with mature capabilities in the to make sure consistent “best analysis relatively quickly and customers to BAE Systems. air sector and growing capabili- practice” analytical capabilities support to decision making now To make this business model ties elsewhere, the common for modeling solutions and busi- takes hours rather than weeks. work, BAE Systems needed ana- methodology is used to embed ness impact are embedded in Generic building blocks are cre- lytics. So five years ago, Michael analytical capability in projects, BAE Systems’ projects at the ated to re-use analytical Peters, Head of Business and enabling leaders to make data- point of use. know-how across projects. He ” Solution Modeling for BAE Sys- driven decisions for formulating The central analytics team pointed out, however, that reuse tems, was appointed to address contract commitments and opti- can advise, train and initiate. But of models from one project to an- this issue. The business chal- mizing through-life performance. once an analytics project begins, other has inherent risks unless lenge, he explained, was to How does a small core team, the individual business unit takes very carefully done; hence the answer the fundamental busi- just four people and a network control of the ongoing work, and need for continued training, up- ness questions posed by the of subject matter experts in the funds the required expertise. dating and sharing of expertise. new strategy. “How do we business units, change the mind- Peters helps them with this tran- On average, Peters has found know we can guarantee the avail- set within a global company to sition by using his network of the payback on the analytics in- ability of the particular system enable a shift in analytical think- contacts to quickly form virtual vestment to be on the order of we’re offering? How do we know ing to support their major teams of subject matter experts 20–50 to 1, much of it as direct we will make revenue on this and programs? From the beginning, from across BAE Systems’ global savings to customers. By using can actually perform against the Peters was fortunate to have two talent pool and external consul- analytics to take on performance key performance very senior sponsors. These con- tancies to meet the needs of risk while passing on the cost indicators in the contract, and, nections bolstered credibility each team, bringing the best savings, BAE Systems moves indeed, what should the KPIs when his corporate team en- combination of skills to that par- closer and closer to its custom- be?” He needed to find an inte- gaged business units on the ticular business’s problem. ers, and farther and farther away grated and consistent approach relevance of business and solu- Working together, the central- from competitors. to making those contract deci- tion modeling and ensured ized team, business unit experts sions so that BAE Systems effective sponsorship through and virtual teams have radically understood the relationship the allocation of resources to increased speed of response.12 MIT SLOAN MANAGEMENT REVIEW • IBM INSTITUTE FOR BUSINESS VALUE
  14. 14. work analysis to re-segment its portfolio, then Ability to analyze data 78%comparing segment profitability to create custom- Ability to capture and aggregate dataized solutions for use by call center employees. Only 77% Percentage ofby providing data and insight to employees across Culture open to new ideas Transformed organizationsthe enterprise are organizations able to benefit from 77% rating themselvesfresh perspectives of customers and operations. Analytics as a core part of business strategy and operations as highly 72% effective at each Embed predictive analytics into processes of the keyTwo Paths to Transformation 66% characteristicsW Insights available to those who need them 65% hile Transformed organizations serve as benchmarks for establish- 0 20% 40% 60% 80% 100% ing analytics competencies, Percentage of Transformed organizations almost half of the organizationswe surveyed are at the Experienced level, somewherebetween the most basic and the most advanced seg- these programs, the Specialized path takes organiza- FIGURE 10: Key Characteristicsments.10 We took a closer look at this large transitional tions through a wide range of efficiencies and cost of a Transformedsegment to better understand those organizations (see savings. Predictive scenarios and simulations, for ex- Organization TransformedFigure 11). ample, make it possible to understand how changes organizations rate We found that organizations, after starting, di- caused by internal strategies and external forces will themselves as highly effectiveverge in their approach to analytics. We characterize impact individual units in terms of resource alloca- at each of the keythe alternative paths as Specialized or Collaborative, tions, revenue growth and operating costs. We found characteristics, represented bybased on the way analytics is leveraged and deployed: that organizations on this path increased their use of the percentages. The Specialized path. Deep analytics expertise analytics over the last 12 months, but rarely as a coreis developed within lines of business or specific part of the overall business strategy.functions using a wide array of analytical skills andtechniques. Analytics is used to improve