Analytics at Work

key learning summary

hoW to mAke better decisions And get better results

featuring tom davenport
February 2, 2010

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HARVARD BUSINESS REVIEW WEBINARS

Analytics at Work
HOW TO MAKE BETTER DECISIONS AND GET BETTER RESULTS
Tom Davenport, Presidents Chair in Information Technology and Management, Babson College Angelia Herrin, Editor for Research and Special Projects, Harvard Business Review

OVERVIEW
Most organizations have massive amounts of data but fail to use it in a meaningful way. But with the proper analytical capabilities, culture, and business processes, organizations can use analytics to achieve their desired resultmaking better decisions. Organizations can benefit from identifying their key strategic and tactical decisions, assess how well they are doing at making these decisions, determine which ones can be made better, and then institutionalize more analytical decisionmaking processes.

Both decision outcomes and processes are often bad.

Tom Davenport
From the financial crisis to the decisions to invade Iraq and to stay in Vietnam, there are numerous examples of bad decision processes and outcomes in both the private and public sector. And, even though massive amounts of data exist, organizations continue to have bad decision processes and make bad decisions. (While a good decision process doesnt guarantee a good outcome and bad process doesnt assure a bad outcome, there is a correlation.) The good news: there are significant opportunities to improve decision making. Analytics and algorithms can lead to better decisions, as can the wisdom of crowds. Use of behavioral economics can improve decision making and some decision making can be automated. However, to date most organizations havent taken advantage of the opportunities that exist to improve their decision making.
A model exists for making better decisions.

CONTEXT
Professor Davenport discussed the key concepts from his latest book titled Analytics at Work: Smart Decisions, Better Results. Dr. Davenports previous book, Competing on Analytics, focused on companies using analytics to create competitive advantage. In contrast, Analytics at Work is designed to help any organization become more analytical and fact-based. This book also emphasizes the important linkage between analytics and decision making.

The model shown below is designed to deliver better decisions. It starts with a foundation of analytical capabilities, creates an organizational context, delivers better decisions, and then entails a systematic review to continuously improve the decision process.

KEY LEARNINGS
There is much wrong with decision making.

In many organizations, there are huge investments in data warehousing, ERP, and reporting, but this data isnt used to make better decisions. Bad decision processes and outcomes abound. The body of knowledge on good decision making is often ignored, and decisions often take too long. There is an over-reliance on intuition and an under-reliance on data and analytics. There is also little measurement of decision processes and outcomes and little accountability for decisions.

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Harvard Business Review Webinars Analytics at Work: How to Make Better Decisions and Get Better Results

Analytical Capability

Professor Davenport has identified organizations at five stages in developing their analytical capabilities. This ranges from the analytically impaired (Stage 1) to analytical competitors (Stage 5).

decision making. Quotes of such leaders include, Do we think or do we know? and In God we trust; all others bring data. Targets. With limited analytical resources, analytical organizations pick a primary strategic target for their initial analytical efforts (such as marketing or supply chain) as well as a secondary target. Over time, the use of analytics and analytical decision making will expand in an organization. But long-term success starts with a specific strategic application. Analysts. An organization cant become more analytical without analytical people. The types of analytical talent required include: 1) Champions, who lead analytical initiatives (perhaps 1% of the organization); 2) Professionals, who can create new algorithms (5-10%); 3) Semiprofessionals, who can use visual and basic statistical tools (15-20%); and Amateurs, who use spreadsheets (70-80%). Organizations need each of these types of analysts.

The capabilities required for any organization to become more analytical follow the D.E.L.T.A. model. Data. This is the prerequisite for analytics. At a minimum, data must be clean, common, integrated, and accessible in a central data warehouse. Organizations can realize advantage by having data that competitors dont. This entails measurements that are new, distinctive/proprietary, and important. For example, Marriott has proprietary metrics on revenue optimization and Harrahs measures employee smile frequency, which predicts customers experiences.

A table on Exhibit 1 from Analytics at Work shows how organizations progress from Stage 1 to Stage 5 of each of the success factors in the D.E.L.T.A. model.
Organizational Context

The context needed to become more analytical includes creating an analytical culture and having analytical business processes: Analytical culture. An analytical culture is one where use of facts, evidence, and analysis is the primary way of making decisions. There is still room for intuition, but intuition should be based on experience and expertise. In analytical cultures, it is okay to push back by asking, Wheres your data? When facts are lacking, organizations with analytical cultures emphasize testing and learning, and they focus on action after analysis. Analytical processes. Becoming more analytical also entails thinking very analytically about an organizations business processes. This entails mapping out key processes, such as the ordering processes, and understanding all possible steps in the process. Analytics can be used to understand which customers are most valuable and what actions might be taken to improve the process. Today it is rare for organizations to be highly analytical regarding their business processes.

