Building Sustainable Competitive Advantage through Advanced Analytics

Increasingly sophisticated techniques have made analytics pivotal to business success in a tight economy, while a shortage of skilled analysts in the U.S. is driving a move towards offshoring this activity.

Many experts see business analytics as an overarching strategy to spark top–line growth and stimulate improvements in productivity and efficiency, which can drive healthier bottom lines from reduced costs and increased revenue.

Business Drivers for Analytics

There are four major forces at play across industries that compel businesses to seriously consider how and where analytics should be strategically deployed. These are: consumer deleveraging, persistent consumer frugality, increased regulations (especially in banking and other financial services), and an overabundance of data (see Figure 1). The vast profusion of data, in fact, is enabling organizations to expand the role analytics plays from mere reporting to more predictive, a capability that will no doubt continue to evolve as new applications emerge (see Figure 2).

Figure 1

Figure 2

Organizations would do well to deploy analytics to build differentiating capabilities in an environment where new technologies are rapidly emulated and breakthrough innovations in products and services are becoming rare. According to a study published by the MIT Sloan Management Review, top performers place a greater premium on focusing analytics on innovation than lower–performing organizations.¹ For such organizations, “analytics as a strategy” is championed by top leadership and then instilled in decision makers at every level of the organization. Using analytics improves top– and bottom–line performance (see Figure 3).

Analytics Use in Three Industries

Retailers, banks and consumer goods industries are emerging as the poster boys of effective use of analytics. These industries are flooded with overwhelming data about customers and are among the companies most affected by the recent recession.

Retail

Analytics is impacting the retail industry in a big way. As data proliferates and analytics tools become de rigueur, retailers are looking to apply more timely and relevant business insights in the following ways:

• Clienteling analytics: Brooks Brothers and Nordstrom analyze past purchases and suggest future products or recommend a marketing or sales approach to associates that could yield more revenue from particular customers.
• Real–time offer: With better real–time availability of shopping cart information, and with automated rule engines or rapid scoring of purchase behavior, it is possible to offer product promotions and discounts in real time.
• Sentiment analysis: This can be used to better understand what customers are thinking about a particular product. Qualitative analysis of consumer behavior on Web pages, blogs and social media can help determine customer attitudes toward particular products.
• Video analytics: This is used to summarize patterns and activities in video images and to create alerts for particularly undesirable (or desirable) behavior where human viewing would be required.

Banking

The recent recession took many banking executives by surprise, who did not fully understand how their banks were making money, what their risk exposure was (relative to a dizzying array of novel and more complex financial instruments) and how the evolving global credit crisis would impact them.

• Social media analytics: With the help of these tools, many retail banks are listening to conversations on social media sites such as Facebook, Twitter and Linkedin and gleaning more granular information about their customers.
• Spend analytics: These tools are used to convert corporate data into spend intelligence. The actionable reports that are generated include bypass spend, supplier diversity and business unit spend variance.
• Compliance analytics: These tools offer financial and risk reporting solutions related to financial statements and/or compliance and risk management, monitoring and regulatory reporting.

Consumer Goods

Consumer goods companies are positioned to harness the power of analytics to build their competitive strategies around data–driven insights. Doing so allows them to identify more profitable customers, accelerate product innovation, optimize supply chains and pricing and identify the true drivers of financial performance.

• Supply chain analytics:² Historical algorithms and supply chain management models based on past demand, supply and business cycles are being supplanted by the capacity to predict the future.
• Segmentation analytics: By creating accurate customer segments, consumer goods companies can personalize promotions and create more effective marketing messages for a targeted segment.

Analytics as a Service: The Next Frontier

Analytics has traditionally been an in–house endeavor. Typically, companies established an entire department with highly skilled staff who could make sense out of vast quantities of data and help management make better decisions. But many organizations soon realized they faced a growing shortage of skilled manpower to carry on these activities.

This situation, coupled with the growing pool of skilled talent available in countries such as India, China, Hungary and Argentina, has fueled the decision to globally source more and more analytics capabilities. This is driving a new business model known as knowledge process outsourcing (KPO), which builds on the proven advantages of global sourcing to not only drive cost savings but also provide access to more highly skilled resources. Analytics is a key component of KPO.

Alongside KPO is the rapid emergence of virtualization, cloud computing and business process as a service³ (BPaaS). Under a BPaaS scenario, analytics (applications, infrastructure and people) can be rented on a variable pricing model (i.e., number of users served), with very limited upfront capital expenditures.

We foresee that applying analytics to business problems with globally sourced talent, working in a virtualized environment, will be the defining point for winning firms.

Read the full white paper, Building Sustainable Competitive Advantage with Advanced Analytics (PDF) or learn more about Cognizant's enterprise analyticspractice.

Footnotes

¹Analytics: The New Path to Value, MIT Sloan Management Review and IBM Institute for Business Value, Oct. 24, 2010.

²Jerry O'Dwyer and Ryan Renner, The Promise of Advanced Supply Chain Analytics , Supply Chain Management Review, January 4, 2010.

³BPaaS refers to the provision of business services encompassing the underlying IT infrastructure, platform and skilled manpower, to run specific business processes in a virtual, globalized and distributed operating model.