specific The Specialized path and the three competenciesbusiness metrics. Slightly more than half of the Ex-perienced organizations took this route. The Collaborative path. An information platform 1 Information management is siloed. Because advanced tools and techniques abound here, or- ganizations on the Specialized path may well be theis created, enabling insights to be developed and shared first to meet today’s newest data challenges: findingacross lines of business. Analytics is used to improve ways to mine real-time information from the Inter-enterprise objectives. Slightly fewer than half of Experi- net and unstructured content from e-mails,enced organizations took this route. interaction logs and other internal documents. See Figure 12 for a comparison of the relative However, integrating and disseminating data acrossproficiency levels these paths exhibit for each of the the enterprise is a hurdle they have yet to overcome.three analytics competencies. Functional and line-of-business leaders, for exam- ple, retain control of “their” information and mayThe Specialized path can lead to well-defined gains determine data definitions unilaterally.With impetus coming from within lines of business, or- On the Specialized path, identification and se-ganizations on the Specialized path pragmatically focus lection of projects is made within business units,on improving their operational metrics while growing often by using process-driven problem-solvingrevenue and increasing efficiency. They use their analyti- methodologies like Six Sigma. Analysis takes placecal prowess in advanced skills and techniques, such as where and when insights are needed, or by analyticspredictive modeling, to focus on orchestrating mar- departments within the business lines. While thisketing campaigns and finding the best match between approach serves individual business lines well, itindividual customers and sales representatives. can create or deepen barriers to developing the in- In addition to the revenue gains resulting from formation management competency, because IBM INSTITUTE FOR BUSINESS VALUE • MIT SLOAN MANAGEMENT REVIEW 13
  15. 15. S P E C I A L R E P O R T A N A LY T I C S : T H E W I D E N I N G D I V I D E organization can be major barriers to integrating data Enterprise High Transformed driven and using analytics for enterprisewide objectives. Collaborative Unless these hurdles are overcome, the Special- path ized path to analytical transformation may reach a Information Data-oriented management Experienced point of diminishing returns as siloed programs im- culture proficiency pede establishment of analytics as a core enabler of Specialized business strategy and operations. Either a strong path Line-of- push from senior leaders or grassroots momentum Low Aspirational business driven from individuals at many levels will likely be required to create a culture that is open to new ideas and ready Low Analytic skills and High tools proficiency to move forward on the basis of fact-based insights. The Collaborative Path Crosses Organizational Boundaries BFIGURE 11: Paths collaboration for effectively integrating and sharingto TransformationExperienced organi- enterprise data is insufficient or lacking. y contrast, organizations taking the Col-zations take either a laborative path use analytics more 2data-centric enter-prise-driven path or Improvement of analytical skills and tools is a broadly and effectively. Unlike Special-a skills-and-tools passion. On this path, organizations are eager ized organizations, which typically havecentric path on theirjourney toward ana- to keep up with new technical advances and apply pockets of excellence in one area or another, Col-lytic transformation. them to the data they have on hand. To do that, they laborative organizations achieve consistent levels of develop and cross-train a strong talent pool that can effectiveness across functions. Like a rising tide that use a wide variety of analytical approaches to un- lifts all boats, analytics in Collaborative organiza- derstand not just what’s happening, but why. Within tions spreads beyond finance and operations to their individual lines of business, these organiza- bring capabilities to the same levels across unit and tions have the capability to spot and analyze trends, function — from marketing and sales to human re- patterns and anomalies. sources to strategy and product development. Passionate about a wide range of analytical tools, By connecting information and programs across organizations on this path embark on a journey that silos, organizations can create an agenda that makes takes them far beyond spreadsheets and basic visual- analytics core to operations and business strategy. ization techniques. For budget planning and resource In doing so, the Collaborative path creates an appe- allocation, what-if scenarios are used to predict tite for new ways of understanding value and threats and opportunities. Algorithms automate competitive advantage that permeates the entire or- tasks ranging from mundane report development to ganization (see case study sidebar, Pfizer: Next complex data analysis. And a wide range of discrete Generation Sales Insights Through Analytics). business processes, such as automatic inventory re- On the Collaborative path, organizations draw plenishment