Implementing an insight-generating system or data-driven strategy for your business is viewed as a large, complex project on par with rolling out a Database management system or ERP system. Since prior systems do not run mission critical processes as the latter for the company, they are often delayed due to other priorities.
However, if we go by the recent developments, it is hard to ignore the progress that Big Data and Artificial Intelligence has made. Not only these technologies are making life easier, but their case studies of adding enormous value to the organisations are also all around us. Research shows that companies with data-driven strategy achieved 6% better profits and 8% better productivity over their not-so-nerdy competitors. So despite the obvious benefits, why do most companies think of data analytics as an optional process? Here are some key challenges:
Get your priority straight
If you are a product manager, you are focussed on improving features of products which will appeal to your customers. If you are a marketing director, you would like to communicate right messages to your customers. Much data is generated through these processes, but that in itself is worthless. Chances are you are already stretched and have so many other priorities, that looking at data sits right at the bottom
According to MIT Sloan’s report about Analytics – 50% of the companies are still analytically challenged despite high optimism towards the value driven by analytics.
Barriers to Adoption
It takes much hard work to get the required information out of the data. Many companies especially small to midsize firms place emphasis on the price of analytics, like the cost of infrastructure, software pipelines and hiring specific resources. Too often, they stay away from ‘pricey analytics projects’, or that is what they perceive.
According to a survey by IDG Enterprise, the top reasons to companies’ inability to implement data analytics projects are (a.) Lack of Skilled resources, (b.) Limited Budget and (c.) Legacy issues which make implementation difficult on current setups
Can nature be blamed?
Data Analytics is an aggregated science. It finds recurring patterns with a bird’s eye view, and humans are not good at visualising complex patterns. We would rather rely on our selective judgement than indulging in an overly cryptic, incrementally better and effort consuming system.
Check out this answer about why data-driven decision making is involved, by Ricardo Vladimiro, Game Analytics and Data Science Lead @ Miniclip
However, the value is apparent
As a result, data takes a backstage for most companies, and decision making becomes a pure art rather than science. It is true that the process of doing analytics is a tedious and costly affair, to begin with. However, surveys have shown that making data-driven decisions can generate substantial value for the companies which is similar to primary functions of the organisations. Even better is the ROI which scales very well and you do not need to invest in data like you constantly have to with other functions.
According to this report by McKinsey, data and analytics has driven 60%+ increase in net profit margins and 0.5-1% growth in annual productivity for US Retail. Similar observations were made in EU as well.
Debunking the myth of gut-based decision making
Decision making is nothing but forecasting of events. As in charge of delivering success to your company, you think and decide – What would appeal to your customers? What would drive them crazy? What will give you the best return on costs yet hitting the set targets? I decided to write this article because I think it will drive certain behaviour in the readers. I forecasted.
So now that we have established what decision making is, I want to quote a super book on the super subject called ‘Superforecasting’. The initial parts of the book are mostly about establishing the fact that being good at forecasting is not something that we are born with; it is a skill learned through a painstaking process of gathering information, analysing it and finding something useful (sounds familiar?). In an example they quote that:
“A researcher gathered a big group of experts – academics, pundits, and the like – to make thousands of predictions about the economy, stocks, elections, wars and the other issue of the day. Time passed, and when the researcher checked the accuracy of the predictions, he found that the average expert did about as well as random guessing.”
To achieve the optimal, balance is required where the experience based decisions can be backed by insights from the data. According to this slightly old PwC survey:
” Highly data-driven companies are three times more likely to report significant improvement in making big decisions.“
So how can analytics add intelligence to your decision making? (a.) It can tell you where are you losing money and, (b.) It can find out alternate (often hidden) revenue streams for your business. We will cover both of them in Part 2.