Analytics at Work

Analyze This: How Star Performers Compete (and Win) with AnalyticsJeanne G. HarrisExecutive Research Fellow, Director of ResearchAccenture Institute for High PerformanceCopyright 2011 Accenture All Rights Reserved. Accenture, its logo, and High Performance Delivered are trademarks of Accenture.Copyright 2011 Accenture All Rights Reserved.22

Analytics are Transforming Professional Sports

Copyright 2011 Accenture All Rights Reserved.Copyright 2007, SAS Institute Inc. All rights reserved.21500 people attended the MIT event this year.If you are not using analytics in your business, you are falling behind. Daryl Morey, GM Houston Rockets.Analytics are transforming professional sports all over the world. People have argued sports statistics for thousands of years but its really only recently professional sports teams have begun to use analytics in a systematic way to improve their performance.

The Oakland As were the first team to take a deeper look at the statistics and say, How can we use this information in order to construct a winning team -- given that we don't have a lot of money, and we havent had a lot of success other ways? (Some of you may have read the book Moneyball, which came out several years ago, which chronicles this story.) Moneyball was a great book, but the Boston Red Sox have discovered that using analytics is good, but having analytics, money and a strong management organization is even better.

Its not just baseball, either. The NE Patriots are also a very analytical team. AC Milan, which is a perennial powerhouse in European soccer, is a very analytical organization.Daryl Morey, GM Houston Rockets, and Shane Battier A.C. Milan (European soccer) competes on having healthy talent Milan Lab, their biomedical research unit, evaluates and monitors performance and injury potential of players and potential recruits.Tracks 60,000 data points on each player 200 on one jump aloneData is used to gauge the health and fitness of each player and make contract decisionsBy investing wisely in players, A.C. Milan has built one of Europes leading football teams - 7 European Champions League titles

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How do companies compete and win with analytics?These high performers have discovered the power of analytics to out-think and out-execute the competition.

Copyright 2011 Accenture All Rights Reserved.44Analytics Move to Center StageAnalytics: The extensive use of data, statistical and quantitative analysis, explanatory and predictive models and fact-based management to drive decisions & actions. Analytics, statistics, and fact-based decisions are not new to businessesDSS, ESS, BI, etc were important and provided value, but were often marginal to the mainstream of the businessWith firms that compete on analytics, the capability moves to center stage.

Analytics is the new plastics. -- John Ridding, Financial Times CEOCopyright 2011 Accenture All Rights Reserved.55Analytical Capabilities Can Create Sustainable Competitive Advantage. Executives increasingly recognize that the power of IT is not just to improve operational efficiency but to help make better decisions.

One time analytical initiatives can be valuable but they rarely create a lasting market advantage.

A robust analytical capability is how these firms routinely out-smart, out-maneuver and out-execute the competition. Embedding analytics into core business processes creates sustainable competitive advantage.

Copyright 2011 Accenture All Rights Reserved.66Analytically oriented companies are found in every industry around the world. Hospitality and EntertainmentCaesars EntertainmentMarriott InternationalBoston Red SoxDisneyFinancial ServicesWellpointProgressive InsuranceBarclays BankCapital One Royal Bank of CanadaPharmaceuticalsAstra ZenecaSolvayVertexIndustrial ProductsCEMEXJohn Deere & CompanyRetailAmazonTescoWal-MartJCPenneyTransportFedExSchneider NationalUnited Parcel ServiceTelecommunicationsO2VerizonBouygues TelecomConsumer ProductsAnheuser-BuschE&J Gallo WineryMarsProcter & GambleeCommerceGoogleNetflix

Copyright 2011 Accenture All Rights Reserved.7Caesars Entertainment is an Analytical Competitor

Opportunities abound to employ simple analytic methods to substantially increase profitability, especially in large businesses such as mine where a single insight can ring the cash register literally millions of times.

