Harnessing Quant Power

A recent book by Thomas H. Davenport and Jinho Kim advises companies on how to tap into the power of big data and quantitative analytics.

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“Words have become data; the physical states of our machinery have become data; our physical locations have become data; and even our interactions with each other have become data,” writes journalist Alden M. Hayashi. “Indeed, we are awash in information, but what does it all mean?”

In “Thriving in a Big Data World” in the Winter 2014 issue of MIT Sloan Management Review, Hayashi reviews 2013’s Keeping Up with the Quants: Your Guide to Understanding and Using Analytics (Harvard Business School Publishing) to see how a pair of well-known academics are answering that question.

Written by Thomas H. Davenport (Babson College) and Jinho Kim (Korea National Defense University), Keeping Up with the Quants “is geared toward executives who are not themselves analytics experts but whose jobs increasingly require them to understand and deal with those who have such expertise, both inside and outside their organizations,” writes Hayashi.

The book outlines a framework for how to think like a quantitative analyst (“quant” is shorthand for the analysts who use stats to help solve business puzzles). The framework has three steps: “framing the problem,” “solving the problem” and “communicating and acting on results.”

Framing the problem. “This step might at first seem simple and straightforward, but it is often neither,” notes Hayashi. “Take, for example, the company that wants to learn the success rate of its direct mail campaign, so it asks, How many people will buy the product after receiving the mailing? Instead, the question it should ask is this: How many people who wouldn’t have bought the product will now buy it after receiving the mailing?” Framing the problem, say Davenport and Kim, must involve many stakeholders, to get both their input and their buy-in.

Solving the problem. This step involves modeling, data collection and data analysis. One example: the insurance company Progressive, which “gained a competitive edge over rivals by using FICO credit scores and other data to assess the likelihood that a particular person would be involved in a car accident in the future.

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