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                                                   IBM Institute for Business Value



RESEARCH
  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
ABOUT THE AUTHORS

DAVID                   REBECCA                  NINA                       GLENN                 DR. MICHAEL
KIRON                   SHOCKLEY                 KRUSCHWITZ                 FINCH                 HAYDOCK
is the Executive        is the Business          is an editor and           is the Managing       is the Chief Scientist
Editor 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 and
Review, which           Institute for Busi-      Review, where she          Services’ Business    Optimization prac-
brings ideas from       ness Value, where        coordinates the            Analytics and         tice, where he works
the world of            she conducts fact-       publication’s innova-      Optimization          with global clients to
thinkers to the         based research on        tion hub activities.       practice, where he    develop advanced
executives and          the topic of busi-       She can be reached         works with global     analytic solutions
managers who            ness analytics to        at ninakru@mit.edu.        business leaders      that deliver business
use them to build       develop thought                                     to transform their    value by enabling
businesses. He          leadership for senior                               organization into     organizations to bet-
can be reached at       executives. She                                     analytically-driven   ter understand and
dkiron@mit.edu.         can be reached at                                   organizations. He     interact with cus-
                        rshock@us.ibm                                       can be reached at     tomers. He can
                        .com.                                               glenn.f.finch@        be reached at
                                                                            us.ibm.com.           mhaydock@us
                                                                                                  .ibm.com.




CONTRIBUTORS


Fred Balboni, Global Leader, Business Analytics and Optimization, IBM Global Business Services
Deborah Kasdan, Writer, Strategic Communications, IBM Global Business Services
Christine Kinser, Strategic Programs Global Leader Communications, IBM Global Business Services
David Laverty, Vice President Marketing, IBM Software Group (Information Management)
Eric Lesser, Research Director, North America, IBM Institute for Business Value, IBM Global Business Services
Mychelle Mollot, Vice President Marketing, IBM Software Group (Business Analytics)
Katharyn White, Vice President Marketing, IBM Global Business Services



Copyright (©) 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.com
Fax: +1 818-487-4550, attention MIT SMR/Permissions
Phone: 818-487-2064
Mail:  IT Sloan Management Review
      M
      PO Box 15955
      North Hollywood, CA 91615
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
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




Analytics:
TheWidening Divide
How companies are achieving competitive advantage through analytics


In 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 that
enable organizations to build competitive advantage using analytics. Further, the study identifies
two distinct paths that organizations travel while gaining analytic sophistication, and provides          Analytics:




I
                                                                                                          The use of data and related
recommendations 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 used
specialized computer chips to calculate outcomes of possible chess moves, Watson answered
unpredictable questions put forward in peculiarly human speech patterns. Today, almost any
computer can scan a database to match structured queries with answers. In contrast, Watson
was 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 of
seconds, the one response with the highest probability of being correct. And it did all that faster
and 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 advance
of 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
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




