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BI and The Street

  • April 25 2007, 11:27am EDT
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A retail executive approached me with a question during a conference a few months ago: "Do the stock analysts covering retail or brick-and-mortar businesses on Wall Street ever base their opinions [buy/sell ratings] in part on the IT effectiveness of the companies they cover?" If so, we reasoned together, if IT prowess could move a stock's value, wouldn't that get the CEO, CFO and board of directors a heck of a lot more acquainted with IT strategy?We sort of went down this path almost two years ago in a chat with our friend Tom Davenport of Babson College, who got a good bit of attention when he started looking at analytical excellence as a means of competitive differentiation. His column in BI Review presaged his work in Harvard Business Review; his resulting book on the topic is a top seller right now and we'll talk to him later in this column. But the question that was posed at the top of this page takes things up another notch by implication: If, as many have said, the two highest priorities of a CEO are to move his stock's price - and stay out of jail in the process - then why not use IT the same way he uses other methods such as M&A or restructuring? Why leave such issues in the hands of middle managers?

It's an interesting thought even if there are a couple of obvious caveats. Stock analyst Ed Maguire at Merrill Lynch covers BI technology companies, but as it applies to mainstream businesses he could see where this question was headed. "What ultimately moves a stock is comfort in an outlook. Most investors aren't keyed into technology and so they judge on results."

On the other hand, if a retailer XYZ could demonstrate the quantifiable value of analytics, why would that have a different effect than, say, laying off 5,000 workers, the kind of thing that surely moves a stock one way or another? BI and predictive analytics is a real differentiator right now to Maguire - as much as it is to Tom Davenport. "What's different about analytics is that the data that is unique to every organization is a proprietary corporate asset that can be used in any number of different ways," says Maguire. "Those who can apply and extract insights in the most effective way are going to have the advantage." Ed likens the corporate scenario to the Moneyball escapades of Oakland A's general manager Billy Beane, who seemed to produce and procure talent better than other baseball teams did - even when presented with the same data everyone else had.

Another caveat: Maguire notes that retailers tend to move in herds that follow a first mover, which many argue preempts sustained competitive technology advantage. Then again, if analytics are the "secret sauce" of competitive BI advantage, then why shouldn't perceived excellence be rewarded by The Street? As Maguire points out and I can also attest, we've seen more than one conference presentation by a CIO conclude with a thought that "The Street liked what we did," referring to rising stock prices that accompanied a technology initiative.

There's also a chance that using IT to drive street estimates could backfire badly, though the risk is probably less than it was in the dotcom days. Still, many observers can recall Nike's notorious supply chain experiment with supply chain vendor i2, after which CEO Philip Knight famously asked, "This is what we get for our $400 million?"

Failings on such a scale seem unlikely now. In fact, Tom Davenport says that today there are a few cases of linkage between stock valuations and technology movements. "Harrahs was one clear example, kind of on two levels. I think the analysts knew they had this analytic asset and the stock went from 14 to 92. Plus, their private equity firm knew Gary Loveman was doing this stuff and they insisted he stick around for six years so they'd keep on performing." Davenport has separately spoken with street analysts who say they factor Marriott's perceived 8 percent revenue advantage over some competitors strictly due to yield management.

Maybe what all this is saying is that the gap between and among IT and business leaders remains when it comes to how to deliver market advantage through technology. Davenport is now more interested in companies that apply analytics to the core factors that drive competitive performance, not the old executive reporting, but predictive reporting. What CFO doesn't want a crystal ball, and how much would he invest to get close to such a tool?

Yet most such IT efforts still emanate from midlevel IT, not boardrooms. There is also the question of technology maturity, says Maguire, and "you won't see a new ERP system necessarily bidding things up." When it comes to unique analytic approaches though, as companies gain leverage from such an investment it could trigger other signals that would make investors bullish. "If you start to see insider buying at a company that just leveraged a big analytic system where they know the value but the street doesn't yet, that's what you look for as a leading indicator."

Legitimately and practically, the best senior leaders are just addressing the process and integration issues that follow organizational redesign, strategic refocusing or M&A. Still, you'd have to think that successfully leveraging analytics as a core competency above the operational level - right in the executive suite - would be sweet dreams for any CEO.

Please write me with your thoughts at

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