Competing on Analytics

The competition between businesses nowadays is becoming more and more precise and hostile. As normal competitive advantages are fading out rapidly. Advantages such as geographic location and barriers are being eroded due to the internet. Proprietary technologies are being copied so fast due to the enormous amount of information and technology that is available for everyone. Thus businesses have been looking for more sources of competition to give them an advantage over competitors. And with the presence of enormous amounts of data that is being provided through point of sale systems (POS), Enterprise resource systems (ERP), and the ongoing transactions and flows of information over the internet. This introduces a new form of competitive advantage, by which businesses have a dynamic, robust insights into their consumer base and supply chain that drive smarter decision making and a more efficient execution. This is achievable by using analytics efficiently. Analytics is simply the extensive use of data, statistical and quantitative analysis, explanatory and predictive models and fact-based management to drive decisions and actions. Analytics is a subset of a larger concept, Business intelligence. Business intelligence is a set of technologies and processes that use the data to understand and analyze business performance. It includes data access, reporting and analytics.

The concept of analytics is not new; as the use of analytics began as early as the 1960's, experiments to use computers for analyzing data and decision making was carried on by researchers and practitioners, in what was called Decision Support Systems (DSS), this was used in narrow activities such as production planning, investment portfolio management and transportation routing. During the 1970's statistical analysis became more mainstream and software packages for statistical analysis were introduced by companies such as SAS and SPSS. Mainly used by senior executives for monitoring and reporting of performance, but not for decision making. The use of data and analytics has come along way since that time; it has become a very complicated field yet offering large advantages for businesses.

Analytics is a concept that could be implemented and used in almost any business process or decision. Where usually managers usually rely highly on intuition for making business decisions, the use of analytics provide more accurate information based on real situations and transactions, which helps managers to make more accurate decisions. Analytics helps in finding and retaining the best employees, targeting the most profitable or loyal customers, improving the supply chain management, and improving almost any other business aspect.

Most market leaders in all fields nowadays rely heavily on analytics, and most of them became the market leaders by the extensive use of analytics to make the best decisions and extracting the most of their business processes. Market leaders in all fields, such as Wal-mart, Harrah's Entertainment, Netflix, Amazon, best buy...etc have gained a lot from their use of analytics. Netflix which is a company in movie renting industry, created not so long ago, was able to drive the market leader, Blockbuster, into bankruptcy. Netflix's main competitive advantage was the use of analytics, which can be seen mostly in their movie recommendation engine, Cinematch. Cinematch analyze customers' tastes and choices by processing huge amounts of data and feedback on movies that each customer has rented, and then recommends movies that each customer might like based on his taste and preference, this give Netflix's site the ability to adapt to each individuals taste. This has increased Netflix's customer's loyalty, and their switching costs. Netflix is also able to identify the most profitable customers to the company and serves them faster, a practice called Throttling, which Netflix's CEO refers to as the fairness algorithm.

Netflix decides how much to pay for the rights of a DVD using its expectations on how many users would rent this movie. The presence of large amount of data, tastes and preferences, feedbacks and user history helps in making better and more accurate predictions regarding the number of people that would be interested in this new movie. Thus a better and more accurate amount of money would be paid, and expenses would be lowered to minimum.

Another example of the use of analytics for competitive advantage is the retail market. An obvious example is the market leader Wal-mart, Wal-mart's success story is discussed in so many books and case studies, and is very obvious that the reason behind their success is the extensive use of Analytics. Analytics in the retail market helps to achieve high performance, by Focusing analytics on leveraging their distinctive capability, having their management committed to analytics and their use in making more accurate decisions. Analytics has effects in improving Customer relationship management by attracting and retaining new customers, connecting suppliers and customers, helping in price optimization, improving supply chain management to lower inventory, and bringing many other competitive advantages to the firm.

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