SAS Davenport

Analytics at Work
Smarter Decisions, Better Results

Tom Davenport
Babson College

SAS Institute Chile
21 October 2010
Thomas H. Davenport Analytics at Work
The Worst of Times for Decisions?
2 | 2010 All Rights Reserved.

Decision processes and outcomes are often
bad!
The body of knowledge on what works is often ignored
Decisions take too long, get revisited, involve too many or few
Many bad outcomes in the public and private sectors
Little measurement/progress/accountability
Weak ties between
data/information/knowledge inputs and
decisions
If were not getting better at decision-making,
much information work is called into question
Data warehousing, analytics, reports, ERP, knowledge
management, etc.
Thomas H. Davenport Analytics at Work 3 | 2010 All Rights Reserved.
The Best of Times for Decisions?

Analytics and algorithms
Intuition and the subconscious
The wisdom of crowds
Behavioral economics and nudges
Neurobiology
Decision automation
Etc.

Analytical Culture
And Business
Processes

Analytics at WorkThe Big Picture
Data
Enterprise
Leadership
Targets
Analysts .

Better
Decisions!

Systematic Review
Analytical Capability Organizational Context Desired Result
Thomas H. Davenport Analytics at Work 5 5
What Are Analytics?
Optimization
Predictive Modeling/
Forecasting
Randomized Testing
Statistical analysis
Alerts
Query/drill down
Ad hoc reports
Standard Reports
Whats the best that can happen?
What will happen next?
What happens if we try this?
Why is this happening?
What actions are needed?
What exactly is the problem?
How many, how often, where?
What happened?
Descriptive
Analytics
(the what)
Degree
of Intelligence
Predictive and
Prescriptive
Analytics
(the so what)
6
Stage 5
Analytical
Competitors
Stage 4
Analytical Companies
Stage 3
Analytical Aspirations
Stage 2
Localized Analytics
Stage 1
Analytically Impaired
Levels of Analytical Capability
Thomas H. Davenport Analytics at Work 7
Analytical Competitors
Old Hands, Turnarounds, Born Analytical
Marriott Revenue management
UPS Operations and logistics, then customer
Progressive risk, pricing
Harrahs Loyalty and service
Tesco Loyalty and internet groceries
MCI/Worldcom Cost identification and reduction
Capital One information-based strategy
Google page rank, advertising, HR
Netflix customer preference algorithms
Thomas H. Davenport Analytics at Work 8 8
Analytical Competitors or Companies
Across Industries
Hospitality/ Entertainment
Harrahs Entertainment
Marriott International
New England Patriots
Boston Red Sox
AC Milan
Financial Services
BancoIta
Banco de Chile
Banco Santander
Capital One
CMR Falabella
Pharmaceuticals
Astra Zeneca
Merck
Vertex
Industrial Products
CEMEX
John Deere & Company
Retail
Falabella
La Polar
Tesco
Wal-Mart
Transport
TurBus
FedEx
United Parcel Service
Telecommunications
EntelPCS
Movistar/Telefnica
Rogers Telecom
Consumer Products
E&J Gallo
Mars
Procter & Gamble
eCommerce
Amazon
Ebay
Expedia
The Analytical DELTA
Data . . . . . . . . breadth, integration, quality
Enterprise . . . . . . . .approach to managing analytics
Leadership . . . . . . . . . . . . passion and commitment
Targets . . . . . . . . . . . first deep, then broad
Analysts . . . . . professionals and amateurs
DELTA = change
Data
The prerequisite for everything analytical
Clean, common, integrated
Accessible in a warehouse
Measuring something new and important
New Metrics / Data
Wine Chemistry Smile Frequency Optimized revenue
Enterprise
If youre competing on analytics, it doesnt make
sense to manage them locally
No fiefdoms of data
Avoiding spreadmartsanalytical duct tape
Some level of centralized expertise for hard-core
analytics
Firms may also need to upgrade hardware and
infrastructure
Leadership
Gary Loveman at Harrahs
Do we think, or do we know?
Three ways to get fired
Barry Beracha at Sara Lee
In God we trust, all others bring data
Jeff Bezos at Amazon
We never throw away data

Our CEO is a real
data dog
Sara Lee
executive
The Great Divide
Is your senior
management
team
committed?
Full steam ahead!
Hire the people
Build the systems
Create the processes
Prove the value!
Run a pilot
Measure the benefit
Try to spread it
Targets
Pick a major strategic target, with a minor or two
TD Bank= Customer service and its impact
Harrahs = Loyalty + Service
Google = Page rank/advertising + HR
Can also have two primary user group targets
Wal-Mart = Category managers + Suppliers
Owens & Minor = Supply chain managers + hospitals
Analysts
5-10%

Analytical ProfessionalsOwn/Rent
Can create new algorithms
Analytical Semi-ProfessionalsOwn/Rent
Can use visual and basic statistical tools,
create simple models
Analytical Amateurs--Own
Can use spreadsheets, use
analytical transactions
15-20%
70-80%
* percentages will vary based upon industry and strategy
1%
Analytical Champions--Own
Lead analytical initiatives
The Context: Analytical Culture
17 |
Facts, evidence, analysis as the primary
way of deciding
Pervasive test and learn emphasis where
there arent facts
Free pass for pushbacksWheres your
data?
Still room for intuition based on experience
A focus on action after analysis
Never resting on your analytical laurels
The Context: Analytical Processes
18
Source: SAP AG 2006
Receives ASN
Releases ASN
Delivery
Execution
Update
Inventory Accounting
Update
Inventory
Delivery Performance
How effective is our fulfillment
process?
CLTV
Does this order justify extra efforts?
Inventory Forecast
Will this be back in inventory?
Defection Risk
What is the customer status?
Global ATP
Check
Request
Global ATP
Creation
Sales Order
Fulfillment Request
Creation
Purchase Order
Creation &
Release Delivery
Request
Returns per Customer
What is the customer history?
Better Decisions Are the Goal of Analytics
Reports Scorecards
Portals
Drill-down
Decisions!
Systematically Making Decisions Better
Identify Inventory
Intervene Institutionalize
Better
Decisions
Most Common Decision Interventions
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M
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Type of I ntervention
Thomas H. Davenport Analytics at Work 22
Multiple Interventions:
Better Pricing Decisions at Stanley
Pricing identified as one of four key decision domains by CIO
Pricing Center of Excellence established in 2003
Adopted several difference pricing methodologies
Implemented new pricing optimization software
Regular Gross Margin Calls for senior managers
Offshore capability gathers competitive pricing data
Some automated pricing systems, e.g., for promotions
Center spreads innovations across Stanley
Result: gross margin from 34% to over 40% in six years

Keep in Mind

Five levels, five factors for building
analytical capability
Data and leadership are the most
important prerequisites
Make sure your targets are strategic
Tie all your BI and analytics work to
decisions
This is not business as usualthere is a
historic opportunity to transform your
industry!

SAS Davenport

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Analytics at Work

Smarter Decisions, Better Results

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