About the                  to this study, “Analytics: The Widening Divide,” by the       2011                                   58%
                                                                                                                                            57%
Research                   MIT Sloan Management Review and the IBM Institute             2010                     37%
                                                                                                                                          increase
To 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 and
the challenges and
opportunities associ-      advantage within their markets or industries, up from         analytics is able to create a competitive advantage for
                                                                                         their organization within their industry or market
ated with the use of       37% just one year ago (see Figure 1).1 Significantly,
business analytics, for
the second year in a
                           these same organizations are more than twice as likely
row 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 competitive
in partnership with
                           surveyed more than 4,500 executives, managers and            advantage with analytics has surged in the past
the IBM Institute for
                                                                                        12 months.
Business Value, con-       analysts from more than 120 countries.
ducted a global survey
of more than 4,500             Our initial joint study in 2010 identified three
business executives,       progressive levels of analytical sophistication: Aspi-    Among all respondents, the number of companies
managers and ana-
lysts from                 rational, Experienced and Transformed (see Figure         using analytics to create a competitive advantage
organizations located      2).2 Year-to-year comparisons of these groups reveal      has surged by 57% in the past year. Yet all of the
around the world.This
marks a 50%
                           that Experienced and Transformed organizations are        gains in competitive advantage have been made by
increase in the num-       expanding their capabilities and raising their expec-     the Transformed and Experienced groups, which
ber of respondents,        tations of what analytics can do, while the               grew by 23% and 66%, respectively, from 2010 to
broadening 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 countries
representing more          seeking to make the best possible decisions based on         The widening divide between organizations is
than 30 industries,        a flood of insight arising from the interconnected        also evident in the use of analytics to inform core
and involving organi-
zations of a variety of
                           world.                                                    business strategy and day-to-day operations. Fully
sizes.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 of
sources, including
MIT alumni, MIT            analytics, are doing well and found three key compe-      information and analytics in their business strategy
Sloan Management           tencies: (1) information management, (2) analytics        and operations in the past 12 months. Only 34% of
Review 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 these
survey results, we also    gain full benefit from analytics.                         Transformed Organizations
interviewed                    We also found, however, that organizations take       Use Analytics More Widely
academic experts
and 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 first
plines.Their insights
contributed 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 analytics
the data, and the
development 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 and
respond to strategic
and tactical questions     achieve full analytical prowess.                          streamlining operations. Among Aspirational and
senior executives                                                                    Transformed organizations alike, these were the
address as they opera-
tionalize analytics
                           The Gap is Widening                                       four areas where leaders rely on analytics to make
within 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 studies
to further illustrate      enced groups, on the one hand, and the Aspirational          By comparison, analytics is less frequently relied
how organizations are      group, on the other, is evident on two fronts: using      upon for decisions involving customers, business
already using busi-
ness analytics as a        analytics to create competitive advantage, and inte-      strategy and human resources. On average, fewer
competitive asset.         grating analytics into strategy and operations.           than one-quarter of Aspirational organizations said

4 MIT SLOAN MANAGEMENT REVIEW • IBM INSTITUTE FOR BUSINESS VALUE
they rely primarily on data and analytics to make                jectives are highly focused. Using an analytical
key 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 all
Transformed Organizations                                        cision making, managing enterprise risk and
                                                                                                                                     respondents to a
Leave Others Behind                                              understanding customers.                                            series of direct and in-
                                                                                                                                     direct questions
                                                                                                                                     related to a specific
Today’s business environment is characterized by                 Moving Faster with Analytics                                        subject area. Re-
increasing uncertainty and competition. At the                                                                                       sponses are then
same 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 of
and more, makes it very difficult for organizations              marketplace, require that leaders make decisions                    interest. For this
to gain lasting benefits unless analytics is applied             faster than ever before. Nearly 7 out of 10 CEOs in-                study, the bins were
broadly. 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 uncertainty
customer channels, for example, or financial fore-               and volatility — and are expecting more ahead.4 We
casts 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-time
analytics beyond finance and operations. However,                decisions, and are more than three times more likely
the Transformed group has set the pace and has al-               than Aspirational organizations to focus intensely
ready distinguished itself in the marketplace.                   on the speed of decision making (see Figure 6).                       FIGURE 2: Analytics
                                                                                                                                       Sophistication
Overall, organizations that used analytics for com-                  While proven instincts and experience were once                   Assessment
petitive advantage were 2.2 times more likely to                 a leader’s best guides, decision makers are now in a                  Analytics competen-
                                                                                                                                       cies can be assessed
substantially outperform their industry peers.                   position to use an extraordinary amount of data to                    by analyzing key
Transformed 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 decision
broadly 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
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 our
Experienced
                 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 can
FIGURE 3:                   in their reactions to market shifts and to shorten the      predict what is most likely to occur next. Using mod-
Increasing
Competitive                 time to market for new products and services.               eling techniques and what-if scenarios, they can even
Advantage                       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 operations
competitive advan-          and improve output levels based on real-time sup-           Managing Risk for
tage with analytics
has surged in the           ply and demand management. They automate their              Strategic Advantage
past 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
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 are
found that strategic risks, rather than financial               learning to avoid unnecessary risk. Armed with
risks, were responsible for 68% of severe market                real-time information, they are monitoring supply
capitalization 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 location
competitor 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 needs
failure to expand new revenue sources.5 Yet a 2011              based on dynamic variables like weather or political
American 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 to
they were least prepared to manage these kinds of               introduce services and products that once would
risks.6 Managing strategic risk calls for a better line         have been deemed too risky to develop. Others are
of sight into the organization and its markets, and             anticipating regulations before they are enacted in
an ability to anticipate and act ahead of events that           their markets, proactively adjusting their products
might 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 of
We found that 86% of Transformed organizations                  $100 million. But the seismic surveys it uses to
were highly focused on understanding the full range             evaluate potential drilling sites — each up to 50
of organizational risks that can impact their busi-             terabytes of data — take an enormous amount of
nesses. 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
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 seizing
FIGURE 5: Reliance                     well as refinements to their already advanced com-           the competitive advantage created when they under-
on Analytics
The majority of                        puter models, geologists were able to improve the            stand their customers as individuals and engage
organizations rely                     odds of drilling a successful well at certain of its deep-   them in more “authentic” or personalized ways.
on analytics to make
decisions about                        water prospects to nearly 1 in 3, up from odds of 1 in          Transformed organizations are learning to use
financial and opera-                   5 or worse. The intensive review led the company to          customer analytics that yield something better than
tional activities, but
even Transformed or-                   change the next year’s drilling schedule to explore          broad statistical averages. Instead of segmenting
ganizations have                       several higher-probability wells first.8                     customers along two or three dimensions — sales
room to increase
the use of analytics                                                                                and interactions, for example, or income, age and
in 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 become
Human          Allocate employees’                                                                  more electronic and distant from staff interactions,
                    time and efforts
Resources                                                                       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 that
Strategic 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
                          Allocate
Financial            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 sheer

