Sustaining an Analytics Advantage
The use of analytics is increasingly commonplace in business — and as a result, it’s hard to gain a lasting competitive advantage from analytics. Nonetheless, there are companies that have done just that over time.
As far back as the 1990s, Wal-Mart Stores Inc. was collecting excellent data and developing advanced, sophisticated algorithms for managing its supply chain.
Image courtesy of Wal-Mart.
Sustaining a competitive advantage through analytics is a top challenge for today’s leaders. After all, so much of contemporary analytics amounts to what you could call “table stakes.” In other words, a rudimentary level of analytics is now essential for business survival, since most companies are using analytics. One significant corollary of this — the increasingly commonplace use of analytics — is that analytics use is no longer an automatic source of competitive advantage.
As an example, consider pricing in the airline industry. There is strong evidence that American Airlines maintained a revenue advantage through its pricing analytics from 1985 to about 1995. Today, however, the analytics of airline pricing has evolved. There are many specialist providers of airline pricing solutions. And almost every airline employs the same basic methodology to maximize revenue per seat mile flown. Though the airlines still spend large sums on pricing analytics, the cost is just the price of survival. There is little evidence that today’s analytics have given one airline or another a revenue advantage.
Does this mean that all early adopters of analytics are bound to lose their initial competitive advantage, once their analytics foresight becomes an industry standard? Not at all. In fact, there are several examples of companies that have maintained a competitive advantage through analytics for many years — even decades.
How have they done this? And what are the lessons for today’s corporate leaders? Research over a 30-year period suggests that there have been five basic ways in which companies have sustained an advantage generated through analytics:
1. Keep your analytics secret.
In the 1990s, Wal-Mart Stores Inc. was collecting excellent data and developing advanced, sophisticated algorithms for its supply-chain management (including inventory sizing, order fulfillment, warehouse management and shipping). However, through the years, Wal-Mart has been canny about revealing the details of its supply-chain analytics. As a result, there is very little written on the analytics driving the company’s supply chain. Competitors cannot buy off-the-shelf Wal-Mart supply-chain analytics.
Today’s pricing, supply-chain management and other advanced analytics systems are data-rich applications where the established player has a data advantage over the new entrant.