By Thomas H. Davenport, Jeanne G. Harris and Robert F. Morison
© 2009 Harvard Business School Press (January 2010)
For more details on the book, visit our Analytics at Work microsite.
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But it is not just financial services companies that have failed to analyze shifting market decisions and consider risks appropriately. It seems there is plenty of blame to go around. But an analysis of recent events shows that if business executives are going to make better decisions, they are going to have to become more analytical.
Analytics at Work explains how organizations can use data and analysis to make better decisions in their businesses and organizations.
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For too long, managers have relied on their intuition to make decisions. For too long it has been the prerogative of senior executives to rely on their “golden guts,” their experience and their unaided judgment to make important calls.
While many intuitive decisions have undoubtedly worked out well, they often go astray. Sometimes they are disastrous. Mergers and acquisitions that seem intuitively appealing don’t yield value for shareholders. Banks make credit and risk decisions on the intuition that housing prices will always rise. Governments make war on other countries based on the intuition that they possess weapons of mass destruction, or will otherwise be threatening. We know how many of those decisions have turned out.
Most companies today have massive amounts of data at their disposal. The data may come from transaction-oriented applications such as ERP (enterprise resource planning) systems from software vendors such as SAP and Oracle, scanner data in retail environments, customer loyalty programs of various types, financial transactions or clickstream data from customer Web activity. But what do they do with it? Not enough.
Companies in both sophisticated and developing economies collect and store a lot of data, but they don’t use it effectively. They have information and they make decisions, but they don’t connect information and decision—making frequently enough.
If the early years of the information age were focused on automating business processes with transactions, the coming years will, we strongly believe, concentrate on making better decisions through information and analysis. This will mean not only gathering the information and making it available for decisions, but developing a closer linkage between information and decisions.
In some cases this will result in automated analytical decisions that ensure that information is applied to the decision process. In other cases the information will be used because the decision process will be more structured, with greater accountability and clarity on where information is to be applied in the process.
Analytical tools and methods can be employed anywhere in a business when the scope is limited and the impact is local. When the goal is to support one-time decisions, improve management information, or fine-tune operational procedures, management can get people on board by telling them to “just do it.”
But Analytics at Work is for when you’re after bigger game. It’s for when the ambition is to make a big difference–in business performance, competitiveness and marketplace differentiation. The decisions supported by analytics are recurring and strategic. The scope of such initiatives is often cross-functional, the impact is broad and it takes commitment across the organization to succeed.
What does it take to get any significant business analytics initiative underway? Five factors are required, which we group under the acronym DELTA (which, helpfully, is the Greek letter that signifies “change” in an equation):
- D for accessible, high-quality data
- E for an enterprise orientation
- L for analytical leadership
- T for strategic targets
- A for analytical talent
Next, we describe the additional elements necessary to institutionalize and sustain analytical orientation and processes across an enterprise. We conclude with a discussion of the analytical journey and how analytics are transforming business.