8 MIT SLOAN MANAGEMENT REVIEW • IBM INSTITUTE FOR BUSINESS VALUE
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 enterprise
Focused 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 more
tomers. 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 involves
mercial Operations. “We’re focusing on discerning        expertise in a variety of techniques for managing data
patterns 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 the
tives 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 with
information that busy physicians need and are likely     rigorous consistency across all business units and
to act upon.                                             functions. Is data being extracted from disparate data
    Every organization, regardless of size, industry     sources, both internal and external, accurately and
or market, has an opportunity to benefit from the        thoroughly? Can it be used by multiple business units       FIGURE 7: Focused
petabytes of new data being created. The impact of       and functions? Is it compatible with existing pro-          on Identifying
                                                                                                                     and Managing
this information surge, of near real-time data and       cesses? Can it be managed in real time, or nearly so?       Enterprise Risks
unstructured content, is only beginning to be un-            This competency also involves a rigorous approach       The vast majority
                                                                                                                     of Transformed
derstood. But the past 12 months have already            to data governance, a structured management ap-             organizations are
introduced some startling changes in what organi-        proach designed to track strategic objectives against       intensely focused
                                                                                                                     on using analytics
zations are doing, and underscore the growing gap        the allocation of analytical resources. Decision makers     to better address
between 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 and
tools and (3) data-oriented culture. We then dug                Aspirational     0%
deeper to define the capabilities required to achieve
each 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 manage
tencies, we analyzed the specific capabilities                   enterprise risks, assessed by analyzing a series of
required for each and compared the proficiency lev-              questions
els of Transformed organizations, which have

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                           they have the right information to do their jobs effec-   essential for answering key business questions, can
Analytics                  tively and make informed decisions using analytics to     be achieved through internal development and
skills and                 guide day-to-day operations and future strategies.        cross-training or external hiring and outsourcing in
tools 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 techniques
such as modeling,          rational organizations)                                   sible to embed analytical insights into the business
deep computing,               Capability: Solid information foundation               so that actions can take place seamlessly and auto-
simulation, data
analytics and optimi-
                              •Integrate data effectively — 74% versus 15%           matically. Embedded algorithms automate
zation to improve             •Capture data effectively — 80% versus 29%.            processes and optimize outcomes, freeing employ-
efficiency and guide                                                                 ees from routine tasks (for example, looking for
strategies that
address specific              Capability: Standardized data management              customer records to process a claim or repeatedly
business 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 for
FIGURE 8: Focused
on Customers
                           tions than their competitors. Which customers, for        ongoing support. Without an established internal
Transformed organi-        example, are most likely to opt into high-margin          competency, it’s harder for beginners to recruit
zations are intensely
focused on using
                           services? What will be the impact of a delivery route     needed talent.
analytics to create        change on customer satisfaction and on the compa-
personalized
relationships
                           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
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 insights




