Competing on Analytics: The New Science of Winning (Hardcover)

by Thomas H. Davenport (Author), Jeanne G. Harris (Author)
Key Phrases: analytical competition, analytical competitors, analytics and business performance, Capital One, United States, Best Buy (more...)

Editorial Reviews

Review
"...the traditional ways of seeking competitive advantage are redundant and...the future lies with the ability to analyse the very considerable volumes of data it amasses about itself." --The Financial Times, April 18, 2007

"Competing on Analytics" is hardly the last word on the matter, but it is a useful primer for a business field that seems likely only to grow in importance. --The Wall Street Journal, April 18, 2007

Intuition is useful in business. But...it isn't enough --The Wall Street Journal, October 23, 2007

Product Description
You have more information at hand about your business environment than ever before. But are you using it to "out-think" your rivals? If not, you may be missing out on a potent competitive tool. In "Competing on Analytics: The New Science of Winning" , Thomas H. Davenport and Jeanne G. Harris argue that the frontier for using data to make decisions has shifted dramatically. Certain high-performing enterprises are now building their competitive strategies around data-driven insights that in turn generate impressive business results. Their secret weapon: Analytics: sophisticated quantitative and statistical analysis and predictive modeling. Exemplars of analytics are using new tools to identify their most profitable customers and offer them the right price, to accelerate product innovation, to optimize supply chains, and to identify the true drivers of financial performance. A wealth of examples - from organizations as diverse as Amazon, Barclay's, Capital One, Harrah's, Procter & Gamble, Wachovia, and the Boston Red Sox - illuminate how to leverage the power of analytics.

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Product Details

• Hardcover: 240 pages
• Publisher: Harvard Business School Press; 1 edition (March 6, 2007)
• Language: English
• ISBN-10: 1422103323
• ISBN-13: 978-1422103326
• Product Dimensions: 9.1 x 6.1 x 0.9 inches
• Shipping Weight: 1.1 pounds (View shipping rates and policies)
• Average Customer Review: 3.8 out of 5 stars See all reviews (66 customer reviews)
• Amazon.com Sales Rank: #8,832 in Books (See Bestsellers in Books)

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Most Helpful Customer Reviews

270 of 324 people found the following review helpful:

3.0 out of 5 stars "Analytics" with flawed logic (2.5 stars), July 12, 2007

By	A. J. Sutter (Tokyo, Japan) - See all my reviews (TOP 1000 REVIEWER)    (REAL NAME)

This book is, for the most part, a disappointing mix of fallacy, circularity, inconsistency, banality and utopian promises. If you've read books such as N. Taleb's "Fooled by Randomness", P. Rosenzweig's "The Halo Effect", or, for the classically educated, D. Fischer's comprehensive "Historians' Fallacies" (1970), you can easily while away a few lazy hours spotting the bad reasoning throughout this book. I'll give a few examples in a minute or two.

The effect is more disappointing than infuriating because, unlike many other business authors, the authors aren't claiming to have some unique insights or to have discovered some new principle of strategy; their aims are refreshingly modest. About the best I can say for it is (a) if you never read the January 23, 2006 Business Week cover story "Math Will Rock Your World" (which, as of this writing, was available for free online) you can learn that sophisticated mathematical tools are being used in business, and that the market value of math Ph.D.s is increasing, and (b) if you did read that article and don't know much else about these tools, you can learn a little bit of terminology/jargon from the text boxes scattered throughout the book, and maybe a little bit about the political problems of implementing them (@145-146). As other reviewers have pointed out, the book won't teach you how to use or implement such tools. (The authors are forthright about this, e.g. @22.) Unfortunately, the authors also don't give any concrete illustration, with formulas or pictures or even an extended analogy, of how any such tool is used; they merely assert the tools' efficacy.

Or rather, -- and this is where the trouble begins -- they don't merely assert, they *emphatically* assert, as in the book's rhapsodic concluding paragraph about what the future looks like for analytic competitors (@186): "They'll get the best customers and charge them exactly the price that the customer is willing to pay ... They'll have the most efficient and effective marketing campaigns and promotions. Their customer service will excel ... Their supply chains will be ultraefficient, and they'll have neither excess inventory nor stock-outs," etc., a prophetic vision of near-Biblical proportions (cf. Dvorim a/k/a Deuteronomy, Chapter 11). (However, I was stumped by one item in this catalogue of blessings for the faithful: "They'll have the best people or [sic] the best players in the industry" -- what's the difference?)

Having treated of utopian promises, here are a few examples of the other flaws I mentioned:

A. FALLACY (and related sins): The most obvious ones in the book are: (i) confusing causation with correlation, (ii) attempting to lead the reader into such confusion, and (iii) "post hoc, propter hoc" (if Y comes after X, Y must have been caused by X).

(i): At page 178, the authors discuss "direct discovery technologies" that mine data and would "let managers go directly to the cause of variances in results or performance. This would be a form of predictive analytics, since it would employ a model of how the business is supposed to perform, and would pinpoint factors that are out of range in the causal model of business performance."

