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6/16/2008
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Predictive Analytics: Peer into the BI Crystal Ball

A new Aberdeen Group survey finds that there's no silver bullet in predictive analytic success. Here's a sampling of the approaches best-in-class firms are using to spot trends, understand customers, and proactively tune products, pricing and positioning.

Companies are increasingly recognizing the value of using data and information to align their current actions with their future objectives. Organizations are under pressure to predict the future more accurately than ever before. They must be more proactive within shifting market dynamics and they must improve performance through a better understanding of customer behaviors and attitudes, assessment of risk, improvement of process efficiencies, and planning for product development, pricing, and market positioning.

In April and May of 2008, Aberdeen Group investigated predictive analytic capabilities through a survey research program. The study, "Predictive Analysts: The BI Crystal Ball," which is based on survey responses from more than 280 organizations, uncovers the strategies, actions, technology investments, and services that "Best-in-Class" (BIC) companies are using to improve performance through predictive knowledge about their business.

This article presents an executive summary of the study's insights on expected predictive analytic benefits, BIC strategies, and organizational performance in five categories: process, organization, knowledge management, technology, and performance management. The study's key finding is that Best-in-Class companies are not focusing on any one method or technology specifically, but are taking multiple approaches to becoming more predictive and improving performance. Aberdeen's full report is available as a free download here (registration required).

The Benefits of Prediction

When asked to identify the top-three expected business benefits to be gained from predictive analytics capabilities, survey respondents generally agreed on three big opportunities: 1. The ability to cross-sell and up-sell customers during an interaction rather than waiting for the next interaction; 2. The ability to detect sales, marketing and other opportunities as they occur as opposed to "following the market"; 3. Improved ability to detect harmful events before they affect the business.

Top Five Business Pressures Driving Predictive Analytics Adoption
Top Five Business Pressures Driving Predictive Analytics Adoption
(click image for larger view)
Better customer interactions and the resulting benefits of achieving gains in customer loyalty and retention are among the top drivers for companies that are currently or planning to invest in predictive analytic capabilities (see chart at right). Interestingly, while 40 percent of respondents see the “improved ability to detect harmful events before they affect the company” as a top-three expected business benefit of predictive analytics, only 19 percent also view this as a top business pressure to be dealt with. This indicates a potential disconnect between what companies are expecting from investments in predictive capabilities and the actual business pressures driving the initiatives in the first place.

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