The Knowledge Exchange / Business Analytics / The impact of business analytics on performance and profitability

The impact of business analytics on performance and profitability

With the rising complexity of global busi­ness, gut decisions and hunches no longer suffice. Successful responses to threats and opportunities now depend on rapid and smart execution. Let me state it plainly: Business analytics is the key to achieving these challenging objectives. Our world generated more data in 2009 than in the previous recorded history of mankind. A good deal of this data can be converted into useful information and competitive advantage – by applying the right analytics.

The answers are out there – in the data we capture and store.

Right now, that capture and storage is costing huge amounts of money. Analytics converts those tremendous costs into invaluable assets.
Far more than mere reporting or dash­boards or scorecards, business analytics is a discipline that digs deeper into these vastly larger sets of data to uncover the most important insights. It can mean “so­cial network analysis” to study behaviors and relationships on multiple levels to uncover fraud. It can involve in-database analytics to optimize retail assortments or pricing. It can mean analyzing portfo­lios to manage risk positions.

For example, with the right analytics, re­tailers can predict how many red sweat­ers they need in stock and how many smalls or larges they need based on local demographics. They can also determine optimal prices for hundreds of thousands of products at multiple locations. Pricing used to be an art. Now, giant retailers can zero in on the optimal price for all their SKUs and stores. Banks can determine the optimal amount of cash to keep in ATMs. Automakers can predict how many spare parts they’ll need on hand – and when.

Harrah’s, a global casino operator, uses analytics to optimize its marketing and customer loyalty programs. Thanks largely to its use of analytics, Harrah’s ranks No. 1 in profits as a percentage of revenues and has increased its share of wallet from 36 percent in 1998 to 45 percent today.

In the Philippines, the Bureau of Internal Revenue used analytics to recoup $114 million in unpaid value-added taxes, a 400 percent ROI in the first year. In Swe­den, they are using analytics to reduce the number of patients who die from clini­cal errors. In addition to reducing unnec­essary deaths, they expect to save $10 billion in health care costs at the national level through their analytic efforts.

1-800-FLOWERS.COM changes prices and offerings on its Web site, sometimes hourly, because it uses analytics. It also uses analytic software to target print and online promotions with greater accuracy. And it uses analytics to optimize its mar­keting, shipping, distribution and manu­facturing operations. The result: a $50 million reduction in costs last year.

Here’s my advice: Take the time to learn about analytics. Take the time to discover how analytics can provide an objective view of your world, not only as it appears today but also how it’s likely to appear tomorrow. I’m not talking about gazing into a crystal ball. I’m talking about the capability of competitive organizations to develop and implement strategies today that are based on a careful analysis of their likely outcomes in the future.

And here’s my crystal-ball view: The abil­ity to predict future business trends with reasonable accuracy will be one of the crucial competitive advantages of this new decade. And you won’t be able to do that without analytics.

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