Analyzing Business Turnaround

Companies that embrace predictive analytics can gain a competitive edge, according to Tom Davenport, professor of information management at Babson College. Davenport, who's written and coauthored several books on knowledge and information management, says that the first step in embracing analytics is to have a CEO who sees analytics as a corporate differentiator. "Corporate executives have to be willing to spend the money on the technology," Davenport says. Before former Harvard database analytics professor Gary Loveland became CEO of Harrah's, the company (which received a buyout offer in 2006) was floundering. "The seven years before Gary came in, Harrah's failed to meet its numbers," Davenport says. "The eight years since he came in, every measure of financial performance has gone up." Ask Loveland how, Davenport says, "and he'll tell you it was an analytical transformation." Saleem Hussaini, senior manager, data warehouse group for Continental Airlines, credits analytics as one reason the airline has gone from two bankruptcies to profitability. Continental's success is due to improving on-time performance through predictive analytics. An employee developed a thorough on-time tracking system using the company's data warehouse, helping the airline identify and alleviate bottlenecks. But, Davenport says, analytics doesn't exist in a vacuum. Marriott International would have noted a high demand for hotel rooms in Houston in late September and early October 2005, leading to a room rate increase. However, the demand was due to the effects of Hurricane Katrina; raising prices would have brought negative publicity. Due to human intervention by Marriott officials, no increase occurred. "At a time when firms in many industries offer similar products, business processes are among the last points of differentiation," Davenport says. "Analytics competitors wring every last drop of value from these processes."