Customers Live In the Present

Ironically, privacy laws increase demand for predictive analytics.

David StodderIn the battle of the tenses, the future is winning. "The median ROI [return on investment] for the projects that incorporated predictive technologies was 145 percent," writes Henry D. Morris in a new IDC Financial Impact Study of 43 North American and European companies. The median ROI for projects that did not was 89 percent. "The main benefits in predictive projects were attributable to business process enhancement," explains Morris. The IDC study confirms what we uncovered during interviews with Churchill Downs and Harrah's Entertainment. Data mining, cluster analysis, pattern recognition and other techniques that make up predictive analytics bring data smarts to bear on common operational problems, such how to detect fraud or improve customer profitability through more precise segmentation.

The report of such enormous benefits is nothing but a dark cloud on the horizon for privacy activists, who already fear what organizations are doing with the "data shadow" we're all accumulating in databases that record our credit-card purchases, use of medical services, simultaneous acquisition of beer and diapers and endless other trivial and nontrivial activities. Public concerns are giving rise to a healthy book-publishing segment, most recently augmented by Robert O'Harrow's No Place to Hide: Behind the Scenes of Our Emerging Surveillance Society (Free Press, 2005). Focusing on the government's voracious appetite for advanced analytics to identify terrorists and criminals, O'Harrow coins an expression we'll hear often on the Sunday talk shows: the "security-industrial complex." He identifies this as the "marriage of private data and technology companies and government anti-terror initiatives."

The emerging national intelligence infrastructure that is the byproduct of this marriage deserves public scrutiny. It will be difficult; just as in private industry, the most successful cases are the ones nobody wants to talk about. However, "do not call" registries and consumer privacy regulations such as HIPAA already constrain how businesses can collect, share and use data. More regulation is on the way. Given that the government's "competitive intelligence" may save large populations from catastrophe, cool heads must prevail as we consider how best to reign in national intelligence gathering and sharing. That won't be easy amid the tussle of partisanship, lobbying and campaign financing that dominates Washington, D.C.

The irony is that as regulatory barriers multiply, the need for predictive analytics becomes more urgent. So does demand for customer data integration and business rules management solutions to inform diverse applications and services about the conditions under which customers can be called, among other things. Companies must know more about whom they are contacting so that the conversation has a higher chance of being mutually beneficial and legal. This goes particularly for current customers, who prefer to do business with companies that take their interests seriously. The precision that predictive analytics can deliver is exactly what businesses need to move away from the mass marketing of the past.

Predictive analytics draw value from a stack of infrastructure that includes storage, databases, data warehousing, integration and BI tools. In this issue, we focus on CRM's renewed strength, which it owes primarily to this stack. CRM by itself is just that: CRM by itself. Married to enterprise engines of data intelligence, CRM becomes a focal point for workforce performance metrics, cost-benefit mathematics and rules of conduct with customers.

CRM's new constitution enables businesses to beneficially impact the tense that matters most: the here and now. This is where real customers live. The rest is mere shadow.

David Stodder is the Editorial Director and Editor in Chief of Intelligent Enterprise. Write to him at [email protected].