First we need to deal with a textual ambiguity: the meaning of "supposed" in this context. If "supposed to" is normative -- i.e. meaning "is desired to" -- then to call technology "predictive" when it uses such a model is quite a stretch. So does "supposed to" have a more neutral meaning, like "is anticipated to"? I'll assume that this fits the context better.

Now let's get to the real problem: The model is looking at results and performance -- i.e., the past. As statistical programs are wont to do, the model can identify correlations; and let's assume that it will make predictions based on the observed correlations (there are some commercial software packages that promise this). That is quite different from divining causes, which nonetheless is what the authors have twice asserted in this passage. I leave aside the question of predictive value based on past results; read Taleb or your mutual fund prospectus ("Past results are no guarantee of future performance").

(ii) At pp. 46-47, the authors describe correlations between "low performance" in using analytics and financial underperformance, and "high performance" in using analytics and financial overperformance. The ratings of analytics and financial performance are based on self-evaluations, not objective measures. This is the "halo effect" in spades, as most recently described in Rosenzweig's book -- happy (profitable) companies are happy about everything, and unhappy (less profitable) companies blame themselves about everything. More to the point, though: the companies in these two groups make up an aggregate of only 29% of their sample. They say nothing about the middle 71%. For all we know, "high performance" in analytics also correlates well with mediocre financial performance.

(iii) At pp. 18-19, the authors tell a cautionary tale about the Red Sox manager who defied the quants in the 2003 American League Championship Series against the Yankees: Red Sox analysts "had demonstrated conclusively" that pitcher Pedro Martinez became much easier to hit against after about 7 innings or 105 pitches, and warned the manager that "by no means should Martinez be left in the game after that point." However, "in the fifth [sic] and deciding game of the series," the manager allowed Martinez to continue pitching into the 8th inning. The result? "[T]he Yankees shelled Martinez. The Yanks won the ALCS, but [the manager] lost his job. It's a powerful story of what can go happen if frontline managers and employees don't go along with the analytical program." Sounds like a sportscaster channeling the Borg.

Even if we take this story at face value, one has to wonder, was that all there was to it? Does the Red Sox' losing the series after Martinez pitched into the 8th inning mean that his pitching was the cause? Was there bad fielding involved, for example? Or did the Yankees' adrenalin have anything to do with it? And what was the score when Martinez was removed?

Thoughts like these moved me to look up the box score of the game. First of all, Martinez didn't pitch in the fifth game -- probably what the authors were referring to was the 7th game. In that game, it's true, Martinez gave up 3 runs in the 8th inning. But what was the result? The Yankees only TIED the game, 5-5, to that point. They didn't win until the bottom of the 11th inning, when they scored one more run (off the third Red Sox pitcher brought in after Martinez). By the way, the game was in New York, so do you think the home crowd's energy might have been a factor? "Post hoc, propter hoc": it don't come any better than this.

B. CIRCULARITY: E.g.: At pp. 48-49, one of the 5 characteristics of analytic capabilities possessed by companies "that compete successfully on analytics" is that such capabilities are "better than the competition [sic]." I guess that's why they "compete successfully." BTW, two others in the list of five are that such capabilities are "hard to duplicate" and "unique" (@48). Same cannot be said of items in this list.

The discussion about the ideal characteristics of executives in "analytic competitors" (@135-136) hints at a more substantive circularity. One such characteristic an exec should possess is he or she should be a "passionate believer in analytical and fact-based decision making". However, when describing how "analytical leadership emerge[s]" (@136-137), the authors can only adduce cases in which the leaders (i) found a company on the principle of using analytics from the get-go, (ii) come in as a new senior exec bringing with them the idea of using analytics, or (iii) are a younger generation in a family-owned business. The authors don't mention anyone who "saw the light" and became a convert. So companies whose leaders are passionate about analytics will use analytics.

C. INCONSISTENCY: E.g.: The "most analytically sophisticated and successful" companies use analytics, inter alia, to support "a distinctive strategic capability" (@23). "Having a distinctive capability means that *the organization* views this aspect of its business as what sets it apart from competitors" (@24; emphasis added). However, "not all businesses have a distinctive capability" -- e.g., Kmart, USAirways and GM don't, because "to *an outside observer* they don't do anything substantially better than their competitors" (id., next paragraph; emphasis added.)

D. BANALITY: Parts of the book (esp. Chapter 6, a five-step "road map to enhanced analytical capabilities"), sound like a MadLibs that could just have easily been filled in with strategic planning, Six Sigma, or dozens of other management fads through the decades. E.g., a "Stage 4" company is defined as "analytics are respected and widely practiced but are not driving the company's strategy" (@ 125); "It is important to specify the financial outcomes desired from an analytical initiative to help measure its success," @ 127; "Assuming that an organization already has sufficient management support and an understanding of its desired outcomes, analytical orientation, and decision-making processes, its next step is to begin defining priorities," @id.

