Analytics – Just a Skill, or a Profession?
Using analytics that include statistics is a skill that is gaining mainstream value due to the increasingly thinner margin for decision error. It is necessary to gain insights and inferences from the treasure chest of raw transactional data that so many organizations have now stored (and continue to store) in a digital format. Organizations are drowning in data but starving for information. The article states:
In field after field, computing and the Web are creating new realms of data to explore – sensor signals, surveillance tapes, social network chatter, public records and more. And the digital data surge only promises to accelerate, rising fivefold by 2012, according to a projection by IDC, an IT research firm … Yet data is merely the raw material of knowledge. We’re rapidly entering a world where everything can be monitored and measured, but the big problem is going to be the ability of humans to use, analyze and make sense of the data … (Analysts) use powerful computers and sophisticated mathematical models to hunt for meaningful patterns and insights in vast troves of data. The applications are as diverse as improving Internet search and online advertising, culling gene sequencing information for cancer research and analyzing sensor and location data to optimize the handling of food shipments.
The application of analytics is becoming mainstream, but will senior executives realize it?
How Do Executives and Managers Mature in Applying Accepted Methods?
One of my co-workers at SAS, Retha Keyser, recently shared with me an astute observation on how managers mature in applying progressive managerial methods. She noted that roughly 50 years ago, CEOs hired accountants to do the financial analysis of a company, because this was too complex for them to fully grasp. Today, all CEOs and mainstream businesspeople know what price-earnings (PE) ratios and cash flow statements are and that they are essential to interpreting a business’ financial health. They would not survive or get the job without this knowledge.
Retha then recognized that 20 years ago, CEOs of companies did not have computers on their desks. They did not have the time or specialized skill to operate the complex machines and applications, so they had their secretaries and other staff do this for them. Today, you will become obsolete in the business world if you don’t possess multiple electronic devices, such as laptops, mobile phones, BlackBerrys and PDAs to have the information you need at your fingertips.
Business Analytics are the Next Wave
Today, many businesspeople don’t really know what predictive modeling, forecasting, design of experiments or mathematical optimization mean or do, but over the next 10 years, use of these powerful techniques will have to become mainstream, just as financial analysis and computers have, if businesses want to thrive in a highly competitive and regulated marketplace. Executives, managers and employee teams who do not understand, interpret and leverage these assets will find it a challenge to survive.
When we look at what kids are learning in school, that is certainly true. I was taught mean, mode, range and probability theory in my first-year university statistical analytics course. Children today have likely learned those concepts in the third grade. They are taught them in a practical way. Learning about median, interpolation and extrapolation follow in short succession. We are already seeing the impact of this as Generation Y/Echo boomers enter the workforce – they are used to having easy access to information and are highly self-sufficient in understanding its utility. The generation after that will not have any fear of analytics nor will they look toward an "expert” to do the math.
There is always risk when decisions are made based on intuition, gut feel, flawed and misleading data or politics. In the popular book, Competing on Analytics: The New Science of Winning, author Tom Davenport makes the case that increasingly, the primary source of attaining a competitive advantage will be an organization’s competence in mastering all flavors of analytics. If your management team is analytics-impaired, then your organization is at risk. Analytics is arguably the next wave for organizations to successfully compete and optimize the use of their resources, assets and trading partners.
Substantial benefits are realized from applying a systematic exploration of quantitative relationships among performance management factors. When the primary factors that drive an organization’s success are measured, closely monitored and predicted, that organization is in a much better situation to adjust in advance and mitigate risks. That is, if a company is able to know – not just guess – which nonfinancial performance variables directly influence financial results, then it has a leg up on its competitors.
Gary Cokins is the founder of Analytics-Based Performance Management LLC, an advisory firm. He is an internationally recognized expert, speaker and author in advanced cost management and performance improvement systems previously a principal consultant with SAS. You can contact him at firstname.lastname@example.org. For more of Cokins' unique look at the world, visit his website at www.garycokins.com.