Execs See BI and Analytics as Crucial Competitive Advantage

Business intelligence capabilities and analytic prowess will play crucial roles in the most competitive sectors of the global economy, according to a recent academic research study. But research showed that an organization's efforts to develop fact-based decision-making capabilities are likely to fail unless it receives active support from top managers.

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"We've reached a critical juncture in the history of global competition. In this age of intelligence, analytics has emerged as the newest form of competitive differentiation," says Thomas Davenport, the Director of Research for Babson's School of Executive Education at Babson College in Wellesley, MA. "After years of fitful progress, leading firms have begun basing their competitive strategies on the sophisticated analysis of business data."

The research study, titled "Competing on Analytics," was based on discussions with C-level executives and directors at more than 30 industry-leading and globally competitive organizations. Davenport cited organizations such as Capital One, Harrah's Entertainment, Progressive Insurance, Marriott, Procter & Gamble, Wal-Mart, and sports teams the New England Patriots and Oakland Athletics as true "analytical competitors" that have all excelled through a greater reliance on analytic processes and technologies.

"We were surprised by the extremely high degree of interest and involvement in this subject area," Davenport says. "The executives we questioned were clearly interested in identifying the best strategies for organizing analytic operations on an enterprise scale. They're really taking this seriously."

Research findings ...
"Many companies today use business intelligence for specific applications, but these initiatives are usually too narrow to affect corporate performance," says Davenport, who is the President's Distinguished Professor of Information Technology and Management at Babson. "The organizations we interviewed, however, are building broad capabilities for enterprise-level business analytics and intelligence. Their capabilities go well beyond data and technology to address the processes, skills and cultures of their organizations. These strategies are driven by CEOs and senior executives who insist on fact-based decisions throughout their businesses."

"The use of analytics, statistics and fact-based decisions in business is not new," Davenport explains. "What is new is that for an increasing number of companies, these activities have moved from the margins to the mainstream. For many, the use of analytics has become a primary activity used to support the overall business strategy. Analytics helps organizations make better decisions and enables optimization of key business processes. This research also revealed that analytics can create value regardless of the company's industry or situation, and that leading companies are using analytics to support and improve their distinctive capabilities."

Davenport says organizations successfully competing on analytics exhibit a set of common attributes, including:

• CEO commitment – To use analytics as a basis for competition requires commitment from the top of the organization. It requires an allocation of resources, long-term funding and, in some cases, a shift in culture.
• Strategic focus – Successful users of analytics don't just use analytics in general. They first define their distinctive capability and then use analytics to support that capability. 
• Enterprise application – Firms that compete on analytics don't manage it locally. They eliminate fiefdoms of data, centralize the data and expertise, and manage analytics at the enterprise level.
  

"Professor Davenport's new research supports our longstanding belief in the strategic value of business intelligence," says Dr. Jim Goodnight, CEO and co-founder of SAS. "As the future unfolds, competitive organizations will depend increasingly on integrated processes for analyzing data from multiple sources. More business decisions will be made on the basis of facts and evidence, and fewer business decisions will be made on the basis of instinct and guesswork. From our perspective, that's a positive development."

Davenport says the research study grew from his interest in learning more about how large organizations build analytic capabilities, convert data into knowledge and use business intelligence to create value. He says he was gratified by the level of engagement demonstrated by the executives.

"The net takeaway of the study is this: The ability to make business decisions based on tightly focused, fact-based analysis is emerging as a measurable competitive edge in the global economy," Davenport says. "Organizations that fail to invest in the proper analytic technologies will be unable to compete in a fact-based business environment."

In March of 2007, Harvard Business School Press published Competing on Analytics: The New Science of Winning, Davenport's latest book based on his research study. If you're interested in hearing Professor Davenport present on this topic, he's touring with Harvard throughout 2007. You can find dates and locations for the Competing on Analytics executive series at the Harvard Web site.  To learn how to participate in a new business analytics research study, contact Thomas Davenport.

Thomas Davenport, President's Distinguished Professor of Information Technology and Management at Babson College in Wellesley, MA.