Competency #3: Data-oriented culture In a data-                 Capability: Strategy and operations guided by                  FIGURE 9: Analytics
                                                                                                                                Competencies
oriented culture, behaviors, practices and beliefs are           insights                                                       Organizations must
consistent with the principle that business decisions            • uide future strategies with analytics — 72%
                                                                  G                                                             master three analyt-
                                                                                                                                ics competencies to
at every level are based on analysis of data. Leaders             versus 15%                                                    achieve competitive
within 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 is
needed 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
                                                                 U
at 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 —
                                                                 I
tems: A New Business Model Takes Flight). They                   70% versus 34%.
typically benefit from a top-down mandate, and
leaders clearly articulate an expectation for analytical        Each of these three competencies — information
decision 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 cs
times more likely to do this than Aspirational organi-       sophistication. Mastery of these competencies is
zations.                                                     how Transformed organizations manage, under-
    In these data-driven cultures, expectations are          stand and act on data to create a competitive
high. 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 Characteristics
their conviction in the value of faster and more pre-        of Transformed Organizations




                                                             F
cise decisions by using analytics to guide to
day-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 know
They are encouraged to challenge the status quo, and                     which actions have the biggest impact on
follow 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 practices
Transformed organizations act on the data: (per-             distinguished them the most (see Figure 10).                      by a group of people
cent 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

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                              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
work analysis to re-segment its portfolio, then                      Ability to analyze data
                                                                                                                                    78%
comparing segment profitability to create custom-
                                                                     Ability to capture and aggregate data
ized solutions for use by call center employees. Only                                                                              77%      Percentage of
by providing data and insight to employees across                    Culture open to new ideas
                                                                                                                                            Transformed
                                                                                                                                            organizations
the enterprise are organizations able to benefit from                                                                              77%
                                                                                                                                            rating themselves
fresh 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 key
Two Paths to Transformation                                                                                            66%                  characteristics




W
                                                                     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 organizations
we surveyed are at the Experienced level, somewhere
between the most basic and the most advanced seg-            these programs, the Specialized path takes organiza-                        FIGURE 10:
                                                                                                                                         Key Characteristics
ments.10 We took a closer look at this large transitional    tions through a wide range of efficiencies and cost                         of a Transformed
segment to better understand those organizations (see        savings. Predictive scenarios and simulations, for ex-                      Organization
                                                                                                                                         Transformed
Figure 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 effective
verge in their approach to analytics. We characterize        impact individual units in terms of resource alloca-                        at each of the key
the alternative paths as Specialized or Collaborative,       tions, revenue growth and operating costs. We found                         characteristics,
                                                                                                                                         represented by
based 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 core
is developed within lines of business or specific            part of the overall business strategy.
functions using a wide array of analytical skills and
techniques. Analytics is used to improve specific            The Specialized path and the three competencies
business 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 the
is created, enabling insights to be developed and shared     first to meet today’s newest data challenges: finding
across 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 across
proficiency 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 may
The 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-solving
revenue and increasing efficiency. They use their analyti-   methodologies like Six Sigma. Analysis takes place
cal prowess in advanced skills and techniques, such as       where and when insights are needed, or by analytics
predictive modeling, to focus on orchestrating mar-          departments within the business lines. While this
keting campaigns and finding the best match between          approach serves individual business lines well, it
individual 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
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                                                                                          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




                                                                                          B
FIGURE 11: Paths              collaboration for effectively integrating and sharing
to Transformation
Experienced organi-           enterprise data is insufficient or lacking.                              y contrast, organizations taking the Col-
zations take either a                                                                                  laborative path use analytics more

                              2
data-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 have
centric path on their
journey 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 competencies


14 MIT SLOAN MANAGEMENT REVIEW • IBM INSTITUTE FOR BUSINESS VALUE
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 start
an enterprise analytics platform.                                        building a solid information foundation and ac-
    This cross-unit endeavor is enabled by a willing-                    quiring analytics capabilities simultaneously. In
ness 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 structure
ward 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 based
Governance 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 analytical
creation 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 departments

2   Analytics skills and tools are not fully devel-
    oped. Despite comparative weakness in
analytics 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 toward
dashboards 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 Levels
ing 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 three
to working with large quantities of data interact                     Each path poses different challenges. Organiza-                 competencies, which
                                                                                                                                      pinpoint areas for
with information and make analytically based deci-                tional issues may be particularly difficult on the                  improvement and
sions.                                                            Specialized path, where solid leadership consensus                  investment.