Finally, the whole enterprise of "analytics" has a certain banality too, through no fault of the authors of this book: it's one more in a string of dreary revivals of Taylorism on steroids, albeit this time with 21st-Century pharmaceutical know-how -- and with far greater potential to invade personal privacy. Some of its practitioners think it would be a good idea to, say, deny jobs to people simply on the basis of low credit scores, since people with low credit scores can be assumed to have lots of other problems too (reported without any explicit endorsement or disapproval by the authors @ 26). That such an "analytical" criterion might compound those folks' problems and low credit scores is not worth a mention. Here is the point at which the authors' omissions and gaffes stop being silly, and where banality stops being benign. It is more than a disappointment that you won't find ethics discussed in this book.

29 of 32 people found the following review helpful:

3.0 out of 5 stars Analytics for beginners, June 8, 2007

By	Peter Lorenzi (Maryland, USA) - See all my reviews (TOP 1000 REVIEWER)

This is the glib, anecdotal book built around a basic, almost stereotypic Harvard Business Review five-level model, this one focusing on various levels of use of analytical methods, systems and processes. At the lowest level, there is almost nothing going on in terms of analytics and, at the highest level, analytics are systematic, widespread and strategic. You can figure the middle three levels. In my experience, there would be some use in providing a zero-level or even negative-level use of analytics, those firms operating in the "data free" zone. They would provide some humor and color, not just useful references.

As to the subtitle, "The new science of winning," to be clear, "competing" and "winning" are not synonymous or even necessarily linked. Competing is not necessarily about winning and winning isn't as important as remaining competitive in the long run. Winning isn't everything and it is not the only thing.

The anecdotes tend towards Harrah's, the Boston Red Sox and several less-than-mainstream firms, along with a few data-crazed firms, e.g., Google. More and more detailed examples of the first-rate use of analytics by top competitors in the corporate world would have been welcome. Personally, Harrah's use of analytics to maximize gambling revenues strikes me as exploiting people's addictions. As to the Red Sox, at least they finally won a Series. As to data, the authors seem to think that 'data' is a singular noun, which leaves me somewhat perplexed as to the analytics applied to editing the text.

The book is shorter than the listed 240 pages. The anecdotes tend to be repetitive, the analytics more descriptive than analytic, and the five-level model gets driven home right away and then driven in repeatedly. We can probably all agree that the information age provides the capacity to mine data, to analyze it thoroughly, to disseminate it approporiately and widely, to use it strategically, and to provide the essential leadership to hire the people, structure the organization, and put the entire system in place in the first place.

"Competing" was not as boring as I expected it to be and not as informative as a I wanted it to be.

92 of 111 people found the following review helpful:

5.0 out of 5 stars The way every company will compete over the next 5 years, February 25, 2007

By	M. McDonald (Chicago, IL United States) - See all my reviews (TOP 1000 REVIEWER)    (REAL NAME)

Davenport and Harris have followed up their influential HBR article with a well thought out, clearly communicated and detailed analysis of how companies will really compete in the future -- by using what they know to take the right actions throughout their companies. Davenport and Harris call these types of companies analytical competitors and they look at the world differently and produce significantly different results.

Analytics is becoming a requirement in every industry as customers have choice and companies face increased competition. They define analytics as "the extensive use of data, statistical and quantitative analysis, explanatory and predictive models and fact based management to drive decision and actions" This may sound like an academic book. But Davenport and Harris go well beyond hyping a new idea to provide dozens of practical examples from companies we all know. This blend of explaining a new way of competition using practical examples from proven companies makes this book a must read for business people.

The book breaks down into chapters that discuss each aspect of becoming an analytical competitor.

Chpt 1: The Nature of Analytical Competition describes how companies can consistently beat the market by knowing more and doing more with what they know. This chapter ties analytics with competitive strategy in a way that goes well beyond traditional market-ese.

Chpt 2: What makes an Analytic Competitor provides a detailed description and checklist of attributes that these leading companies share. The interesting point is that the examples range across industries demonstrating that

Chpt 3: Analytics and Business Performance looks at how this technique drives top and bottom line growth. This chapter demonstrates that analytics is more than just a good idea it's a good idea that business professionals should get their heads around.

Chpt 4: Competing on Analytics with Internal Processes connects information with the capabilities that form the basis for competitive advantage. This chapter dispels the myth that analytics is purely a marketing tool for customer segmentation and messaging.

Chpt 5: Competing on Analytics with External Processes focused on how companies use information for partnering and collaboration with suppliers. This is particularly critical to companies as many outsource and create relatively `uninformed' partners.

Chpt 6: A Road Map to Enhanced Analytic Capabilities connects these benefits with specific stages and actions required to become an analytic competitor

Chpt 7: Managing Analytical People proves that Davenport and Harris have investigated, thought through and are providing practical advice as they address key leadership and management issues that arise when information becomes an integral part of operations.

Chpt 8: The Architecture of Business Intelligence clarifies a stumbling block for many who think of analytics as just something they can buy as part of their BI solution. Its not and understanding the architecture and difference is something that separates those who buy tools and those who compete with their capabilities.

Chpt 9: The future of Analytical Competition highlights future issues and how analytics will shape markets as people, devices and activities become smarter.

There are few books that you want to read from start to finish and fewer that you recommend to peers. This book is both. So read this to get ahead of the competition and stay there.