Role of Analytics in a Digital Business

When someone tells me that he wants to do analytics, I say it is easy. I can explain it in five minutes. However, if someone says that he want to transform an organization using analytics, my reaction is “how long do you have?”.

It is not easy. Let’s dissect how to do that.

Digital Business

There is a new buzzword in the block: digital business. What is that?

The idea stems from a few businesses that managed to rethink the world.

1. Uber built a taxi company without owning cars or employing drivers
2. Airbnb built a hospitality service without owning rooms or hotels.
3. Media and retail (e.g. Amazon, eBay) have been transformed by digital.

We call such a business a “Digital Business”. They use digital technologies to fundamentally rethink the way businesses are done. The path to becoming such a business is called “digital transformation”. ( I have no idea why it is digital transformation, not the digital business that has more attention).

Following are three good references. Like any other buzzard, each has a slightly different interpretation of “Digital Transformation”. At the same time, there is enough census to make it useful.

Next:Economy Newsletter - O'Reilly Media_We've all heard stories of people who followed their GPS religiously off a bridge that no longer existed. Remember that…_post.oreilly.com

How to Navigate a Digital Transformation_An organization is essentially the sum total of its physical, financial, human, intellectual, and relationship capital…_hbr.org

Building a Digital Business Technology Platform_What are the technology building blocks an enterprise needs to support digital business? This report details how CIOs…_www.gartner.com

Why?

Why do we need this? New technology has amused us and connected us. Yet, not all are amused. 2102 MIT technology review headline ran “You promised me Mars Colonies, but we got Facebook instead”. Many have argued that despite amusement, new technologies have failed to lead us to fundamental advancements.

Buzz Aldrin Astronaut Apollo 11, Gemini 12 " MIT Techology Review: The Imperative to Explore_MIT Technology Review By: Buzz Aldrin Following our first "small step for man" with the Apollo 11 landing on the moon…_buzzaldrin.com

Technologies like the internet are omnipresent. However, critics argue that those technologies have failed to fundamentally change our lives. Nor they have added major efficiencies like the time of industrial revolution.

Hope is that redefining around the digital can bring in those missing efficiencies and leapfrog us to the future. Needless to say that, if any organization can do that, they will leave their competition in the dust. Hence, it is not much of a choice. Any organization who likes to be around in 10–20 years, will have to do that.

Companies like Uber, if done right, can change the way we live. For example, Uber provides a future where many of us can survive without a car, reducing traffic, and reducing cost.

Analytics in Digital Business

Three classes of digital technologies can play a part in this transformation: Analytics and AI, Social Mobile and IoT, Crowdsourcing. This post explores the role of analytics ( and AI).

The following picture shows components of a digital business. This is by no means the only representation. Yet, the following picture captures most ideas discussed under digital business. Furthermore, it lists five areas where analytics can play a major role within a business.

Next sections explore each in details.

Improve Operations

Key idea is to collect data about the organization and use them to improve operations. This is the most widely discussed benefit of analytics. The unstated assumption is that the organization has a lot of fiction and inefficiencies. I am sure most of you will agree that this is true.

There are many use cases that fall under this. Follow are a few.

1. Predictive Maintenance — production lines, equipment, vehicle fleets, sites
2. Optimizations, Scheduling, and respond to issues. Making sure the right person is playing the right role and he has access to everything he needs.
3. Fraud detection and prevention
4. HR analytics: finding best candidates, filtering candidates, performance appraisal analytics and proactive intervention, churn prediction
5. Security and Surveillance

Key for optimizations is knowing what to measure. We used the term KPI(Key Performance Indicators) to describe those measurements. KPI is a simple indicator that represents an important aspect of the situation.

A good example of a KPI is canaries in the coal mines. Years ago, miner took canaries and other small birds into coal mines. These birds are very sensitive to oxygen levels. If the oxygen levels are low, they will get knocked out. Then humans have an advance warning to rush out of the mine.

Following are other examples of KPIs.

1. GDP and life expectancy for a country
2. Revenue per square foot in a retail store, revenue per employee in an organization
3. Customer Lifetime Value (CLV) and customer acquisition cost (CAC) in sales and marketing.

Yet, given KPI will only see a part of the picture. Hence, a narrow focus on the KPI can lead to suboptimal outputs. To tackle this problem, Andy Grove (Intel) argued in his book “High Throughput Management” that KPIs should be used in pairs. The First KPI should measure the output (e.g. processed claims count) and the second should measure the quality (e.g. mistakes occurred). Together, two KPIs provide a holistic view of an organization.

Most domains have well defined KPIs. Defining new KPIs are hard work. Before optimizations, you must define the KPIs. Then you need to either measure them or find a way to approximate the KPIs. What you need to measure is not what is easy to measure, rather what is useful.

Facts do not cease to exist because they are ignored. — Aldous Huxley

When you have found the right KPIs, the rest is relatively easy. We can use KPIs to find problems, come up and apply solutions, and use the KPIs to find their effectiveness. We can apply the process in an ongoing basis to improve operations.

Get Close to Your Customers

Analytics can optimize the organization’s interaction with customers and create new dynamics. This can happen in many forms.