3   A data-oriented culture has emerged. Organiza-
    tions on the Collaborative path integrate data
from silos and then disseminate the insights across
                                                                        Observed competency levels
                                                                         Information management
the enterprise. They are almost three times more                                                                                    Specialized Collaborative
likely to use analytics to guide future strategies than                  Solid information foundation
Specialized organizations, and twice as likely to rely                   Standardized data management practices
on analytics for day-to-day operations.                                  Insights available and accessible

    Collaborative organizations have cultures where                      Analysis skills and tools
individuals are prepared to challenge current ideas
                                                                         Skills developed as a core discipline
and practices on the basis of new information. To sup-
                                                                         Enabled by a robust set of tools
port this culture, they are twice as likely to provide                   Delivers action-oriented insights
insights to anyone in the organization who needs
them. As a result, they’ve democratized the access to                    Data-oriented culture

data and insights, empowering employees and execu-                       Fact-driven leadership
tives alike. These organizations enjoy executive-level                   Analytics used as a strategic asset
endorsement for the broad use of analytics to manage                     Strategy and operations guided by insights
day-to-day operations and shape future strategies.                        Rudimentary        Minimal           Moderate         Significant          Mastery


                                                                              IBM INSTITUTE FOR BUSINESS VALUE • MIT SLOAN MANAGEMENT REVIEW 15
Analytics: The widening divide
Analytics: The widening divide
Analytics: The widening divide
Analytics: The widening divide
Analytics: The widening divide
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Analytics: The widening divide