or call center assignments, are on information from many functions and depart- optimized by embedded algorithms. ments. They develop ways to improve the customer’s experience and overall relationship with the organi- 3 Data-oriented culture will require extra momen- tum. On the Specialized path, organizations are open to exploring new analytical techniques and apply- zation. Consequently, they may be better positioned to create seamless one-on-one interactions with customers across channels and over time. Not sur- ing them liberally within discrete areas of the business. prisingly, they are twice as likely as organizations However, when it comes to taking an enterprise ap- taking the Specialized path to provide customer- proach, most respondents considered the organizational facing employees with access to data and insights. challenges extremely difficult to confront and resolve. Political constraints and a lack of cohesion within the The Collaborative path and the three competencies14 MIT SLOAN MANAGEMENT REVIEW • IBM INSTITUTE FOR BUSINESS VALUE
  16. 16. 1 Information management is an enterprise en- Understanding the Path Ahead I d e a v o r. O n t h e C o l l a b o r a t i v e p a t h ,organizations gain valuable ground by applying deally, as organizations begin their transforma-themselves to the integration of disparate data into tions to analytical sophistication, they startan enterprise analytics platform. building a solid information foundation and ac- This cross-unit endeavor is enabled by a willing- quiring analytics capabilities simultaneously. Inness to share and accept data and insights from other reality, we find that they tend to do one or the other,parts of the organization. The enterprise moves to- based on their existing culture, organizational structureward consistent data definitions, data management and skills. The two paths observed in our analysis repre-standards and shared responsibility for analytics. sent reasonable and pragmatic courses of action basedGovernance and information quality become leading on the strengths and weaknesses of individual organiza-concerns, and the organization works its way through tions.“turf wars” that almost certainly will accompany the A propensity toward acquiring new analyticalcreation of an information management foundation techniques and refining skills steers some organiza-for the entire enterprise. tions toward the Specialized path, with momentum for analytics coming from individual departments2 Analytics skills and tools are not fully devel- oped. Despite comparative weakness inanalytics skills and tools, organizations on the Col- or functions. Skeptics elsewhere can then be con- verted when urgent business issues are addressed and the value of analytics is demonstrated.laborative path are adept at using visualization Where the culture responds well to enterprise ini-techniques. Data visualization and departmental tiative and innovation, organizations will lean towarddashboards provide snapshot views of performance. the Collaborative path. Targeting analytics for key stra-Scenarios are developed to “paint a picture” show- tegic objectives creates support for shared investments FIGURE 12: Observed Competency Levelsing how changes in strategies and processes can and consensus-based decision making. As a result, an- Each path to transfor-impact the business. These user-friendly ap- alytics will be used sooner rather than later for strategic mation has unique strengths and weak-proaches help individuals who are less accustomed objectives aimed at increasing competitive advantage. nesses in the threeto working with large quantities of data interact Each path poses different challenges. Organiza- competencies, which pinpoint areas forwith information and make analytically based deci- tional issues may be particularly difficult on the improvement andsions. Specialized path, where solid leadership consensus investment.3 A data-oriented culture has emerged. Organiza- tions on the Collaborative path integrate datafrom silos and then disseminate the insights across Observed competency levels Information managementthe enterprise. They are almost three times more Specialized Collaborativelikely to use analytics to guide future strategies than Solid information foundationSpecialized organizations, and twice as likely to rely Standardized data management practiceson analytics for day-to-day operations. Insights available and accessible Collaborative organizations have cultures where Analysis skills and toolsindividuals are prepared to challenge current ideas Skills developed as a core disciplineand practices on the basis of new information. To sup- Enabled by a robust set of toolsport this culture, they are twice as likely to provide Delivers action-oriented insightsinsights to anyone in the organization who needsthem. As a result, they’ve democratized the access to Data-oriented culturedata and insights, empowering employees and execu- Fact-driven leadershiptives alike. These organizations enjoy executive-level Analytics used as a strategic assetendorsement for the broad use of analytics to manage Strategy and operations guided by insightsday-to-day operations and shape future strategies. Rudimentary Minimal Moderate Significant Mastery IBM INSTITUTE FOR BUSINESS VALUE • MIT SLOAN MANAGEMENT REVIEW 15