Analytics At Work: Smarter Decisions, Better Results
Author: Tom Davenport
Publisher: Harvard Business Press
IN light of the troubles that many businesses around the world face today, it is indeed welcome news that new developments in technology have produced quicker, more efficient methods to help turn things around. One of these is business analytics, a subject sociologist-turned-business guru Tom Davenport is quite fond of, having written two books about it already.
In an exclusive interview with StarBizWeek, after speaking at the recent SAS Forum 2010 at the Kuala Lumpur Convention Centre recently, Davenport shared his views on his latest book, Analytics at Work: Smarter Decisions, Better Results, the current status of business analytics, its problems as well as what lies in store for the future.
How did you move from being a social science professor to a business guru?
Harvard University had a programme for PhDs who wanted to focus on business. I think that was influential. I liked writing and I liked being out with companies that were doing interesting things.
I was very curious about how different aspects of business worked. So I wrote a lot of stuff and gave a lot of talks, and eventually people started paying attention.
I think the only formula is that you have to push a lot of ideas out there, and if you’re lucky, some will be successful. If they aren’t, then you just move on to the next idea!
What was the first business book you wrote?
The first business book that I ever wrote was on business process reengineering, which was a very successful topic.
This was back in the early 1990s. The problem was that I was a little overly academic, which made the book a little difficult to read.
I had two other friends who wrote books on the same topic, and they were much more popular than mine although mine was written first.
I learnt that being first isn’t enough; you also have to be accessible. There’s a thin line between having rigour in your writing and being relevant and interesting.
Who would you say is the target audience for your latest book?
My latest book is for any reader who wants to make more analytical decisions as well as increase his analytical capability, which differs from my first work on analytics, Competing on Analytics.
That book was for companies that were willing to and interested in building their strategies around their analytical capabilities.
You could say that 90% of the audience belong to the first category. So hopefully there will be nine times as many readers for this book as opposed to my first.
Can you explain what business analytics is, and why it is more important now than ever?
I define it as the systematic use of data for decision-making.
The data could either be quantitative or qualitative. There are a variety of ways you can learn about the world.
Numbers are obviously easy to analyse, but you can be analytical about qualitative data as well.
As to why it is important, there are market reasons.
Looking at it from the supply side, there are lots more data available now than ever before. A lot more people are capable of doing analytical work and there are more tools to work with.
From the demand standpoint, amid global competition and difficult economic times, companies are trying to make the most of their resources. It’s a combination of those things that has created this huge boom in the use of analytics.
Data are obviously at the heart of business analytics. Where can one obtain these data?
Data from analytics tend to come from systems such as ERP (enterprise resource planning) systems. Big companies like SAP and Oracle produce big transaction systems that manage all your information systems.
These generate lots of data as well. Even the Internet generates lots of data.
The idea of analytics is to take that data and analyse them, then understand how your business works and how you can improve your business, rather than just keeping your customer order balance or employee vacation balance up to date.
How do we ensure that the data collected are of sufficiently high quality?
Interestingly, the quality of data is important for analytics but more important for reporting, because we don’t have any other way of addressing errors in a report.
If the data are wrong, it skews everything. With analytics, however, we identify outliers, which are values that don’t make sense.
You can also substitute for missing data. So analytics is somewhat more tolerant of low-quality data than reporting applications.
But wouldn’t low-quality data present problems to those who are analysing them?
That’s true, and typically in cases where data are of low quality, you have to trace it back to the source.
If the person collecting the data has not paid enough attention to the quality, the company he is working for would then be unable to analyse them at all.
At the forum (the SAS Forum), we were just talking about mobile telecommunications data, where different companies supplying the data had different definitions on who was a customer, or who had an account and so on.
Low-quality data are definitely a problem that an analyst has to address.
In your book you talk about how to recruit, hire and manage analytical talent.
Recruiting analysts who are competent in data compilation and their analysis would lead to costs for a company. In your opinion, will the eventual payoff be worth the trouble, and if so why?
Absolutely. All my research suggests that the more analytical companies tend to perform better financially. That would suggest that the cost is more than worth it.
There is a big market for highly analytical people and I think a growing one too.
If companies don’t hire them soon, I fear they may be locked out of the market.
I believe there will be a global shortage of highly trained analysts, if there isn’t one already.
To your knowledge, how many businesses in Malaysia are making use of analytics? Do the others stand to gain much from its use?
My observations are that in certain industries, the use of analytics is quite important.
Banks, telecommunications firms, insurers and the government seem to be pretty aggressive users in Malaysia, or in any country for that matter.
The big challenge comes when you try to move beyond these industries, then it is probably less common in Malaysia to find a company that uses analytics.
I think increasingly, information technology (IT) is becoming commoditised. It is becoming more useful how you take advantage of that information and apply it to your business.
If Malaysia wants to be a leader in IT, it has to be a leader in using information and that increasingly means using analytics.
I think even in the case of producing palm oil, we are moving toward a more precision-based agricultural environment, where we use fewer resources to accomplish the same results.
Every sign I see is that Malaysia stands to benefit as much as other countries, perhaps even more so due to its orientation towards IT and manufacturing.
What do you think the future holds for business analytics?
There will be newer sources of data in the future.
In addition, historically, primary data have been structured and quantitative, but we are now moving toward more unstructured and qualitative data, like analysing social media and networks, for instance.
The application of analytics to the environment in order to reduce carbon footprints is also a relatively new area to analytics.
One of my few complaints about analytics is that it has been insufficiently connected to decision-making.
So hopefully in the future we may see more businesses tying their analysis to decisions.
By ANDREW LEE
andrewlee@thestar.com.my
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