  • 1. In collaboration with IBM Institute for Business Value RESEARCH 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. ABOUT THE AUTHORS DAVID REBECCA NINA GLENN DR. MICHAEL KIRON SHOCKLEY KRUSCHWITZ FINCH HAYDOCK is the Executive is the Business is an editor and is the Managing is the Chief Scientist Editor 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 and Review, which Institute for Busi- Review, where she Services’ Business Optimization prac- brings ideas from ness Value, where coordinates the Analytics and tice, where he works the world of she conducts fact- publication’s innova- Optimization with global clients to thinkers to the based research on tion hub activities. practice, where he develop advanced executives and the topic of busi- She can be reached works with global analytic solutions managers who ness analytics to at ninakru@mit.edu. business leaders that deliver business use them to build develop thought to transform their value by enabling businesses. He leadership for senior organization into organizations to bet- can be reached at executives. She analytically-driven ter understand and dkiron@mit.edu. can be reached at organizations. He interact with cus- rshock@us.ibm can be reached at tomers. He can .com. glenn.f.finch@ be reached at us.ibm.com. mhaydock@us .ibm.com. CONTRIBUTORS Fred Balboni, Global Leader, Business Analytics and Optimization, IBM Global Business Services Deborah Kasdan, Writer, Strategic Communications, IBM Global Business Services Christine Kinser, Strategic Programs Global Leader Communications, IBM Global Business Services David Laverty, Vice President Marketing, IBM Software Group (Information Management) Eric Lesser, Research Director, North America, IBM Institute for Business Value, IBM Global Business Services Mychelle Mollot, Vice President Marketing, IBM Software Group (Business Analytics) Katharyn White, Vice President Marketing, IBM Global Business Services Copyright (©) 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.com Fax: +1 818-487-4550, attention MIT SMR/Permissions Phone: 818-487-2064 Mail: IT Sloan Management Review M PO Box 15955 North Hollywood, CA 91615
  • 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. 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 Analytics: TheWidening Divide How companies are achieving competitive advantage through analytics In 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 that enable organizations to build competitive advantage using analytics. Further, the study identifies two distinct paths that organizations travel while gaining analytic sophistication, and provides Analytics: I The use of data and related recommendations 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 used specialized computer chips to calculate outcomes of possible chess moves, Watson answered unpredictable questions put forward in peculiarly human speech patterns. Today, almost any computer can scan a database to match structured queries with answers. In contrast, Watson was 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 of seconds, the one response with the highest probability of being correct. And it did all that faster and 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 advance of 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. 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 About the to this study, “Analytics: The Widening Divide,” by the 2011 58% 57% Research MIT Sloan Management Review and the IBM Institute 2010 37% increase To 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 and the challenges and opportunities associ- advantage within their markets or industries, up from analytics is able to create a competitive advantage for their organization within their industry or market ated with the use of 37% just one year ago (see Figure 1).1 Significantly, business analytics, for the second year in a these same organizations are more than twice as likely row 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 competitive in partnership with surveyed more than 4,500 executives, managers and advantage with analytics has surged in the past the IBM Institute for 12 months. Business Value, con- analysts from more than 120 countries. ducted a global survey of more than 4,500 Our initial joint study in 2010 identified three business executives, progressive levels of analytical sophistication: Aspi- Among all respondents, the number of companies managers and ana- lysts from rational, Experienced and Transformed (see Figure using analytics to create a competitive advantage organizations located 2).2 Year-to-year comparisons of these groups reveal has surged by 57% in the past year. Yet all of the around the world.This marks a 50% that Experienced and Transformed organizations are gains in competitive advantage have been made by increase in the num- expanding their capabilities and raising their expec- the Transformed and Experienced groups, which ber of respondents, tations of what analytics can do, while the grew by 23% and 66%, respectively, from 2010 to broadening 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 countries representing more seeking to make the best possible decisions based on The widening divide between organizations is than 30 industries, a flood of insight arising from the interconnected also evident in the use of analytics to inform core and involving organi- zations of a variety of world. business strategy and day-to-day operations. Fully sizes.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 of sources, including MIT alumni, MIT analytics, are doing well and found three key compe- information and analytics in their business strategy Sloan Management tencies: (1) information management, (2) analytics and operations in the past 12 months. Only 34% of Review 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 these survey results, we also gain full benefit from analytics. Transformed Organizations interviewed We also found, however, that organizations take Use Analytics More Widely academic experts and 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 first plines.Their insights contributed 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 analytics the data, and the development 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 and respond to strategic and tactical questions achieve full analytical prowess. streamlining operations. Among Aspirational and senior executives Transformed organizations alike, these were the address as they opera- tionalize analytics The Gap is Widening four areas where leaders rely on analytics to make within 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 studies to further illustrate enced groups, on the one hand, and the Aspirational By comparison, analytics is less frequently relied how organizations are group, on the other, is evident on two fronts: using upon for decisions involving customers, business already using busi- ness analytics as a analytics to create competitive advantage, and inte- strategy and human resources. On average, fewer competitive asset. grating analytics into strategy and operations. than one-quarter of Aspirational organizations said 4 MIT SLOAN MANAGEMENT REVIEW • IBM INSTITUTE FOR BUSINESS VALUE