1. Analyzing customer-product interactions can improve the functionality and user experience of a product. ( e.g. Adding a timer to the coffee machine).
2. Send customers a periodic email with key usage pattern and insights. It will also provide opportunities for cross-selling and up-selling.
3. An App connected with the product provides a communication channel with the customer. For example, customers can use the app to report any issues, provide feedback, and schedule appointments. Same time, you can use the app to keep him informed, push offers and advertisements.
4. Connect with the customer via social media and follow him to understand his likes, dislikes, and sentiments. These insights can be used to take product decisions. For example, if customers use some other product with your product, maybe you need to partner with another company or create a competitive product. Furthermore, the same data can be used to track sentiments and understand the brand’s ups and downs.
5. Find problems and take initiative to solve them before other customers experience the problem and push updates to other customers proactively.
6. Keeping touch with customers regularly will let you run effective marketing campaigns. For example, we can do events and activities in the areas with a high density of the customers. This creates network effects that lead to more sales. For example, we can invite a few customers when you make a donation to the hospital or sponsoring a school event.
7. Create users groups and let the customers talk to each other and learn from each other. You will find network effects drive them to more adoption. Mercedes-Benz Club is an example of this idea. However, in the world of social media, these clubs can operate cheaper than before.

Improve Marketing and Sales

Marketing is scouts and sales are hunters. Customers often start as visitors on the web site. Marketing brings in new visitors in several ways.

1. Creating content that prospective customers will be interested in and publishing them in the site
2. Engaging in lead generating activities such as workshops, sponsoring events, external publications etc.
3. Digital advertisements
4. TV, SMS, and print media advertisements

Then, Marketing identifies, keeps track, and nurture visitors through newsletters and other activities. Sales engage to make the sale when ready. Analytics can Identify and track leads as they move through the marketing and sales pipelines.

Following are some things analytics can do.

1. Optimize the time spent on lead nurturing by ranking leads by their effectiveness (e.g. using machine learning models using historical data).
2. Track, analyze, and understand the effectiveness of published content, understand traffic sources, and the impact of traffic
3. Running an efficient digital media campaign
4. Mapping out the customer journey using the data collected from their interactions enable us to understand customers and to guide them through the journey. This includes recommending the best material ( e.g. other customers from the same domain, others who do similar things) and help to get them through the sales process as fast as possible. Also, perspective customer profiles to get them to the right customers to build confidence.
5. Understand the physical location of customers and use that to optimize the 1–1 interactions.
6. Tracking topics related to product and producing content that utilizes those topics

Create new Revenue Streams and Products

Under this topic, there is no limit to things you can do. Following are some flavors.

Intelligent products

Some products need humans to tune it and it is hard to get them right. Machine learning can take away the burden. e.g.

• An oven that decides how long it takes to cook and adjust temperatures automatically
• A washing machine that decides the cycle and optimizes the water
• Smart products that optimize for energy bill and comfort (e.g. Google Next)

New Experiences

• Bose headphone that let you talk in a noisy environment
• Fit gadgets — fit bit, Shoes etc
• Camara that uses multiple small cameras and combine images using machine learning to produce high-quality photos
• Let you control or check the status of a product remotely ( did I shut down the Oven, Heater, iron?)
• Provide new input methods ( e.g. take a picture instead of typing in or tell it via voice)

Solve a problem

• A fridge that keeps an inventory of what is inside
• tracking things you forget ( key, wallet)
• Surveillance ( e.g. when is the last time something moved)
• Medicine dispenser remind you to take medicine
• A cup that measures content (e.g. sugar intake)
• Trackable wallet, backpack
• Digital twin for analysis, reasoning, and diagnosis — http://www.bbc.com/autos/story/20170214-how-jet-engines-are-made

Create Value Networks

When you run a business, you create a network of many different people and entities. It is likely that this network can play a bigger role that part of the business and used to your advantage. This network, which connects customers, the organization, supply chain, and distribution chain is called a value network.

For example, Walmart provides detailed analytics about their products to suppliers, which let them improve products. This analytics act as value added advantage for a supplier for working with Walmart. The same idea can be used across many businesses where you can not only use intelligence but pass over intelligence to other parties.

A company value network might provide a great opportunity to create and distribute a new product. A good example is Nespresso Case study, where Nestle used their distribution chain to sell espresso machines and how they managed to defend the revenue stream through the coffee pods.

Moreover, there may be other products that sell together with your products. For example, many infant items go together (Diapers and wet wipes) or pizza crust and the cheese. Understanding them might give you several opportunities.

1. You can compete by creating new products and use your distribution line to sell it
2. Make a deal with the supplier of other product to either revenue share for sales you bring to them or share the marketing costs.
3. Negotiate with the supplier to give your customers a better deal.

Finally, the information that can be collected through the value chain might be useful. For example, the distribution chain can provide data about the demographics of users or their reception.

Conclusion

It is easy to do analytics. However, it is hard to change organizations and in effect change the world using analytics. The idea of Digital Business brings this problem into focus.

This post tries to look at organization holistically and discuss how analytics can be used to rethink how to do business. Post intentionally does not discuss how to do it (technically), rather tries to cover what to do using some use cases.

Hope this was useful. If you have any thoughts or think of new use cases, I love to hear them through the comments.

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