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Strategic Business LeadershipExecutive Education Seminar
Analytics in Strategic Decision Making Brazil Executive Seminar, April 2014
PRESENTED BYDR. FAIZUL HUQOHIO UNIVERSITY
AGENDA
2
• Introduction to Business Analytics.
• Example of Analytical Tool Implementation for Supply Chain Sustainability
• How to make Analytics work for Strategic Success
• Practice Quiz
Introduction to Analytics
What is Analytics?The extensive use of data, statistical and quantitative analysis, explanatory and predictive models and fact-based management to drive decisions and actions.The most recent step in increasingly sophisticated and effective approaches to providing technical assistance to decision-making.
Analytics Chronology
Scientific Management• 1890’s –
1920’s
Operational Research• World War
II
Operations Research/ Management Science• 1950’s
Decision Support Systems• 1970’s
Enterprise Resource Planning• 1990’s
Related MethodologiesBusiness Intelligence
Competitive Intelligence
Business Process Management
Business Analytics
Information-based Strategy
Hierarchy of Analytics Sophistication
Analytically Impaired
Localized Analytics
Analytical Aspirations
Analytical Companies
Analytics Competitors
Com
petit
ive
Adv
anta
ge
Sophistication
Consumer Products
• Anheuser Busch• E & J Gallo• Mars• Proctor & Gamble
Financial Services
• Barclay Bank• Capital One• Royal Bank of Canada• Progressive Casualty• WellPoint
Hospitality & Entertainment
• Boston Red Sox• Harrah Entertainment• Marriott International• New England Patriots
Industrial Products
• CEMEX• John Deere & Company
Pharmaceuticals
• AstraZeneca• Solvay• Vertex Pharmaceuticals
Retail
• Amazon• JC Penny• Tesco• Wal-Mart
Telecommunications
• Sprint• O2• Bouygues Telecom
Transport
• FedEx• Schneider National• United Parcel Service
eCommerce
• Google• Netflix• Yahoo!
Who Uses Analytics (continued)
NetflixStarted in 1997 by an angry Blockbuster customerLooked like another dot.com flop
Online orderingSnail mail deliveryCompeting against giant with $3 Billion in Revenues
Grew from $5 Million 1999 revenue to $1 Billion 2006 revenue
Netflix- Competing Through Analytics
•Deliver a personalized web page for each customer• Cinematch Movie Recommendation Engine• Developed by a mathematician• $1 Million prize for 10% improvement by an
outsider
•Discovering and focusing on most profitable customers
Harrah’s Entertainment – Competing Through Analytics
• No override of revenue management system
• Measuring customer loyalty and targeting service levels accordingly
• Optimize range and configuration of games
• Provide options at bottlenecks
Characteristics of Analytical Executives
Passionate believers in analytical and fact-based decision making
In God we trust;
All others bring data.
Barry Beracha, CEO of Earthgrains
Do we think this is true?
Or do we know?
Gary Loveman, CEO of Caesar’s Entertainment
Characteristics of Analytical Executives
Passionate believers in analytical and fact-based decision making
Appreciate analytical tools and methods
Willing to act on the results of analyses
Willing to manage a meritocracy
Tools and Techniques in AnalyticsSpreadsheets
Optimization Models
Explanatory & Prediction Models
Decision Analysis Models
Data warehousing and data mining
Online Analytical Processing (OLAP)
Digital Dashboards
Factors in Decision Making Multiple (antagonistic) goals and/or objectives
Individual versus group decisions
Subjective probability assessments
Interactions among decisions
Objective probability measurements
Restrictions on decisions
Factors in Decision MakingTime pressures:
• Potential deferment of some decisions
• Possibility of obtaining additional information
One-time versus repetitive decisions
Attitudes regarding risk
ExampleYou meet a stranger who gives you $1000 in cash and then offers you an opportunity to:• Receive an additional $500, or• Watch him flip a coin and receive an additional $1000 if
heads but receive nothing additional if it is tails.
Do you choose to...
• Take the sure thing?• Gamble?
ExampleYou meet a stranger who gives you $2000 in cash but requires that you:• Return $500 immediately, or• Watch him flip a coin and return nothing if heads but
return $1000 if it is tails.
Do you choose to...
• Take the sure thing?• Gamble?