  • 6. they rely primarily on data and analytics to make jectives are highly focused. Using an analytical key 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 all Transformed Organizations cision making, managing enterprise risk and respondents to a Leave Others Behind understanding customers. series of direct and in- direct questions related to a specific Today’s business environment is characterized by Moving Faster with Analytics subject area. Re- increasing uncertainty and competition. At the sponses are then same 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 of and more, makes it very difficult for organizations marketplace, require that leaders make decisions interest. For this to gain lasting benefits unless analytics is applied faster than ever before. Nearly 7 out of 10 CEOs in- study, the bins were broadly. 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 uncertainty customer channels, for example, or financial fore- and volatility — and are expecting more ahead.4 We casts 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-time analytics beyond finance and operations. However, decisions, and are more than three times more likely the Transformed group has set the pace and has al- than Aspirational organizations to focus intensely ready distinguished itself in the marketplace. on the speed of decision making (see Figure 6). FIGURE 2: Analytics Sophistication Overall, organizations that used analytics for com- While proven instincts and experience were once Assessment petitive advantage were 2.2 times more likely to a leader’s best guides, decision makers are now in a Analytics competen- cies can be assessed substantially outperform their industry peers. position to use an extraordinary amount of data to by analyzing key Transformed 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 decision broadly 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. 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 our Experienced 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 can FIGURE 3: in their reactions to market shifts and to shorten the predict what is most likely to occur next. Using mod- Increasing Competitive time to market for new products and services. eling techniques and what-if scenarios, they can even Advantage 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 operations competitive advan- and improve output levels based on real-time sup- Managing Risk for tage with analytics has surged in the ply and demand management. They automate their Strategic Advantage past 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. 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 are found that strategic risks, rather than financial learning to avoid unnecessary risk. Armed with risks, were responsible for 68% of severe market real-time information, they are monitoring supply capitalization 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 location competitor 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 needs failure to expand new revenue sources.5 Yet a 2011 based on dynamic variables like weather or political American 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 to they were least prepared to manage these kinds of introduce services and products that once would risks.6 Managing strategic risk calls for a better line have been deemed too risky to develop. Others are of sight into the organization and its markets, and anticipating regulations before they are enacted in an ability to anticipate and act ahead of events that their markets, proactively adjusting their products might 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 of We found that 86% of Transformed organizations $100 million. But the seismic surveys it uses to were highly focused on understanding the full range evaluate potential drilling sites — each up to 50 of organizational risks that can impact their busi- terabytes of data — take an enormous amount of nesses. 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. 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 seizing FIGURE 5: Reliance well as refinements to their already advanced com- the competitive advantage created when they under- on Analytics The majority of puter models, geologists were able to improve the stand their customers as individuals and engage organizations rely odds of drilling a successful well at certain of its deep- them in more “authentic” or personalized ways. on analytics to make decisions about water prospects to nearly 1 in 3, up from odds of 1 in Transformed organizations are learning to use financial and opera- 5 or worse. The intensive review led the company to customer analytics that yield something better than tional activities, but even Transformed or- change the next year’s drilling schedule to explore broad statistical averages. Instead of segmenting ganizations have several higher-probability wells first.8 customers along two or three dimensions — sales room to increase the use of analytics and interactions, for example, or income, age and in 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 become Human Allocate employees’ more electronic and distant from staff interactions, time and efforts Resources 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 that Strategic 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 Allocate Financial 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 sheer 8 MIT SLOAN MANAGEMENT REVIEW • IBM INSTITUTE FOR BUSINESS VALUE
  • 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 enterprise Focused 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 more tomers. 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 involves mercial Operations. “We’re focusing on discerning expertise in a variety of techniques for managing data patterns 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 the tives 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 with information that busy physicians need and are likely rigorous consistency across all business units and to act upon. functions. Is data being extracted from disparate data Every organization, regardless of size, industry sources, both internal and external, accurately and or market, has an opportunity to benefit from the thoroughly? Can it be used by multiple business units FIGURE 7: Focused petabytes of new data being created. The impact of and functions? Is it compatible with existing pro- on Identifying and Managing this information surge, of near real-time data and cesses? Can it be managed in real time, or nearly so? Enterprise Risks unstructured content, is only beginning to be un- This competency also involves a rigorous approach The vast majority of Transformed derstood. But the past 12 months have already to data governance, a structured management ap- organizations are introduced some startling changes in what organi- proach designed to track strategic objectives against intensely focused on using analytics zations are doing, and underscore the growing gap the allocation of analytical resources. Decision makers to better address between 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 and tools and (3) data-oriented culture. We then dug Aspirational 0% deeper to define the capabilities required to achieve each 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 manage tencies, we analyzed the specific capabilities enterprise risks, assessed by analyzing a series of required for each and compared the proficiency lev- questions els of Transformed organizations, which have IBM INSTITUTE FOR BUSINESS VALUE • MIT SLOAN MANAGEMENT REVIEW 9
