Competing on Competing on

AnalyticsAnalyticsThe CFO Leadership RoleThe CFO Leadership Role

Tom DavenportTom Davenport

Babson CollegeBabson College

CFO Day 2009CFO Day 2009

AmsterdamAmsterdam

Thomas H. Davenport – Competing on Analytics 2 | 2008 © All Rights Reserved.

The Planets Are Aligned for AnalyticsThe Planets Are Aligned for Analytics

� Powerful IT

� Data critical mass

� Skills sufficiency

� Business need

Thomas H. Davenport – Competing on Analytics 3 | 2009 © All Rights Reserved.

What Are Analytics?What Are Analytics?

AnalyticsWhat’s the best that can happen?

What will happen next?

What if these trends continue?

Why is this happening?

What actions are needed?

Where exactly is the problem?

How many, how often, where?

What happened?Com

petit

ive

Adv

anta

ge

Reporting

Decision Optimization

Predictive Analytics

Forecasting

Statistical models

Alerts

Query/drill down

Ad hoc reports

Standard reports

Thomas H. Davenport – Competing on Analytics 4 | 2008 © All Rights Reserved.

What Should Organizations Do with Analytics?What Should Organizations Do with Analytics?

� Using analytics is good

� Finding the best customers, and

charging them the right price

� Minimizing inventory and

maximizing availability in supply

chains

� Allocating costs accurately and

understanding how financial

performance is driven

� Competing on analytics is better

� Making analytics and fact-based

decisions key elements of strategy

and competition

Thomas H. Davenport – Competing on Analytics

Analytics for Tough TimesAnalytics for Tough Times

5 | 2009 © All Rights Reserved.

�Analytics can be a powerful tool for economic benefit in tough times

�They provide precision answers to important questions� Which products and customers are

worth keeping?

� What prices should be charged at what times?

� How much inventory is absolutely essential?

� Which marketing promotions are really working?

� Which people are really performing?

�The answers don’t come overnight, however

Thomas H. Davenport – Competing on Analytics 6 | 2008 © All Rights Reserved.

Analytical CompetitorsAnalytical Competitors

Old Hands, Turnarounds, Born AnalyticalOld Hands, Turnarounds, Born Analytical

� Marriott — Revenue management

� Royal Bank of Canada — Lifetime value, etc.

� UPS — Operations and logistics, then customer

� Harrah’s — Loyalty and service

� Tesco — Loyalty and internet groceries

� Ahold/Albert Heijn— Merchandising, loyalty, logistics

� Capital One— “information-based strategy”

� Google — page rank, advertising, HR

� Netflix— Movie recommendations

Thomas H. Davenport – Competing on Analytics 7 | 2009 © All Rights Reserved.

The Analytical DELTAThe Analytical DELTA

Data . . . . . . . . breadth, integration, quality

Enterprise . . . . . . . .approach to managing analytics

Leadership . . . . . . . . . . . . passion and commitment

Targets . . . . . . . . . . . first deep, then broad

Analysts . . . . . professionals and amateurs

Thomas H. Davenport – Competing on Analytics 8 | 2009 © All Rights Reserved.

DataData

� The prerequisite for everything analytical

� Clean, common, integrated

� Accessible in a warehouse

�Measuring something new and important

Thomas H. Davenport – Competing on Analytics 9 | 2009 © All Rights Reserved.

EnterpriseEnterprise

� If you’re competing on analytics, it doesn’t make

sense to manage them locally

� No fiefdoms of data, people, or technology

� Some level of centralized expertise for hard-core

analytics

� Firms may also need to upgrade hardware and

infrastructure

Thomas H. Davenport – Competing on Analytics 10 | 2009 © All Rights Reserved.

LeadershipLeadership

�Gary Loveman at Harrah’s

� “Do we think, or do we know?”

� “Three ways to get fired”

� Barry Beracha at Sara Lee

� “In God we trust, all others bring data”

� Jeff Bezos at Amazon

� “We never throw away data”

“Our CEO is a real data dog”

Sara Lee executive

Thomas H. Davenport – Competing on Analytics 11 | 2009 © All Rights Reserved.

The Role of the CFOThe Role of the CFO

� Leads financial and performance

management analytics initiatives

�Monitors financing and success of

projects

�Works with IT to ensure analytical needs

are met

� Helps to create an analytical and fact-

based culture

� Sets a personal example in analytical

decision-making

Thomas H. Davenport – Competing on Analytics 12 | 2009 © All Rights Reserved.

TargetsTargets

�With limited analytical resources, pick a major strategic target, with a minor or two

�Harrah’s = Loyalty + Service

�AC Milan= Player selection + injuries

�Google = Page rank/advertising + HR

�Barclays = Asset management + Credit risk

�Can also have two primary user group targets

�WalMart = Category managers + Suppliers

�Owens & Minor = Logistics + Hospitals

�Aviva= Actuaries + Customers

Thomas H. Davenport – Competing on Analytics 13 | 2009 © All Rights Reserved.

AnalystsAnalysts

5-10%Analytical Professionals

— Can create algorithms

Analytical Semi-Professionals— Can use visual tools, create

simple models

Analytical Amateurs— Can use spreadsheets

15-20%

70-80%