How to Compete on Analytics

Thomas Davenport describes the prerequisites and the five stages of analytic competitiveness

By Alison Bolen

Thomas Davenport's article "Competing on Analytics" was the best-selling Harvard Business Review reprint in 2006. To write it, Davenport,The President's Distinguished Professor in Management and Information Technology at Babson College, studied the characteristics of more than 50 leading organizations that have made a commitment to quantitative, fact-based analysis.

Why is the January 2006 Harvard Business Review article so popular? We recently asked the author and educator that question and discussed further insights from his research that will be detailed in his new book, Competing on Analytics: The New Science of Winning.

Here, Davenport, one of the 10 "masters of the new economy," according to CIO magazine, tells us what he's learned and what every company can take away from his research.
 
What are the three most important takeaways of your research?
THOMAS DAVENPORT: One - which might not be surprising to the average SAS reader - is that companies and organizations are finally doing something with all their data. After years and years of accumulating it and thinking they needed better transaction data, a lot of organizations are finally at the point where they say, "OK, we don't have any excuses left. We need to start managing our business differently on the basis of our data."

The second takeaway is that you can successfully compete on analytics. And that really is the primary point of the research. I don't think that anybody had made that point before: that analytics could be an integral part of your strategy.

The third important takeaway is that you need more than data and technology to be an analytic competitor. The real differentiating factors tend to be human factors, like leadership and passion and skills and relationships, which I think have largely been neglected in all other discussions on business intelligence throughout the years. The companies that have a lot of analytical sophistication also have a lot of smart people around. I don't think that's a coincidence.

What needs to be done before a company can begin to compete on analytics?
DAVENPORT: There are two major prerequisites. One is human, and the other is technical. The human prerequisite is that you need to have leaders who appreciate and understand what it means to compete on analytics, and want to do it. Second, having high-quality, integrated, clean data is something of a prerequisite. One of the reasons that companies are interested in this right now is because they finally have access to all this data from ERP systems, Web reports, point-of-sale systems and so on. Today the tools that SAS and others provide for integrating and cleaning data are better than ever before.

From there, what are the stages of competing on analytics?
DAVENPORT: I call stage one "analytically impaired," which means some fatal flaw is keeping the company from doing much with analytics at all. Either the executives just don't care or they have bad transaction data or they have lots and lots of data silos around the organization - something major keeping them from doing this at all.

Stage two is what we used to think of as a best practice in business intelligence, which is a lot of little pockets of analytical activity around the organization - not connected, no vision of what you could do with it at all. I sometimes call this the Aleutian Island strategy: There are a lot of little pieces of land but not much impact on the world because they're so disconnected and isolated.

Stage three is when somebody important to the organization's strategy decides there can be a different way to do it, and they create a vision. They think about what aspects of the business it might drive or enable, and they start assembling the capabilities to actually pull off some analytical competition.

Stage four companies have most of the pieces in place except for maybe the passion of leadership. They know where analytics might be relevant to the business. They know what human capabilities they need, and they've assembled those. They've bought a lot of SAS software. They have the right hardware architecture in place. It's a part of what they do, but it's not yet the primary focus for their competitive strategy.

Stage five is the full-bore analytical competitors that consciously and visibly use analytics as a primary factor in their competition and strategy. These organizations have made a conscious decision at the highest levels to compete on analytics. They have identified the key strategies and capabilities to be sup ported by analytics, and are actively using analytics to influence the ways they conduct business.

Why do you think this research is resonating so strongly with executives right now?
DAVENPORT: I think senior executives have realized that ultimately the only way they can compete effectively is to have better processes than anybody else. But to have better processes, you have to have better data and - ultimately - have analytics integrated within those processes.

Also, I think there's competitive pressure. In most industries, there's at least one company that's adopted this approach, and they're doing pretty well, so people are taking notice. Executives are saying, "Maybe we should be doing more of that as well."

Finally, we've kind of been in an IT-oriented slump over the last five years or so. There's been a period of IT defensiveness where everyone has been worrying about risk, Sarbanes-Oxley, Y2K and similar concerns. This research offers more of a positive message for IT and one that's consistent with companies starting to focus more on how to grow and how to innovate.

What should readers expect to learn from your new book that they haven't already learned from your article in the Harvard Business Review?
DAVENPORT: The book offers more of everything: more examples, more details, more guidelines about how to get there and what the journey is. There are chapters on the key resources. There's a whole chapter on the people side, a whole chapter on the technology. There's a lot more detail in the examples. So it's the same fundamental message, just a lot more of everything. A lot more insights as to how you actually do it as opposed to just describing the phenomenon, which I would argue was the purpose of the Harvard Business Review article.

Bio: Alison Bolen is editor-in-chief of sascom magazine.