How to unlock strategic value through Analytics

There is more to analytics than software, data and models. Successful analytics projects do not begin with data and end with models; rather, they begin with strategy and end with analytic insights driving improved operational decision-making and business processes. The implication is that analytics projects require strong executive leadership along a number of avenues. In particular:

·    Clarity of strategic vision: Executive leadership is needed to articulate which applications of analytics—pursued in which order—will provide the greatest benefit to the organization. It is therefore important to consider how to measure the ROI of an analytics project. Measuring the segmentation power of predictive models on holdout data is often a useful input in this process.

·    Information capital: Good data is an obvious prerequisite for analytics projects. Data is indeed an asset, but it can provide value only if it has been properly organized and has an acceptable confidence level in quality and completeness.

·    Human capital: Viewing analytics as a type of technical, software or BI project would be like buying building tools and materials and expecting a fine house to result without the services of an architect or master builder. Textbook knowledge of IT, programming and statistical theory are all prerequisites. But the abilities to insightfully create predictive variables, explore and visualize high-dimensional datasets, and reflect domain knowledge into the design of a predictive model are all examples of tacit knowledge: They can only be learned by doing. Such skills must be cultivated within the organization, perhaps in the form of an analytics center of excellence, or else sought through a specialist like Deloitte Analytics.

·    Social capital: Resistance to change is part of human nature. Therefore, especially for organizations steeped in traditions of intuition-based decision-making, a significant commitment to training, culture change and even simple persuasion is required. It takes time and effort—in the form of executive sponsorship—to switch from a culture of intuition-based to evidence-based decision-making. A related point is that analytics is highly multidisciplinary. Executive-level sponsorship can help ensure that the different business units and stakeholders work together in harmony. The most effective analytics project managers are at ease speaking with people in multiple domains, functioning as “translators” and “interpreters.” Finally, seasoned domain experts—insurance underwriters, social service case workers, marketing specialists, fraud investigators and so on—will ideally be recruited to collaborate with statistical experts and project managers in the design and day-to-day execution of the analytics project. Doing so helps ensure that their domain and institutional knowledge is reflected in the resulting analytical databases and predictive models. Also, it goes a long way toward promoting the acceptance of evidence-based decision-making within the organization.

Because of its inherently technical nature, it is easy to underestimate the importance of the human and social dimensions of analytics. Two other principles of behavioral economics are relevant in this connection: Status quo bias (the tendency to stick with the current situation even when better ones are available) and optimism bias (the tendency to be overly optimistic about one’s own abilities and the outcomes of one’s actions). Such cognitive biases—together with garden-variety turf wars and organizational politics—are major reasons why organizations’ traditional, intuitive decision-making cultures often resist analytics initiatives. Executives should not let their own “optimism bias” lead them to underestimate such risks. Generally speaking, a vigorous organizational acceptance of analytics does not just happen. Well-conceived strategies must be properly communicated, incentivized and executed in order for cultures of evidence-based decision-making to take root.

What is an opportunity for analytically sophisticated organizations is simultaneously a threat to their competitors.

Want a deeper view into the strategic value you can unlock with analytics? A conversation with an SAP global services partner such as Deloitte can serve as a great first step. Contact us at zasaphana@deloitte.co.za or zasapanalytics@deloitte.co.za to get the conversation started.