Book Review: Competing on Analytics

I recently read an interesting book that resonates with the soul of Indus Insights – “Competing on Analytics: The New Science of Winning” by Tom Davenport and Jeanne Harris. The essence of the book is that analytics is the cornerstone of sustainable competitive advantage in today’s business environment. The authors foresee fact-based decision making playing a central role in future business competition; and I couldn’t agree more.

Overall, the book is divided into two parts – one addresses the “Who”, “What”, and “Why” and one discusses the “How” of analytical competition. Part One exemplifies the nature of analytical competition and illustrates how it is key to business success in today’s economies. The authors persuasively put forth their argument through existing research, success stories and the results of their own surveys. Part Two highlights the ingredients and recipe for developing analytic sophistication. Picking on themes from the book, this article is a glimpse inside the toolkit of an organization that embraces analytics:

An Enterprise Approach - The authors champion the use of Analytics through success stories of Capital One, Harrah’s, Marriott, Progressive Insurance, Amazon, Vertex, Cemex, Netflix, UPS, etc. Rigorous quantitative techniques pervade all business functions within these organizations, including Human Resources and Marketing. As referenced in “Good to Great”, the power of "breakthrough results come about by a series of good decisions, diligently executed and accumulated on top of another".

The Right People – You are your people. The culture of analytical thinking has to be inculcated in employees across all rungs of the corporate ladder. Executive sponsorship is key to spreading analytical orientations throughout the company. Senior executives need to be passionate about fact-based decision making and lead by example; Managers need to emphasize the value of analytical problem solving by basing decisions on hard facts; and Talented employees with strong analytical skills are required to drive the development of analytical programs.

Core Competency – Large US Airlines were “pioneers in adopting analytical approaches”, but were unable to overcome other hurdles, such as obsolete business models. An organization cannot outperform its peers based solely on its systematic and extensive application of analytics. The analytics have to be in support of a strategic, distinctive capability – because without one, there is no clear activity for analytics to support.

Technology – Competing on Analytics is often seen synonymous with competing on technology. Now that data has become such a commodity, the frontier for using data has shifted dramatically. Now, having data to analyze is a start, but it needs to be harnessed through business intelligence software, computing hardware and reliable data warehousing tools to squeeze out more insights.

The book makes a compelling argument for adopting fact-based decision making; but more discussion on some pitfalls would have been welcome:

1. Managers must keep sight of the tradeoff between the cost of gathering evidence (such as time to market) and the evidence's importance to the decision making process.
2. The value of “Gut Feel” must not be undermined in light of the broad generalizations or concrete examples accompanying the book. Analytic strategy is not a fact-versus-intuition debate. Rather, leaders need to consult their experience to understand the evidence in all its forms.

Most of the supporting anecdotal evidence is that of large companies. However, mid-sized, small-sized and entrepreneurial businesses can also leverage analytics to drive business strategies. Of course, building in-house capabilities is a demanding initiative that comes with high fixed costs and can distract from key priorities. This is why business leaders are increasingly partnering with consulting firms to address the challenge.

Some companies have built their very businesses on their ability to collect, analyze and act on data. Every company can learn from what these firms do. – Thomas H. Davenport