Gamble
Take Sure Thing$1,500
Heads: P=0.5 $2,000
Tails: P=0.5$1,000EV = .5($2000)+.5($1000)=$1500
Decision Tree Analysis
Decision AnalysisAn attempt to make decision making explicit by structuring the decision process
Permits the analysis of the consistency of decision making
Assists supervision in evaluating the decision making of subordinates
Neither necessary nor sufficient to produce good results but may increase the frequency of obtaining good results
Allows for consistent and unbiased comparisons of options
Good Decision – Bad OutcomeIn 1965, Andre-Francois Raffray (age 47) agreed to pay $500 a month• To Jeanne Calment (age 90) until her death• To buy her apartment in Arles “for life”
In December 1995, Raffray died at age 77 having paid more than $180,000 for the apartment
• And Jeanne celebrated her 120th birthday• Raffray’s widow and children are obligated to continue
payments
Decision ModelsAssist decision makers by providing information helpful in resolving a pending decision
Always involve a degree of abstraction and simplification of the actual decision environment
Do not create information, but rather concentrate and focus information
The Basic Proposal of Decision Analysis
Improvements in the decision making process will occur if the methods of science are applied to the decisions which managers must make.
Something is to be gained from making the learning-adaptive processes of management more nearly like those of science.
Problem Recognition
ImplementModel
Termination
EvaluateModel
Effectiveness
Simplify Model
Correct Model
Enrich Model
Model Solution And
Validation
ProblemDefinition
ModelFormulation
Data Gathering and
Processing
Modeling and Decision Making
DHL Application of Analytics for Sustainability
The degradation of the environment has led many governments and customers to pressure businesses to make their operations more environmentally friendly. The case illustrates an effective example of corporate social responsibility. Specifically, it demonstrates how a small increase in a supply chain budget can drastically reduce carbon dioxide emissions in the transportation of LCD TVs from their manufacturing bases to a distribution centre.
source: Ivey/NUS Cases
DHL Sustainability Case Cont…
Issues:• Environmental Sustainability; Linear Programming; Logistics;
Optimization Analysis; Spreadsheet Modeling; Corporate Social Responsibility; China
Disciplines:• Management Science, Operations Management, International Industries:• Transportation and Warehousing Setting:• China, Large, 2011Please look at the Excel Spreadsheet Handout with the Data
Making Analytics Help in Strategic Advantage
Make Analytics a Common Practice in the Company by Expending Effort to Always Apply Analytical Tools for Decision Making
Get Buy In from Top to Bottom of the Company That Will Help Build an Operational Infrastructure for the Application of Analytics
Employ the Workforce Necessary to Effectively and Successfully Implement Analytics for Business Decision Making
In order for a company to be successful in their use of Business Analytics(BA) it must expend the most effort to truly implement BA in their organizational decision making
Make Analytics a Common Practice in the Company by Expending Effort to Always Apply Analytical Tools for Decision Making
The successful use of BA requires building Operational Infrastructures within its Supply chain and Intra-organizational entities that can continuously support the most effective use of BA.
Get Buy In from Top to Bottom of the Company That Will Help Build an Operational Infrastructure for the Application of
Analytics
For successful use of BA in organizational decision making the personnel must be in place who are dedicated to and capable of effectively employ BA for making decisions.
Employ the Workforce Necessary to Effectively and Successfully Implement Analytics for Business Decision Making
Make Analytics a Common Practice in the Company
Permeate the Company’s Decision Making Process With the Use of Business Analytics
Make Decision Making an Integrated Process Across The Company
Make the Use of Analytics Strategically and Mission Focused
Be More Aggressive in Acquiring/Learning Sophisticated and Specific analytical Tools
Permeate the Company’s Decision Making Process With the Use of Business Analytics
• Expand BA practices where feasible• Companies with reliance on BA are more
successful• Low reliance on BA for Decision making leads
to less effective implementation of BA• Make BA second nature within the company• Shift BA use from occasional to routine leading
to greater effectiveness
Reliance on BA and Effectiveness
Source: SAS Institute/Bloomberg Research Services
Reliance on Analytics
Source: SAS Institute/Bloomberg Research Services
Make Decision Making an Integrated Process Across The Company
• Integrate Analytics organization wide• Do not isolate BA to a single department
function• Avoid siloing of data and functionalities• Breakdown Silos• Create cross-divisional data teams• Create transparency through data sharing and
process cooperation across the company
Cross Divisional Integration
Source: SAS Institute/Bloomberg Research Services
Make the Use of Analytics Strategically and Mission Focused
• By bringing Analytics to task a company is twice as likely to be successful then not
• Majority of companies using BA employ Analytics heavily in Finance
• Majority of the successful companies use Analytics in Marketing and Sales, SCM, and Product Development
• Start with one or two BA initiatives because employing Analytics can be complex.