Collect data in areas that others havent addressed and then apply this data analytically in decision making.
Tom Davenport
Enterprise. To become more analytical, organizations must go beyond managing data locally or in silos. Successful analytical competitors manage their data and analytics program at an enterprise level. They create enterprise-wide analytical capabilities and invest in enterprise-scale analytical technologies. Leadership. This is the most critical trait of analytical companies, and remains extremely rare. Organizations that become more analytical have leaders who fully embrace analytics and lead the companys culture toward fact-based

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Harvard Business Review Webinars Analytics at Work: How to Make Better Decisions and Get Better Results

Desired Result

OTHER IMPORTANT POINTS

Building organizational support. Getting leadership support

The goal for analytics is to make better decisions. However, while many organizations collect data and some organizations engage in analytics, few organizations link their analytics activities to their decision making.

for analytics and more analytical decision making can be a challenge, yet leadership support is critical. Find a senior executive who is analytical and enlist this person as a partner in getting the analytical movement going.
The role of intuition. Intuition can play an important role in

Better decisions are the goal of analytics.

Tom Davenport
In a study of decisions, Professor Davenport found that 90% of companies made at least some effort to improve a specific decision. The decisions that organizations looked to improve tended to be those that were frequent and operational, such as pricing decisions, targeting decisions, merchandising decisions, and location decisions. A system for improving decisions should include the following steps: Identify. This entails identifying the organizations key strategic and tactical decisions, which rarely occurs in most organizations. Inventory. Determine how well the organizations key decisions are being made today. What processes and tools are being used? Are the key decisions being made intuitively or analytically? Intervene. Based on identifying the key decisions and conducting an inventory of how they are being made, determine if a decision intervention is requireddoes the organization need to change how certain critical decisions are being made? Are better people, processes, and tools required? (Use of analytics is the most common intervention that organizations make to improve their decision making). Institutionalize. Allocate resources (people and technology) and create processes to institutionalize how the organizations key decisions are made.
Systematic Review

generating the hypotheses that analysts investigate and in deciding when analysis may not be appropriate. Preventing slow decisions. Organizations can measure how long decisions take and if they are taking too long, can investigate to understand why, and can reengineer the decision process.
Basing KPIs on analytics. In many organizations key

performance indicators (KPIs) are set arbitrarily. By using analytics, KPIs can be established based on facts.
Analytical measures and incentives. Some organizations are

beginning to measure and reward managers for their decision processes; not just for the outcomes of their decisions, which can be delayed by many years.
Analytics for small businesses. Analytics is not just for large

enterprises; small organizations can also use analytics to make more fact-based decisions. Technology is not the barrier. Software as a service is increasingly making analytical tools available to small businesses. The biggest obstacle is analytical people. However, even such people can often be rented.
New analytical organization. A new peer-based research

organization has been formedthe Inter-national Institute for Analytics (IIA). IIA is a community of analytics practitioners that will conduct research and gather information on how real-world organizations are deploying analytics. It is a way to advance the profession of analytics and analytical decision making. All individual members who join IIA in February will receive a complimentary autographed copy of Analytics at Work. Go to www.iianalytics.com to learn more or join.
Recommended reading. In addition to his own books,

An important step in improving an organizations analytical capabilities is to close the loop by engaging in a review of an organizations key decisions. Many successful organizations look back at all major decisions to assess the quality of the decision process and the outcome. They look closely at any errors that are made and seek to rectify these mistakes in

Professor Davenport suggested reading How We Decide by Jonah Lehrer and Nudge by Richard Thaler and Cass Sunstein.

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Harvard Business Review Webinars Analytics at Work: How to Make Better Decisions and Get Better Results

EXHIBIT 1

2010 Harvard Business School Publishing. Created for Harvard Business Review by BullsEye Resources www.bullseyeresources.com.

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Harvard Business Review Webinars Analytics at Work: How to Make Better Decisions and Get Better Results

BIOGRAPHIES
Tom Davenport Presidents Chair in Information Technology and Management, Babson College

Tom Davenport holds the President's Chair in Information Technology and Management at Babson College. His books and articles on business process reengineering, knowledge management, attention management, knowledge worker productivity, and analytical competition helped to establish each of those business ideas. Over many years he's authored or co-authored nine books for Harvard Business Press, most recently Competing on Analytics: The New Science of Winning (2007). His next book, Analytics at Work: Smarter Decisions, Better Results, will be published in February 2010. Davenport has authored fifteen articles for Harvard Business Review. His byline has also appeared for publications such as Sloan Management Review, California Management Review, Financial Times, Information Week, CIO, and many others. Davenport has an extensive background in research and has led research centers at Ernst & Young, McKinsey & Company, CSC Index, and the Accenture Institute of Strategic Change. Davenport holds a B.A. in sociology from Trinity University and M.A. and Ph.D. in sociology from Harvard University.
Angelia Herrin Executive Director of Project Development, Harvard Business Review

Angelia Herrin is executive director of business development at Harvard Business Review. At Harvard Business Review, Herrin oversaw the re-launch of the management newsletter line and established the conference and virtual seminar division for Harvard Business Review. More recently, she created a new series to deliver customized programs and products to organizations and associations. Prior to coming to Harvard Business Review, Herrin was the vice president for content at womenConnect.com, a Web site focused on women business owners and executives. Herrins journalism experience spans twenty years, primarily with Knight-Ridder newspapers and USA Today. At KnightRidder, she covered Congress, as well as the 1988 presidential elections. At USA Today, she worked as Washington editor, heading the 1996 election coverage. She won the John S. Knight Fellowship in Professional Journalism at Stanford University in 198990.

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2010 Harvard Business School Publishing. Created for Harvard Business Review by BullsEye Resources www.bullseyeresources.com.

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