This is part 2 of 11 from “Analytics: The New Path to Value,” a report on the findings of the 2010 New Intelligent Enterprise Global Executive Study and Research Project.
The combination of an increasingly complex world, the vast proliferation of data and the pressing need to stay one step ahead of the competition has sharpened focus on using analytics within organizations. To understand better how organizations are applying analytics today, prioritizing their future investments and transforming insights into action, MIT Sloan Management Review in collaboration with the IBM Institute for Business Value surveyed a global sample of nearly 3,000 executives, managers and analysts. Based on our analysis of survey results, combined with interviews with academic and subject matter experts, this study offers recommendations on how organizations can bolster their analytics capabilities to achieve long-term advantage.
At organizations in every industry, in every part of the world, senior leaders wonder whether they are getting full value from the massive amounts of information they already have within their organizations. New technologies are collecting more data than ever before, yet many organizations are still looking for better ways to obtain value from their data and compete in the marketplace. Their questions about how best to achieve value persist.
Are competitors obtaining sharper, more timely insights? Are they able to regain market advantage neglected while focusing on expenses during the past two years? Are they correctly interpreting new signals from the global economy — and adequately assessing the impact on their customers and partners? Knowing what happened and why it happened are no longer adequate. Organizations need to know what is happening now, what is likely to happen next and what actions should be taken to get the optimal results.
To help organizations understand the opportunity provided by information and advanced analytics, MIT Sloan Management Review partnered with the IBM Institute for Business Value to conduct a survey of nearly 3,000 executives, managers and analysts working across more than 30 industries and 100 countries.
Among our key findings: Top-performing organizations use analytics five times more than lower performers. Overall, our survey found widespread belief that analytics offers value. Half of our respondents said that improvement of information and analytics was a top priority in their organizations. And more than one in five said they were under intense or significant pressure to adopt advanced information and analytics approaches. (see Figure 1.)
The source of the pressure is not hard to ascertain. Six out of 10 respondents cited innovating to achieve competitive differentiation as a top business challenge. The same percentage also agreed that their organization has more data than it can use effectively. Organizational leaders want analytics to exploit their growing data and computational power to get smart, and get ahead, in ways they never could before.
Senior executives now want businesses run on data-driven decisions. They want scenarios and simulations that provide immediate guidance on the best actions to take when disruptions occur — disruptions ranging from unexpected competitors or an earthquake in a supply zone to a customer signaling it may switch providers. Executives want to understand optimal solutions based on complex business parameters or new information, and they want to take action quickly.
These expectations can be met — but with a caveat. For analytics-driven insights to be consumed — that is, to trigger new actions across the organization — they must be closely linked to business strategy, easy for end users to understand and embedded into organizational processes in order to take action at the right time. That’s no small task. It requires painstaking focus on the way insights are infused into everything from manufacturing and new product development to credit approvals and call center interactions.
Top Performers Say Analytics Is a Differentiator
Our study clearly connects performance and the competitive value of analytics. We asked respondents to assess their organization’s competitive position. Those who selected “substantially outperform industry peers” were identified as top performers, while those who selected “somewhat or substantially underperforming industry peers” were grouped as lower performers.1
We found that organizations that strongly agreed that the use of business information and analytics differentiates them within their industry were twice as likely to be top performers as lower performers.
Top performers approach business operations differently from their peers. Specifically, they put analytics to use in the widest possible range of decisions, large and small. They were twice as likely to use analytics to guide future strategies and twice as likely to use insights to guide day-to-day operations. They make decisions based on rigorous analysis at more than double the rate of lower performers. The correlation between performance and analytics-driven management has important implications to organizations whether they are seeking growth, efficiency or competitive differentiation. (see Figure 2.)
Three Levels of Capabilities Emerged, Each with Distinct Opportunities
Organizations that know where they are in terms of analytics adoption are better prepared to turn challenges into opportunities. We segmented respondents based on how they rated their organization’s analytics prowess, specifically how thoroughly their organizations had been transformed by better uses of analytics and information. Three levels of analytics capability emerged — Aspirational, Experienced and Transformed — each with clear distinctions. (See Figure 3.)
