Every industry has the potential of being transformed by the innovative combination of analytics and modern IT. The question many boards of directors are asking is – “if analytics is such a game-changer, if the disruptive potential of collecting and analyzing massive amounts of data is so powerful, why aren’t we getting the benefits?”
If every enterprise has the same opportunity of creating competitive differentiation … if we have at our fingertips all the tools necessary to create “unmatchable” separation, to use the words of Geoffrey Moore, author of Escape Velocity … if we can “eviscerate the competition” via the informed application of advanced analytics – my words –- why aren’t more enterprises doing so?
In our current decade, the enabling technology is not one technology but a combination of technologies. When one combines all the data made available by cheap sensors and social media, the cheap computing power of the cloud and the easy accessibility of mobile with real-time analytics – one has all the ingredients of a strategy capable of “rendering the competition irrelevant.” This, according to Moshe Rubinstein, professor emeritus of creative problem solving at UCLA and author of The Minding Organization, should be the objective of the CIO.
The Search for Villains
We humans love villains. We like to think that bad things are directly attributable to the bad behavior of bad people. This is a preferred narrative technique in Hollywood, detective novels, and – increasingly – American foreign policy white papers. It is frequently the default trope driving many business stories [See Target data breach]. I talked to 100+ C-level executives in sixteen vertical markets examining how value is created/how value is destroyed in the advanced analytics space. I asked, “Is there a villain behind the failure to capture value from analytics?”
Is the CFO Value Villain #1?
A “person of interest” frequently appearing in any value-crime line-up is the Chief Financial Officer [CFO]. CFOs are reluctant to fund things they don’t understand. Empirically, one finds a bias on the part of CFOs toward funding projects focused on improving the status quo. This, despite the fact, as Stephen Kutzer, the charismatic and very value-savvy CIO at the Atlanta Zoo, shared with 40 CIO colleagues attending the Value Studio [http://goo.gl/4V4LQ7], that in the IT realm, “doing the same thing better is almost always a waste of money.” Kutzer is not saying that better is bad. He is saying that investing in better – along a known trajectory in today’s environment - is frequently subject to diminishing returns. Stephen charts “benefits realized by the enterprise” against “money spent.” True advantage lies not in playing the game better, but in playing a different game. CFOs appear to have trouble understanding this. Advanced analytics can change the game.
As one CIO at a very much in-the-news retailer explained to me:
Let’s say that you purchase three companies and you have to consolidate the distribution channel. A very predictable conversation with the CFO will involve funding a new distribution management system. The CFO is going to go, “That sounds right. Here is the $52 million you need to do that.” But if you walk in to the CFO and say, “Look, I have got untold value sitting out there if I can tap into our own data.” The CFO will ask, “How is that going to work?” The analytic advocate responds “I will discover the value on the road. Just trust me.” The CFO says, “I have heard this so many times. Get out of my office. In fact, I am going to throw things at you if you don’t get out of my office.”
Lack of Awareness – A Villain You Can’t Convict But Can Correct
The CFO is not the only C-Suiter having troubles understanding the true power and value of analytics. The executive leading the loyalty program at a major consumer brand shares the story of how analytics at his company was recently re-organized. The new analytic boss came to the loyalty program leader’s office and asked, “Can you explain to me what a ‘Propensity Model’ is?” Propensity models make predictions about a customer’s future behavior. The surprise here is not that a person who does not know what a propensity model is was running analytics at a major consumer brand. The shock, according to the loyalty leader, is that he had worked with his new boss for almost twenty years and had always assumed that people had a rudimentary understanding of what predictive analytics is. The loyalty leader was concerned that he had been essentially incomprehensible to his executive colleagues for over a decade.
The value villain here is not an individual. It is ignorance of the possibilities of advanced analytics. Michael Keithley, the award winning CIO at CAA [Creative Artists Agency] believes that someday in the future, line of business executives will be tested for technology competence. The competence being evaluated is not how the technology works, but how the technology creates value. Part of the pre-reading for this “Executive Technology Competence” audit might be The New Know: Innovation Powered by Analytics, which provides a snapshot of how analytics imparts advantage.
This article was originally published on Forbes.