The New Quantitative Era Creating Successful Business Change with Analytics

Tom Davenport

Babson College/International Institute for Analytics

Data Driven Business Week

March 15, 2011

The New Quantitative Era

• New management

• New decisions

• New methods

• New relationships

• New skills

• New architectures

• New cultures

Under New Management

Web analytics+

Marketing +

Actuarial +

Predictive + Supply chain/OR

HR analytics+

=

Enterprise Analytics!

New Decision Approaches

Decide on important decisions

Make the decisions better

Systematic Review

Institution- alization

Most Common Decision

Interventions

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Type of Intervention

Average number mentioned per decision: 5.3!

Multiple Interventions:

Pricing Decisions at Stanley

• Pricing one of four key decision domains

• Pricing CoE in 2003

• Adopted new pricing methodologies

• New pricing optimization software

• Regular “Gross Margin Calls”

• Offshore group for competitive pricing

• Automated pricing for promotions

• Center spreads innovations

• Result: gross margin from 34% to over 40% in

six years

Closing the Decision Loop:

Systematic Review

6 | 2010 © All Rights Reserved.

►Tom Brady: “a student of error”

►The Army’s “After Action Review”

►Providence Regional Medical Center in Everett, Washington

► “The hospital set up an independent panel to investigate medical mistakes, disclose its findings to the patient, and voluntarily offer a financial award if warranted. As a result, Providence has only two malpractice suits pending, compared with an average of 12 to 14 at other hospitals of similar size.” (Business Week, Jan. 7, 2010)

Institutionalized Decision Processes at

Chevron

• Decision analysis group gets attention by

recommending against refinery project

• DA group leads decision workshops

• Builds economic/analytical models

• Projects >$100M require decision analysis

• Ex post facto assessment of decision quality

required for large projects

• DA group has trained more than 2500 decision-

makers, and has certified 10,000 (including the CEO)

through online training

• “Culture of honesty and self-examination”

New Methods: Agile Analytics

• Old method:

– get requirements

– start gathering data and coding

– come back 9 months later with

proposed solution

– find out it’s not what the decision-

maker wanted

• New method:

– A series of user-driven deliverables,

with frequent outputs and check-ins

Agile Analytics at Cisco

1. What tool? 2. Better forecast accuracy

3. Tune models 4. Scale the models

5. Formal signoff

6. Automate models

7. Testing

8. Go live

Effective Analytics Are About

Relationships

• Analytics people have to work

closely with:

– IT organizations

– Business decision-makers

– Outside ecosystem members

• Communications are critical, and are rarely taught in schools!

• Need skill and responsibility overlaps

“Decision Engineering” at Intel

• Karl Kempf: “It’s not about the math”

• Two relationship goals:

– Get the business person to have a

little interest and respect for the math

person

– Get the math person to have a big

interest and a lot of respect for the

business person

• The math person must understand the

intuition and speak the language of the

business person

New Skills

What New Skills?

“Tell a story with

data”

“Help frame the decision”

“Don’t just identify the problem, fix it!”

“Stand firm when necessary”

New Analytical

Architectures

Old BI

Analyst Sandbox

Embedded Analytics

Analytical Apps

Professional Analysts

Business Users

Multi- Purpose

Single- Purpose

Application Breadth

Primary Users

Why Analytical Apps for

Business Users?

• BI and analytics packages too

difficult to use

• Large data warehouses too

hard to navigate

• Shift to mobile devices

• Many decisions needing

analytical support

• Personalize analysis to the

industry and role

Some Actual

Analytical Apps

• Nursing productivity in health care

• Field sales hiring analysis in

pharma

• Truck loading analysis in retail

• Mortgage portfolio analysis in

banking

• Financial planning and modeling in

government

New Analytical Cultures

Facts, evidence, analysis as the primary way of deciding

Pervasive “test and learn” emphasis where there aren’t facts

Free pass for pushbacks—”Where’s your data?”

Never resting on your analytical laurels

Keep in Mind…

►A new model for analytics is emerging

► It will require new management approaches and new ecosystems

►Analytical leaders at every level can have an impact

►Ultimately it’s about making better decisions

►This is not business as usual—there is an historic opportunity to transform your industry and function!