A ten-basis-point movement of slot pricing toward the estimated demand curve for a given game could enhance our profitability by an eight-figure amount and be unobservable to the guest.-- Gary Loveman, CEO

Art, Gambling or Science? Copyright 2011 Accenture All Rights Reserved.Largest gaming company in the world $7.1 billion in revenues = needs updatingIncludes the most valuable brands in industry: Caesars, Harrahs, HorseshoeOver 40 million customers and 85,000 employeesSubstantial and sustained Increases in same store (casino) and cross store sales growth for last several years (9% and 19% growth respectively in 2005)Over 50% profit increase in 2005 based on organic growth and acquisitionCompleted largest merger in industry of an industry icon Caesars - $9.3 BRated in Dow Jones top echelon for sustained shareholder return, last 4 yrsLargest proposed LBO in industry, over $15 billion, at 36% share price premium

88Netflix is an Analytical Competitor

Founded in 1997, Netflix has grown to $2.16 billion in 2010 revenues.Netflix is a company built on an algorithm. Cinematch is a movie-recommendation engine based on proprietary, algorithmically-driven software. It analyzes customers choices and customer feedback on movies and recommends films that both delight the customer and optimizes inventory conditions. Netflix balances the distribution of shipping requests across frequent-use and infrequent-use customers. Infrequent-use customers are given priority in shipping popular titles over frequent-use customers. Analytics give Netflix a decided competitive advantage when deciding what to pay for the distribution rights to DVDs.

Netflix prize algorithm fragment. Source: Wired, 09/22/09Copyright 2011 Accenture All Rights Reserved.This equation, from Yehuda Koren's prize-winning documentation, shows the winning team adding a third set of movie-movie weights, and emphasis on adjacent ratings made by a user.

99High performance is associated with more extensive and sophisticated use of analytical capabilities.Low PerformersHigh PerformersHave significant decision-support/analytical capabilities23%65%Value analytical insights to a very large extent8%36%Have above average analytical capability within industry33%77%Use analytics across their entire organization23%40%High performers are 5 times more likely to say Analytics is a key element of their business strategy than low performersCopyright 2011 Accenture All Rights Reserved.10Companies that have invested heavily in analytics capabilities significantly outperform the market.Companies that have invested in advanced analytics capabilities significantly outperform the market.Market Performance2002 2009Source: Accenture research

Analytical Shakers*S&P 500 IndexCompanies that invest heavily in advanced analytical capabilities outperform the S&P 500 on average by 64%Companies that invest heavily in developing analytical skills and adopting an analytical mindset recover quicker from economic downturns.Copyright 2011 Accenture All Rights Reserved.1111Analytics at Work: Smarter Decisions, Better ResultsNot every company is going to use analytics as a means of competitive differentiation.But every organization can benefit by improving how they:use data to gain deeper insightsmake smarter decisionsexecute decisions more consistentlyget better results.Analytics at Work shows analytically-oriented managers how to guide their organizations toward greater analytical maturity.

Copyright 2011 Accenture All Rights Reserved.

12I'm not interested in data; I'm interested in translating data into information for decision making. . . . So you take data, you turn it into information, you apply it, and you make better decisions because you know more than anybody else. I think that's real powerand that was our hidden advantage for years.-- Leonard Schaeffer, Retired CEO, Wellpoint

Having analytical capabilities and the best data in the world doesnt create competitive advantage. Changing the way the business uses it is the only way to create advantage. -- Steven Udvarhelyi, MD, Senior Vice President and Chief Medical Officer, Independence Blue CrossExecutive Perspectives on building an analytical capability. Copyright 2011 Accenture All Rights Reserved.1213Analytical Maturity ModelStage 5Analytical CompetitorsStage 4Analytical CompaniesStage 3Analytical AspirationsStage 2Localized AnalyticsStage 1Analytically ImpairedAnalytical Maturity ModelCopyright 2011 Accenture All Rights Reserved.1414The Analytical DELTAData . . . . . . . . . . . . . . . . breadth, integration, qualityEnterprise . . . . . . . .approach to managing analyticsLeadership . . . . . . . . . . . . .passion and commitmentTargets . . . . . . . . . . . . . . . . . . . first deep, then broadAnalysts . . . . . . . . . . . . .professionals and amateursDELTA = change