Summary Data of Analytics use in Functional areas
Source: SAS Institute/Bloomberg Research Services
Be More Aggressive in Acquiring/Learning Sophisticated and Specific analytical Tools
• Use Business reporting, KPI, and Dashboards• Employ sophisticated Forecasting tool• Undertake Data and Text Mining• Use Simulations and Scenario development• Employ Web Analytics
Use of Analytics Tools by Companies
Source: SAS Institute/Bloomberg Research Services
Build Operational Infrastructure
Articulate a Strategy for Managing and Accessing Data
Acquire and Implement the Appropriate Technology Needed for Data Driven Analytics Activities
Formalize the Data Management Process
Data Access Summary
Source: SAS Institute/Bloomberg Research Services
Articulate a Strategy for Managing and Accessing Data
• Improve the Quality, Integrity, and Consistency of Data
• Increase Accessibility of Data that leads to Positive and Effective BA efforts
• Make Business Information Readily Available to those who need it
• Make the Source of Information and Data Central• Facilitate Data and Information Sharing across
the Company
Acquire and Implement the Appropriate Technology needed for Data Driven Analytics
Activities • Much of BA is fairly low-tech. Such as Standard Electronic
Spreadsheets• Additionally acquire Software and other Technology that is
more Complex and Capable than Standard Spreadsheets• Integrate Software for Data Mining, Forecasting, and
Predictive Analysis into Business Processes• Make the Technology for Accessing the Data needed for
Analysis• Standardize the Technology for Accessing, Integrating, and
Analyzing information from all functional areas.
Use of Technology for Analytics in Firms
Source: SAS Institute/Bloomberg Research Services
Formalize the Data Management Process
• Put in place Appropriate Data Management Processes
• Put in place general Data-Governance Rules and Policies
• Articulate Defined Data Stewardship• Identify Master Data Definitions
Survey Information of Data Management Process
Source: SAS Institute/Bloomberg Research Services
Employ the Workforce Necessary
Get Buy In From The Company Hierarchy For Acquisition of the right Personnel
Establish Clear Lines of Communication Thus Creating Transparency in The Decision Making Process
Hire Talented Analysts and Also Develop Home Grown Ones
Get Buy In From The Company Hierarchy For Acquisition of the right Personnel
• The Three Key areas to focus on are: Senior Executive Buy in Everyday Reliance on Analytics Required Analytics Capability Enabled Talent
Senior Leadership Buy in Data Summary
Source: SAS Institute/Bloomberg Research Services
Perceived Positive Impact
Source: SAS Institute/Bloomberg Research Services
Analytics Capability Enabled Talent
Source: SAS Institute/Bloomberg Research Services
Summary of the Steps Needed• Permeate the Company’s Decision Making Process With the Use of Business Analytics• Make Decision Making an Integrated Process Across The Company• Make the Use of Analytics Strategically and Mission Focused• Be More Aggressive in Acquiring/Learning Sophisticated and Specific analytical Tools• Articulate a Strategy for Managing and Accessing Data• Acquire and Implement the Appropriate Technology Needed For Data Driven Analytics Activities• Formalize the Data Management Process• Get Buy In From The Company Hierarchy For Acquisition of the right Personnel• Establish Clear Lines of Communication s Thus Creating Transparency in the Decision Making Process • Hire Talented Analyst and Develop Home Grown OnesEstablish Clear Lines of Communication Thus Creating Transparency in The Decision Making Process
Formalize the Data Management Process
Acquire and Implement the Appropriate Technology Needed for Data Driven Analytics Activities
Acquire and Implement the Appropriate Technology Needed for Data Driven Analytics Activities
Acquire and Implement the Appropriate Technology Needed for Data Driven Analytics Activities
Striking a Balance
• Data versus Judgment The Optimal Balance depends on the Number of Factors, the Tools, the
People, and the Decision at hand
• Modeling for Decision Making The Modeling tool is Context Dependent.
• Analysis versus Intuition There is no fixed balance between the reliance on Intuition and Experience
and reliance on Quantitative Data and Analysis
Thank you
??QUESTION?
?
Sample Quiz for CAP
• A sample Quiz to Test Your Analytics Acumen• CAP stands for Certified Analytics Professional• The Certification is Given by INFORMS• I will Grade These and Return them to you at
the Banquet.
Thank You.