Thanks to digitalisation, most companies have been sitting on a trove of data for quite a while. Their next challenge is to exploit these data to maintain or improve their competitive positions. To meet this challenge, their management teams must at the same time acquire enough mastery of the data analytics tools and develop a thorough understanding of their market and what lies beyond… or beside it.
Business analytics presents an interesting challenge for management teams. On one hand, executives and high-level managers do understand its strategic importance. On the other hand, to leverage their operational, financial and commercial data to develop new strategic initiatives, they lack two elements:
The first step is to acquire knowledge of business analytics and the various tools that managers can put to use to leverage the data gathered by the company. Armed with that knowledge, management teams can then analyse the company’s operations and the data they generate. That gives them a first grasp of what strategies can be put in place. These strategies can be what I call “defensive” or “offensive”. Defensive strategies are mostly aimed at improving processes, products and services, while offensive strategies are focused on developing entirely new offerings or conquering new markets. Needless to say, offensive strategies lead to better results, but experience suggests they remain the exception rather than the rule. Indeed, they require both strategic vision and mastery of the underlying technology. In other words, they require a certain maturity that most companies still lack at this stage. Defensive strategies allow them to experiment with business analytics technologies and gradually acquire a better understanding of their potential.
Offensive strategies are one step further: they aim at creating new business models or developing new markets. Understandably, this is something most companies still struggle with. What they excel at, and what earned them their current market position, is the execution of proven business models. Diverting resources to invest them in entirely new ventures requires a switch to “startup mode”, which includes accepting failure as part of the learning process. In other words, it’s a leap of faith most companies are reluctant to take before having sufficiently experimented with the technology.
The first level of defensive strategies is focused on improving processes inside the company. A good example is Marriott: the hotel chain has developed a tool capable of predicting the optimal price to charge for every stay to maximise revenues while still leading to full occupancy, something called price optimisation. Sales volumes and hotel performance improved so significantly that the company decided to extend the tool to the rest of its offerings, for example, seminar rooms and conference facilities. Another favourite area for defensive projects is everything related to predictive maintenance, which allows production units to minimise downtime, with a sizeable impact on production costs. But things can go much further. Take the Mars company, for example. As the confectionery manufacturer depends heavily on cocoa prices, it has started to buy satellite time and use it to closely monitor cocoa-producing areas and use the data it gathers to adjust its procurement policies. Human Resources Management is also a promising area: some companies are now able to rely on their data to prevent burnout or to identify valued employees who are thinking about leaving.
A second level is to use business analytics to smoothen the customer experience by eliminating friction points. Sophisticated chatbots, for example, make 24/7 customer service possible at a fraction of the cost. By freeing up customer service employees to focus on more complex cases, the chatbots improve overall performance and boost customer satisfaction. Several airline companies, such as Delta, are now deploying facial recognition to speed up check-in and boarding processes, offering their passengers a nearly frictionless journey. Another example in the United States is Capital One, a credit card company. It matches customer payments with geolocation data. This allows the monthly expense statements to display logos and pictures of where the expense was made, allowing the customer to verify his statement more easily.
Despite the technological prowess, these strategies are still in the realm of defensive strategies: the aim is to improve existing services, not to create new ones.
Enriching products or services, or creating entirely new ones, are offensive strategies. A good example is UP, a new service developed by Engie for its residential customers. Smart connected meters allow Engie customers to monitor their water and energy consumption in real-time. The software implemented by Engie can also detect abnormal consumption patterns and give early warnings to the consumer. Thanks to a budget for maintenance and repair, UP customers can immediately take action to fix the malfunctioning appliance or the leaking faucet.
Going one step further, some retailers could leverage the daily or even real-time aggregated data from their network of salespoints and sell them to producers, or use them to negotiate rebates. Such information is indeed valuable for producers, as it can allow them to identify demand patterns and plan production accordingly to avoid inventory build-up or increase production to match predicted peaks in demand.
A lot of companies are seeing the potential of business analytics, but still struggle to devise a clear path to increasingly offensive strategies. To help them, the Solvay Brussels School (SBS) has created an Executive Programme in Business Analytics. Its aim: provide managers from different departments with a better understanding of what business analytics is, and what tools are available to leverage their data. Training existing managers allows the participating companies to dramatically improve strategic thinking by including this newly acquired knowledge. To create bridges inside the company, participation is only open to teams consisting of three managers coming from different departments.
Even though the participants are typically not from senior management, the fact that they come back with a concrete cross-functional initiative allows them to act as evangelists inside their company. As insiders, they know which levers to pull and which people to contact in the hierarchy to start setting things in motion. This is a very effective way to jump-start the use of business analytics in increasingly offensive strategies.