Copyright 2011 Accenture All Rights Reserved.Copyright 2008, SAS Institute Inc. All rights reserved.141515Data and More Data!Prerequisite for everything analyticalClean, common, integrated Accessible in a warehouseSources include:Maturing enterprise systemsInternet, suppliers and customersGrowing standardized external information Sensors provide data about the physical worldMeasure something new and importantCopyright 2011 Accenture All Rights Reserved.Copyright 2007, SAS Institute Inc. All rights reserved.1516

Look Beyond Traditional Data Sources16Illustrative types of external data:Economic DemographicFinancialGeo-spatial MarketSocial/fashion trendsCommodity costsCompetitor analysisCustomer sentimentProduct ratings

Wine chemistryDriving behaviorSmile FrequencyCredit Score

Copyright 2011 Accenture All Rights Reserved.1717Take an Enterprise ApproachIf youre serious about analytics, it doesnt make sense to manage them locallyNo fiefdoms of data, software, or peopleNot by spreadmarts aloneAvoid multiple versions of the truthFirms may also need to upgrade hardware and infrastructureRequired to address core issues of business performance and organizational competitiveness such as:Which performance factors have the greatest impact on future growth and profitability?How can we anticipate and influence changing market conditions?How should we optimize investments across our products, geographies and marketing channels?Are decisions aligned with company strategy, or just promoting someones self interest?

Copyright 2011 Accenture All Rights Reserved.Copyright 2008, SAS Institute Inc. All rights reserved.1718

"In God we trust. All others must bring data. W. Edwards DemingLeadership18

Do we think or do we know?

It is not my job to have all the answers, but it is my job to ask lots of penetrating, disturbing and occasionally almost offensive questions as part of the analytic process that leads to insight and refinement.

Vision and analytics are not mutually exclusive paradigms.

Gary Loveman, Chairman of the Board, President and CEOCopyright 2011 Accenture All Rights Reserved.1919Analytical Targets Vary by Industry and Business StrategyFinancial services: credit scoring, fraud detection, pricing, program trading, claims analysis, underwriting

Retail: promotions, replenishment, shelf management, price and merchandising optimization

Manufacturing: supply chain, product customization

Transportation: scheduling, routing, yield management

Health care: drug interaction, preliminary diagnosis, disease management

Hospitality: pricing, customer loyalty

Energy: trading, supply, compliance

Services: call center staffing, service/profit chain

Government: fraud detection, case management, crime prevention, revenue optimization

Agriculture: crop management

Online: web metrics, site design, recommendations

Every business: performance managementCopyright 2011 Accenture All Rights Reserved.2020Uber-analystsHire Ph.D.s with personalityBuild a critical mass of analysts centrally or dispersedAllocate resources to strategic problemsAnalytical amateursEmpower information workers and decision makers across the enterpriseBuild capabilities through:Training to build skills and understandingBring smart tools out of the ivory towerEmbed analytics into business processes, applications and workflow.

Building an Enterprise Wide Analytical CapabilityCopyright 2011 Accenture All Rights Reserved.2121

In business, as in baseball, the question isnt whether or not youll jump into analytics. The question is when. Do you want to ride the analytics horse to profitabilityor follow it with a shovel?Rob Neyer, ESPNBuilding an Analytical Capability Doesnt Happen Overnight . . .so Start Now.Takes a while to put data and IT in place, and even longer to develop human capabilities, a fact-based culture, and success storiesUPS Weve been collecting data for six or seven years, but its only become usable in the last two or three, with enough time and experience to validate conclusions based on data.Copyright 2011 Accenture All Rights Reserved.22To learn more . . .

Competing on Analytics: The New Science of Winning (HBP, 2007)Analytics at Work: Smarter Decisions, Better Results (HBP, 2010)Competing on Talent Analytics, Harvard Business Review, October 2010The Allure of Pricing Predictively, Outlook Journal, May, 2011What People Want (and How to Predict It) and Prediction Lovers Handbook, Sloan Management Review, Jan 2009How to turn data into a strategic asset, Outlook Journal, June 2010Counting on Analytical Talent, Accenture Research Report, March 2010.More research and insights at www.analyticsatworkbook.com

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