  • 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, can Analytics tively and make informed decisions using analytics to be achieved through internal development and skills and guide day-to-day operations and future strategies. cross-training or external hiring and outsourcing in tools 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 techniques such as modeling, rational organizations) sible to embed analytical insights into the business deep computing, Capability: Solid information foundation so that actions can take place seamlessly and auto- simulation, data analytics and optimi- •Integrate data effectively — 74% versus 15% matically. Embedded algorithms automate zation to improve •Capture data effectively — 80% versus 29%. processes and optimize outcomes, freeing employ- efficiency and guide ees from routine tasks (for example, looking for strategies that address specific Capability: Standardized data management customer records to process a claim or repeatedly business 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 for FIGURE 8: Focused on Customers tions than their competitors. Which customers, for ongoing support. Without an established internal Transformed organi- example, are most likely to opt into high-margin competency, it’s harder for beginners to recruit zations are intensely focused on using services? What will be the impact of a delivery route needed talent. analytics to create change on customer satisfaction and on the compa- personalized relationships 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. 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 insights Competency #3: Data-oriented culture In a data- Capability: Strategy and operations guided by FIGURE 9: Analytics Competencies oriented culture, behaviors, practices and beliefs are insights Organizations must consistent with the principle that business decisions • uide future strategies with analytics — 72% G master three analyt- ics competencies to at every level are based on analysis of data. Leaders versus 15% achieve competitive within 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 is needed 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 U at 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 — I tems: A New Business Model Takes Flight). They 70% versus 34%. typically benefit from a top-down mandate, and leaders clearly articulate an expectation for analytical Each of these three competencies — information decision 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 cs times more likely to do this than Aspirational organi- sophistication. Mastery of these competencies is zations. how Transformed organizations manage, under- In these data-driven cultures, expectations are stand and act on data to create a competitive high. 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 Characteristics their conviction in the value of faster and more pre- of Transformed Organizations F cise decisions by using analytics to guide to day-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 know They are encouraged to challenge the status quo, and which actions have the biggest impact on follow 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 practices Transformed organizations act on the data: (per- distinguished them the most (see Figure 10). by a group of people cent 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. 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. work analysis to re-segment its portfolio, then Ability to analyze data 78% comparing segment profitability to create custom- Ability to capture and aggregate data ized solutions for use by call center employees. Only 77% Percentage of by providing data and insight to employees across Culture open to new ideas Transformed organizations the enterprise are organizations able to benefit from 77% rating themselves fresh 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 key Two Paths to Transformation 66% characteristics W 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 organizations we surveyed are at the Experienced level, somewhere between the most basic and the most advanced seg- these programs, the Specialized path takes organiza- FIGURE 10: Key Characteristics ments.10 We took a closer look at this large transitional tions through a wide range of efficiencies and cost of a Transformed segment to better understand those organizations (see savings. Predictive scenarios and simulations, for ex- Organization Transformed Figure 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 effective verge in their approach to analytics. We characterize impact individual units in terms of resource alloca- at each of the key the alternative paths as Specialized or Collaborative, tions, revenue growth and operating costs. We found characteristics, represented by based 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 core is developed within lines of business or specific part of the overall business strategy. functions using a wide array of analytical skills and techniques. Analytics is used to improve specific The Specialized path and the three competencies business 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 the is created, enabling insights to be developed and shared first to meet today’s newest data challenges: finding across 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 across proficiency 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 may The 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-solving revenue and increasing efficiency. They use their analyti- methodologies like Six Sigma. Analysis takes place cal prowess in advanced skills and techniques, such as where and when insights are needed, or by analytics predictive modeling, to focus on orchestrating mar- departments within the business lines. While this keting campaigns and finding the best match between approach serves individual business lines well, it individual 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. 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 B FIGURE 11: Paths collaboration for effectively integrating and sharing to Transformation Experienced organi- enterprise data is insufficient or lacking. y contrast, organizations taking the Col- zations take either a laborative path use analytics more 2 data-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 have centric path on their journey 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 competencies 14 MIT SLOAN MANAGEMENT REVIEW • IBM INSTITUTE FOR BUSINESS VALUE
  • 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 start an enterprise analytics platform. building a solid information foundation and ac- This cross-unit endeavor is enabled by a willing- quiring analytics capabilities simultaneously. In ness 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 structure ward 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 based Governance 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 analytical creation 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 departments 2 Analytics skills and tools are not fully devel- oped. Despite comparative weakness in analytics 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 toward dashboards 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 Levels ing 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 three to working with large quantities of data interact Each path poses different challenges. Organiza- competencies, which pinpoint areas for with information and make analytically based deci- tional issues may be particularly difficult on the improvement and sions. Specialized path, where solid leadership consensus investment. 3 A data-oriented culture has emerged. Organiza- tions on the Collaborative path integrate data from silos and then disseminate the insights across Observed competency levels Information management the enterprise. They are almost three times more Specialized Collaborative likely to use analytics to guide future strategies than Solid information foundation Specialized organizations, and twice as likely to rely Standardized data management practices on analytics for day-to-day operations. Insights available and accessible Collaborative organizations have cultures where Analysis skills and tools individuals are prepared to challenge current ideas Skills developed as a core discipline and practices on the basis of new information. To sup- Enabled by a robust set of tools port this culture, they are twice as likely to provide Delivers action-oriented insights insights to anyone in the organization who needs them. As a result, they’ve democratized the access to Data-oriented culture data and insights, empowering employees and execu- Fact-driven leadership tives alike. These organizations enjoy executive-level Analytics used as a strategic asset endorsement for the broad use of analytics to manage Strategy and operations guided by insights day-to-day operations and shape future strategies. Rudimentary Minimal Moderate Significant Mastery IBM INSTITUTE FOR BUSINESS VALUE • MIT SLOAN MANAGEMENT REVIEW 15