Pros and Cons of Analytics in Business

Final Research Project Report

Subject: Pros and Cons of Analytics in Business

Prepared By

Ritesh Anand

MBA Student - Richard Ivey School of Business

Under the guidance of

Prof. Kyle Murray

Date: 1st June, 2008

Table of Contents Page No

What is Analytics 3

Retail Analytics 5

Supply chain management 5

Customer management 6

Internal benefits 7

Web Analytics 7

Monitor visitors 7

Planning better marketing strategy 8

Regular optimization of Website 8

Internal benefits 9

Banking Analytics 9

Pricing Analytics 10

Customer Segmentation Analysis 10

Customer Lifetime value Analysis 10

Churn Analytics 10

Improving Hiring process 11

Stopping Fraud 11

The down side of analytics 12

What is Analytics

In a nut shell it's the tool or application which helps in making decision through detailed analysis. It could be use of statistical tools or econometric analysis to gain more knowledge or insight on a particular situation and make a fact based decision.

Analytics is gaining popularity by the day; today the business wants to make any decision based on fact rather than gut. The business of today has become very challenging, the world is becoming flat and the competition could be from any part of the world.

The consumers have also become very demanding as they have plenty of option to choose from, this has forced the businesses to understand their customers thoroughly to serve them better. Acquiring a new customer would cost 5-6 times more than retaining an existing customer. This has encouraged the organizations to dig deeper and gain more customer insights to satisfy their needs.

One more reason why customer analytics is gaining importance is because it's making the marketing department more accountable. In marketing we say that you waste half of your spending but don't know which half. It's very difficult to keep track of advertising expenditure, because it's hard to measure customer communication and also its affect on the profitability of the organization.

The use of analytics varies in different industries. Some industries have adopted it more than others, for example banking and telecom industries have adopted more than construction or cement industry. The application of analytics is not only limited to customer data analysis but can be used for suppliers or even internally with other functions like manufacturing, finance, research & development and Human resources.

In manufacturing one area of application could be to identify which product can give more profitability, so a company can work on different product assortment and analyze the different quantities to arrive at the right product with optimum quantity which can be produced to maximize the profitability of the firm.

In finance, the area of cost management is one area where analytics has been used extensively. Activity based costing is used to identify the actual cost incurred in any department or cost centre. This helps us exactly in understanding the organization resource cost on products and services provided to its customers. This analysis helps the firm in understanding areas of cost reduction and improves profitability.

In research and development the use of analytics is to predict the chances of success of the particular experiment. The importance of past data and its analysis is very critical for the success of future products. This helps the R&D to reduce the chances of failure and ultimately reduce cost and expedite the process of new product development.

In human resources, one area where analytics is used is in the hiring process. The organization uses various hiring tools like psychometric tests, aptitude tests, case interviews, assessment centres to identify the right candidate for the job. Google for example have almost 8 rounds in their selection process which helps them in hiring the right candidate. This is one of the reasons why the attrition rate of Google is much below the industry standards.

In order to be an analytical organisation and get the competitive advantage the support from top management is mandatory. Harrah Entertainment success which is the classic story of turnaround through the use of analytics