Management by Analytics?
March 8, 2010 by Raj Sheelvant
Economist article titled “Clicking for Gold” reports on how the internet companies profit for data on the web. The article notes that traditional businesses generally collect information about customers from their purchases or from surveys, internet companies have the luxury of being able to gather data from everything that happens on their sites. The biggest websites have long recognized that information itself is their biggest treasure. And it can immediately be put to use in a way that traditional firms cannot match. The article points to how eBay, Amazon, Google, Facebook and other internet companies are successfully using the user data to better understand their customers.
But there is a growing consensus that data mining can help organization make better management decision. New book by Thomas H. Davenport titled “Analytics at Work: Smarter Decisions, Better Results” tries to provide some tips on how companies can take advantage of advances in analytics to improve business management (I have not completely read the book yet). They show how many types of analytical tools, from statistical analysis to qualitative measures like systematic behavior coding, can improve decisions about everything from what new product offering might interest customers to whether marketing dollars are being most effectively deployed. In their previous book “Competing on Analytics”, Thomas Davenport showed how pioneering firms were building their entire strategies around their analytical capabilities.
Data mining and analytics is new area and Mr. Davenport makes a compelling case for management to use data smartly to make strategic decision, I think depending on ‘data’ to make all the management decision is not wise. Remember how the new breed of data ‘guys’ at Wall Street were going to manage ‘risk’. Read last year’s Wired Magazine article titled “Recipe for Disaster: The Formula That Killed Wall Street” on how the Quants – brainy financial engineers- almost destroyed global banking system. This is also the gist of the book by Scott Patterson WSJ staff reporter titled “The Quants: How a New Breed of Math Whizzes Conquered Wall Street and Nearly Destroyed It”. See his interview on Bloomberg below.
Agreed, companies mentioned in the Economist article will not bring the entire economy down by thier reliance on data, but if they depend on the statistical data alone to make strategic decisions then there is a possibility that they may miss cues on macroeconomic impact, competitive threat etc. It’s OK to adjust the business strategy based on analytics but I don’t think companies should base their business strategy solely on the analytical data they are gathering.
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