Top 8 things transformed by analytics in 2009
What major areas are most influenced by business analytics right now?
Everywhere you look, in every industry, in every department of every organization, executives around the globe are rethinking what they do and how they do it. Everyone is on a transformational journey. Exactly what is changing? What industries and systems are most affected by analytics? The top eight areas I’ve seen changed by analytics are described here.
Banking was one of the first to be transformed by analytics
Myron Scholes and Fischer Black are widely credited for starting a math revolution on Wall Street in the mid-to-late 1970s. Their method of determining the value of derivatives (the Black-Scholes model) provided the conceptual framework for valuing options and precipitated a plethora of new financial products, from options to hedging strategies.
Prior to that, in 1956, two Stanford graduates developed the idea that replaced loan officers with computers.
The scientific system based on a small set of numbers replaced years of social observation that local bankers kept in their heads.
The rapid and widespread embrace of analytics in the financial service sector did not stop there. Today, banks and investment firms depend on analytics for everything from fraud detection to customer retention.
Healthcare is being transformed by analytics
Medical information used to be expensive and only available to healthcare professionals. The Internet has changed all that. Everyone following the exploding, expanding, evolving field of analytics talks about the impact the Internet has had. Today, not only is medical information available online; so too are healthcare analytics.
Researchers at Intel, for example, are building and testing devices that go far beyond today’s pulse-taking, pill-counting medical gizmos. One Intel prototype – the magic carpet – features webs of weight sensors placed under kitchen tiles that monitor and dispatch details on a patient’s changing weight. These sensors could alert caregivers if the person being monitored failed to walk into the kitchen one day.
Retail is on the cusp of being transformed
Immediately following World War II, retailers applied the logistics expertise developed during the war (delivering men and material to all points of the compass) to the targeted task of store operations. As a result, retailing was industrialized. The customers, subjected to long years of rationing, coupon books and doing without, were, as Stephen Baker cleverly phrased in The Numerati: “processed like card-carrying herd animals.”
Fast-forward 50 years and you find the game has changed. It is no longer enough to simply keep the shelves stocked. You have to stock the shelves with things customers want to buy. This requires mastering data mining. The grocery industry is where some of the most interesting analytical work is going on. This is because consumers buy food, constantly generating patterns to observe and analyze.
Logistics has been transformed
The logistics industry is perhaps the first vertical market to truly embrace and broadly deploy analytics. For example, the government of Singapore synchronizes the flow of passengers into the new airport, making sure that visitors from mainland China wouldn’t cross paths with travelers from Taiwan.
Or consider case studies from UPS to see how that company has optimized every step in package delivery processes. Using analytics, UPS has discovered the best methods for loading the trucks, fastening seatbelts with their left hand while turning the ignition key with their other hand. Package routing information is constantly tracked and planned for each delivery truck, allowing for any changes in the routes if required by the customer or by other interferences such as traffic or weather.
The military has been transformed
The first paragraph of US Secretary of Defense Robert M. Gates’ precedent-setting article in the January/February 2009 issue of Foreign Affairs establishes the importance of analytics to the Pentagon, "The defining principle of the Pentagon's new National Defense Strategy is balance. The United States cannot expect to eliminate national security risks through higher defense budgets, to do everything and buy everything. The Department of Defense must set priorities and consider inescapable tradeoffs and opportunity costs."
At the Defense Advanced Research Projects Agency, for example, social scientists are predictively assessing insurgent and terrorist patterns of behavior, which they’ve found are not random. Analytics also has a massive role to play in day-to-day mission planning. For example, helicopter routes are optimized over insurgent hotbeds in Iraq.
Science is transforming
In 2005, Microsoft assembled 30 of the world’s greatest scientists from 12 nationalities to examine the challenges facing scientists in the future, paying particular attention to the impact of computer science on the sciences. The study, called 2020 Science, concluded, "We are starting to give birth to ‘new kinds’ of science and possibly a new economic era of ‘science-based innovation’ that could create new kinds of high-tech sectors that we can barely imagine today, just as we could hardly have imagined today’s rapidly growing ‘genomics’ sector happening two decades ago."
Today, science may be giving way to “open science.” While openness has always been an integral part of science, with findings presented in journals and conferences, the open-science movement encourages scientists to share work-in-process long before they present results. This concept has the potential to speed discoveries, increase collaboration and transform the field in unforeseen ways.
Work itself is transforming
Executives are being required to know – at an ever-deepening level of granularity – exactly what is going on inside the
enterprise. This is difficult given the increasingly global and consolidated shape of the contemporary enterprise. Knowing what people do – heck, knowing if they are your people at all – is no small undertaking in today’s rapidly changing workplace.
Take IBM for example. Stephen Baker in The Numerati introduces us to Samer Takriti at the Thomas J. Watson Research Laboratory. Takriti “leads a team building mathematical models of thousands of IBM’s tech consultants. The idea, he said, was to piece together inventories of all of their skills and then to calculate, mathematically, how best to deploy them.”
People as math! People – YOU and ME – as mathematical equations that can be modeled and simulated. We are the numbers!
Innovation is transforming
As an anthropologist charged with studying the individual and aggregate behaviors of the multiple tribes that make up the modern enterprise, I am obligated to track changes, trends and anomalies in language. Two words you will rarely see in close association are “analysis” and “innovation.” We need to change that. We need to analyze innovation.
We need to use our superior understanding of processes to optimize innovation within the enterprise. The lack of precision with which most enterprises discuss innovation – a concept critical to success – is both surprising and unsustainable.
Digital technologies have completely transformed the opportunities and the opportunity costs to explore and test ideas. Experimentation – the systematic analysis associated with turning what seems like a good idea into a testable hypothesis – is arguably one of the highest-payback exercises in the contemporary organization.
How will analytics transform you?
Change is all around us. If you dissect this change, you will find analytics as a key causal element. If you want to understand the transformations taking place, you will have to understand analytics. If you want to act efficaciously on these changes, you will have to master analytics.
Thornton May is Executive Director and Dean at the IT Leadership Academy and one of the premier visionaries in the IT industry. www.itleadershipacademy.com