By Greg Laugero, VP of Strategy, @prodctstrategy
A couple of weeks ago, I attended eMetrics in Boston. Every time I get the chance to go to Boston, I try to get to the Harvard Coop. I find inspiration and piqued interest every time I go there. For me, it’s a kind of intellectual renewal. This time I picked up two books that got me thinking about the importance of strategy for any analytics program: HBR’s 10 Must Reads On Strategy and Measuring Performance.
Why Analytics Programs Lack Creativity – It’s the Strategy, Stupid
On Strategy contains the Harvard Business Review’s 10 most influential articles on this topic, starting with Michael Porter’s 1996 “What Is Strategy?” In that article, Porter discusses how companies often seek “operational effectiveness” at the expense of “sustainable competitive advantage,” which is the heart of strategy. For Porter, pursuit of operational effectiveness at the expense of strategic concerns (i.e., doing different things than the competition rather than just doing the same things differently and more efficiently) is a zero sum game:
“Although the resulting operational improvements have often been dramatic, many companies have been frustrated by their inability to translate those gains into sustainable profitability. And bit by bit, almost imperceptibly, management tools have taken the place of strategy. As managers push to improve on all fronts, they move farther away from viable competitive positions.”
This strikes me as a good description of how many companies pursue analytics. Untethered from strategy, analytics programs lack creativity and tend to resemble each other:
- What was our traffic last week? Was that up or down?
- How did that campaign perform? Did we get a revenue lift or not?
- Should we offer a discount to improve conversion rates? What’s the minimum level of discount that will yield a net increase in revenue?
If these questions are ones you ask, you probably have an analytics program operating without a clear connection to strategy. You’re just like everyone else. In Porter’s world, your analytics program is about operational effectiveness without a focus on sustainable competitive advantage.
To be sure, it’s important to do both. But my point is that I frequently see generic analytics programs that lack imagination and creativity when it comes to representing strategy.
Getting Strategy and Creativity Back into Analytics
The hallmark of a good analytics program is how it brings visibility to the strategic drivers of the organization, business unit or team. Porter’s definition of strategy is important to recall: “Strategy is the creation of a unique and valuable position, involving a different set of activities…. The essence of strategic positioning is to choose activities that are different from rivals’.”
It’s about what you choose to do (and therefore what not to do) that provides sustainable competitive advantage. For Porter, clearly articulated strategy means being able to identify the activities that matter to the company. Here’s his map of Southwest Airlines’ essential activities that lead to their sustainable advantage:
This is a clear map that any good data analyst should be able to follow.
Certainly efficiency metrics like web traffic and conversions are important (especially since southwest.com is the primary sales and service channel), but they are not strategic according to this model. The blue bubbles are the gateway to a creative analytics program that would include:
- Aircraft utilization – the amount of time an aircraft is in flight with paying passengers. This would be compared to competitors’ utilization.
- Average ticket prices – compared to competitors, prices should be lower. Optimization and testing would be employed to figure out what the ideal discount would be to drive the right level of passenger traffic.
- Frequency of departure – again, compared to industry benchmarks, the company wants to move faster than rivals.
Such metrics are not likely to come from a single tool. Rather, this is where the analytics team needs to get creative. How do we measure these things? How do we visualize them appropriately so that the people in charge of these activities get reliable, actionable information?
Data storytelling will be essential and must focus not only on changes to individual metrics, but how the different activities interact. For example, there are direct connections in this map among Frequent, Reliable Departures; Lean, Highly Productive Ground and Gate Crews; High Aircraft Utilization; and Very Low Ticket Prices.
A good analytics program would watch not just individual metrics, but how changes in one metric might be impacting a downstream metric. Problems with employee turnover might cause Ground Crews to lose efficiency, but it doesn’t show up until 45 days later when aircraft utilization suffers. The job of the data analyst is to discover this story lurking the data. And because the metrics are tied to strategic activities, the story is meaningful to the business.
The Importance of Strategy to Analytics
Strategy should drive analytics. Without this connection, your analytics program looks like everyone else’s. It’s boring, interchangeable and certainly not helping drive sustainable competitive advantage.
Having an “Activity Map” like those created and advocated by Porter is one way to begin to connect analytics with strategy. In follow ups to this post, I’ll discuss other methods as well. Next time, I’ll discuss the other book I picked up: Measuring Performance. It’s another great method for tying analytics to strategy.
