“What in the world are analytics?” That is a real question I got from someone the other day. The person asking it had overheard a commercial on the Golf Channel talking about the importance of analytics for modern businesses. Wasn’t sure if it was a software company, a consulting firm or something else; but the word they kept saying was analytics. My friend wasn’t quite sure what was meant by that, and figured that I might know.
To be honest, I was a little taken aback by the question. Between my work as a management consultant and my role as a professor, I spend a lot of time talking about things like analytics and their value to businesses. Sometimes I forget that terms like this are not really part of the common lexicon. The more I thought about it, however, the more I was reminded of how many times I’ve been in meetings where multiple people are using the term analytics and meaning completely different things. A marketing person might mean some kind of customer segmentation. An IT person might mean something about software. And if you have a statistician in the room it’s going to get really complicated. The number of hours I’ve spent as a consultant getting clients on the same page about this is kind of staggering. With that in mind, I figured it might be a good time to baseline just what analytics are and why they matter for businesses.
Davenport and Harris define analytics as “the extensive use of data, statistical and quantitative analysis, explanatory and predictive models, and fact-based management decisions and actions” (2007, p. 7). All clear now? I didn’t think so. These are a bunch of big words that only make sense to stat wonks and business geeks. Sure I qualify as both, I also realize that a lot of people are neither. As such some people just don’t get what the big deal is about analytics. And that is a real shame because when business people can get past all the jargon and the double talk, they may start to realize what a powerful tool analytics really are.
To get there though, we have to do some level setting. The first level set is that analytics is just an extension of business performance management. We also have to level set that business performance management is just the capturing of data and measurements behavior of people and processes in our business ecosystem. This can include everything from buying patterns, to production data, to employee turnover rates. The most important level set is that all these numbers are nothing but numerical representations of behavior.
Now here is the funny thing about behavior…when all things are held equal, the single best predictor of future behavior is past behavior. Analytics tries to use this assumption to better predict the future outcomes that are relevant to our businesses. The particular data points, the statistical methods, and the reporting formats can vary widely; but at the end of the day all they are doing is looking to the past patterns to predict the future outcomes. We do this so that we can figure out the best place to devote our resources. And as we all learned in basic economics, we always want to invest our resources where we’ll get the greatest rate of return. Analytics are just really fancy term for using data to figure that out.
Davenport, T.H. & Harris, J. G. (2007). Competing on analytics: The new science of winning. Boston: Harvard Business School Press.
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About the Author
Jimmy Brown, Ph.D. is a senior level management consultant with eighteen years of experience leading efforts to develop and implement practical strategies for business performance improvement. Dr. Brown has held senior level consulting positions at leading firms such as Booz-Allen & Hamilton, Accenture, and Hewlett-Packard.
He can be reached at www.jimmybrownphd.com or via Twitter @jimmybrownphd