Get Analytics Right Gain Competitive Edge

March 1, 2007

BY MICHAEL KRAUSS

My head is swimming with hope and optimism. Numbers geeks have finally arrived. You and your company can win in the marketplace—provided you pay attention to analytics.

That’s the message in Competing on Analytics The New Science of Winning by Thomas Davenport and Jeanne Harris. The book is a must-read for tech marketers, and marketers of all stripes for that matter.

Davenport and Harris aren’t saying creativity and intuition lack value. They simply believe that the differential factor--the source of the breakthrough advantage--is found in the numbers and the analysis. Companies that get analytics right are going to win. Those that don’t will be disadvantaged.

They point to Amazon, Barclays, Cemex, Capital One, Harrah’s, Procter & Gamble Progressive Insurance, Netflix, Wachovia and even the Boston Red Sox to make their point.

“For years there’s been a divide in marketing between the creative folks, the qualitative folks and the quantitative folks,” says Harris, Executive Research Fellow at Accenture’s Institute for High Performance Business, based in Chicago. “Increasingly if you look at the really successful—the high-performance businesses—they are much more analytical.”

“We went out and looked at organizations like Capital One and Harrah’s that were founded with analytics as a driving principle or had gone through a major turnaround based on analytics,” adds Davenport, President’s Distinguished Professor of Information Technology and Management at Babson College in Babson Park, Mass., and a long-established thinker on the power of technology.

What Davenport found was striking: Analytics can lead to competitive advantage. Analytics are being used to identify the best customers for credit card marketing at McLean, Va.-based Capital One Services Inc. Fact-based experimentation is rampant. “They do about 60,000 experiments a year looking at what different marketing approaches are most likely to succeed,” Davenport says.

Las Vegas-based Harrah’s Entertainment Inc., under the leadership of former Harvard Business School professor Gary Loveman, has been transformed using analytics to build customer loyalty. Even the advertising industry is getting the message. Adds Davenport, “WPP chief Martin Sorrel says econometrics is the biggest thing in advertising these days.”

“What could be more boring than cement mixing?” asks Harris. “Yet (Monterrey, Mexico-based) Cemex gets a premium on their products and their stock price because they’re able to use analytics to guarantee a precise delivery window. They changed the dialogue from being about a commodity product to being about how precisely could they deliver the cement.”

Competing and winning on analytics is not something one department can do. The pricing unit at AT&T or the market research group at P&G can’t create change alone. You can’t cluster all your geeks in one place. Competing on analytics requires the entire organization to embrace analytics with leadership from senior management.

“It can’t just come from a particular function,” Davenport says. “It’s got to be something the entire senior management team embraces, probably led by the CEO. That’s one reason why Harrah’s has been so incredibly successful. Without Gary Loveman, it never would have happened. At Capital One, Richard Fairbank and Nigel Morris are both incredibly analytical. Jeff Bezos at Amazon is a hugely analytical guy.”

Davenport and Harris say technology is enabling the opportunity to compete on analytics. They say improvements in software and hardware and the availability of data from multiple sources make analytical advantage possible. “There are data warehouses in corporations, really high-quality transaction data coming from ERP systems and point-of-sale systems and now from Web data,” Davenport says.

He points to the rise of Internet technology as a boon for competing on analytics. “It’s the only really (individually) addressable medium from an advertising standpoint, which is why all the dollars are flowing to the Internet rather than to television and print,” Davenport says. “It’s quite easy to analyze Web metrics and know where your customer came from before they visited your site, and exactly how much time they spend on your site. It’s just so incredibly trackable. That’s led to a huge amount of analytical activity.”

“All of the real successful e-commerce organizations are analytical: Google, Yahoo!, Amazon,” Davenport points out.

“Netflix is a very analytical company,” adds Davenport, who credits founder Reed Hastings. “Hastings was a math teacher in the Peace Corps. At Netflix, he brought mathematical approaches and hired quant jocks to run marketing. They wouldn’t dream of starting a new distribution center without doing a lot of analytics.”

The Los Gatos, Calif.-based Internet movie rental company recently announced they are starting online movie downloads. “Not every Netflix customer has that capability. It’s only a sample,” Davenport observes. “They do panels of customers and try out everything on a relatively small scale before they spread it out broadly.”

Davenport praises Netflix for creating a proprietary analytical algorithm that recommends movies to customers. “They have fairly good data suggesting you’ll like their choices better than your own,” he says. Netflix even announced a contest to keep them ahead of the pack. “If you can improve their movie preference algorithm by 10% they’ll give you a million bucks,” says Davenport, who urges a visit to the Netflix site for more details.

What should you do if you’re a CMO less skilled in analytic techniques?

“You better find some people who can explore the quantitative dimension of marketing for you,” cautions Davenport, who thinks it would be wise to go back to school and learn quantitative approaches.

Harrah’s CEO Loveman addresses the gap in CEO skills in the foreword to Competing on Analytics.

“Decision-making, especially at high levels, not only fails to demand rigor and dispassionate analysis, but also champions the opposite as the scarce talent that identifies CEOs and visionaries from otherwise smart but less inspired people,” Loveman writes.

Loveman is decidedly oblique with his quote. Many CEOs might miss his point, but the message is clear: Boards hire CEOs they think are visionaries and fail to seek fact-based leaders who are dispassionate, relying instead on reason and analysis.

Davenport believes in the power of information technology to create business advantage. He was clearly put off when author Nicholas Carr wrote his famous 2003 Harvard Business Review article, “IT Doesn’t Matter,” questioning the value of corporate investments in information technology.

“In 2007, it is really all about how you use that information that is going to give you a competitive advantage,” Harris says.

“This is sort of the rebirth of positive thinking about what information and technology can do for your business,” Davenport says.
They’re right, and CEOs and CMOs who want to succeed will do well to heed their call, unless they want to be passed by the geek in the fast lane.

Michael Krauss is president of Market Strategy Group, based in Chicago, and can be reached at Michael.Krauss@Mkt-strat.com or news@ama.org.