Aspirational. These organizations are the farthest from achieving their desired analytical goals. Often they are focusing on efficiency or automation of existing processes, and searching for ways to cut costs. Aspirational organizations currently have few of the necessary building blocks — people, processes or tools — to collect, understand, incorporate or act on analytic insights.
Experienced. Having gained some analytic experience — often through successes with efficiencies at the Aspirational phase — these organizations are looking to go beyond cost management. Experienced organizations are developing better ways to effectively collect, incorporate and act on analytics so they can begin to optimize their organizations.
Transformed. These organizations have substantial experience using analytics across a broad range of functions. They use analytics as a competitive differentiator and are already adept at organizing people, processes and tools to optimize and differentiate. Transformed organizations are less focused on cutting costs than Aspirational and Experienced organizations, possibly having already automated their operations through effective use of insights. They are most focused on driving customer profitability and making targeted investments in niche analytics as they keep pushing the organizational envelope.
Transformed organizations were three times more likely than Aspirational organizations to indicate they substantially outperform their industry peers. This performance advantage illustrates the potential rewards of higher levels of analytics adoption.
While our findings showed that organizations tend to wait until they have gained some experience before they apply analytics to growth objectives, this may be more a common practice than a “best practice.” Our experience indicates that analytics, applied wisely to an organization’s operational capabilities, can be used to accelerate a broad range of business objectives, even at the earliest stages of analytics adoption.
Data Is Not the Biggest Obstacle
Despite popular opinion, getting the data right is not a top challenge organizations face when adopting analytics. Only about one out of five respondents in our survey cited concern with data quality or ineffective data governance as a primary obstacle. (see Figure 4.)
The adoption barriers organizations face most are related to management and culture rather than being related to data and technology. The leading obstacle to widespread analytics adoption is lack of understanding of how to use analytics to improve the business, according to almost four of 10 respondents. More than one in three cite lack of management bandwidth due to competing priorities. Organizations that use analytics to tackle their biggest challenges are able to overcome seemingly intractable cultural challenges and, at the same time, refine their data and governance approaches.
Information Must Become Easier to Understand and Act Upon
Executives want better ways to communicate complex insights so they can quickly absorb the meaning of the data and take action on it. Over the next two years, executives say they will focus on supplementing standard historical reporting with emerging approaches that make information come alive. These include data visualization and process simulation, as well as text and voice analytics, social media analysis, and other predictive and prescriptive techniques.
New tools like these can make insights easier to understand and to act on at every point in the organization, and at every skill level. They transform numbers into information and insights that can be readily put to use instead of relying on further interpretation or leaving them to languish due to uncertainty about how to act.
What Leaders Can Do to Make Analytics Pay Off — A New Methodology
It takes big plans followed by discrete actions to gain the benefits of analytics. But it also takes some very specific management approaches. Based on data from our survey, our engagement experience, case studies and interviews with experts, we have been able to identify a new, five-point methodology for successfully implementing analytics-driven management and for rapidly creating value. The recommendations in the following pages are designed to help organizations understand this “new path to value” and how to travel it. While each recommendation presents different pieces of the information-and-analytics value puzzle, each one meets all of these three critical management needs:
Reduced time to value. Value creation can be achieved early in an organization’s progress to analytics sophistication. Contrary to common assumptions, it doesn’t require the presence of perfect data or a full-scale transformation to be complete.
Increased likelihood of transformation that’s both significant and enduring. The emerging methodology we’ve identified enables and inspires lasting change (strategic and cultural) by tactically overcoming the most significant organizational impediments.
Greater focus on achievable steps. The approach being used by the smartest companies is powerful in part because each step enables leaders to focus their efforts and resources narrowly, rather than implementing universal changes. This makes every step easier to accomplish with an attractive return on investment.
Whether pursuing the best channel strategy, the best customer experience, the best portfolio or the best process innovation, organizations embracing this approach will be first in line to gain business advantage from analytics.