Global CIO: Analytics Will Take Over Your Company
Resistance is futile, as fact-based decision-making trumps gut feel.
Did you read the Michael Lewis book "Moneyball"? Of course you did...and you were impressed with how using numbers and finding relationships allowed a tier-two city (Oakland) to have a tier-one Major League Baseball team, a team that was often in contention with a below-average payroll.
That same thinking is changing the business world. It's the murky world of business analytics, and it's going to take over your company and industry. Get ready.
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Who's going to be using this software? Who isn't. The Pricing people want to know yield management, which for Marriott means should it charge you more for your room if you aren't invading the mini bar. The Loyalty people are trying to find out which of your customers will yield the highest lifetime value. The HR people want to identify which job candidates are going to be outperformers...and will stay with your company. The Logistics people want to learn new patterns of suppliers.
It ain't going to stop. Progressive Insurance found that if it looked at people's credit scores, it could find who it should and should not insure--the higher the score, the less likely the potential customer would have a costly fender bender. Just the way that Harrah's can know that if you haven't shown up at one of its casinos in two months, it's better off baiting you with $50 in chips than a free room.
Years ago we called this business intelligence. You have been accumulating data--reams of data--and what have you really done with it? Mostly nothing. But that's changing.
Companies are beginning to compete using predictive analytics. Can I estimate what pricing can fill my airplane? Can I find which route can get my delivery trucks back home faster? Faster with less fuel? At what time? On which days?
Companies are actually sharing some of these geek findings, the idea being that they benefit if their competitors aren't so stupid. Max Hopper, a recently deceased friend of mine and the architect of the American Airlines Sabre reservation system, once said: "In the airline industry, we are slaves to our dumbest competitor"--so having smarter competitors means they aren't pricing incorrectly and forcing you to follow them.
Companies are finding that they can improve their profitability by a series of "micro-decisions" that boost their multiple. The main reason Stanley Works was able to acquire Black & Decker, instead of the other way around, was that Stanley had built an impressive cadre of analytics that made it more profitable. And companies are finding that if they can increase earnings, they can carry more debt, which makes them an acquirer, not an acquiree.