When someone tells me they want to do analytics, I say that it is easy. I can explain it in five minutes. However, if someone says that they 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 it.
There is a new buzzword in the block: digital business. What is that?
The idea stems from few businesses that managed to rethink the world.
Uber built a taxi company without owning cars or employing drivers. Airbnb built a hospitality service without owning rooms or hotels. Media and retail (i.e. Amazon, eBay) have been transformed by digital.
We call such a business a digital business. Digital businesses use digital technologies to fundamentally rethink the way businesses are done. The path to becoming such a business is called digital transformation.
Following are three good references. Each has a slightly different interpretation of “digital transformation.” At the same time, there is enough census to make it useful.
Why do we need this? New technology has amused us and connected us. Yet, not all are amused. A 2012 MIT Technology Review headline ran You promised me Mars colonies. Instead, I got Facebook. Many have argued that despite amusement, new technologies have not lead to fundamental advancements.
Technologies like the internet are omnipresent. However, critics argue that those technologies have failed to fundamentally change our lives or add major efficiencies like advancements did in the Industrial Revolution.
My hope is that redefining around the digital can bring in those missing efficiencies and leapfrog us to the future. It's 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 wants to be around in 10-20 years will have to do that.
Companies like Uber, if they do it 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 costs.
Three classes of digital technologies can play a part in this transformation: analytics and AI, social mobile and IoT, and crowdsourcing. This post explores the role of analytics and AI.
The following picture shows a component 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.
The next sections explore each in detail.
The key idea is to collect data about the organization and use it to improve operations. This is the most widely discussed benefit of analytics. The unstated assumption is that the organization has a lot of friction and inefficiencies. I am sure most of you will agree that this is true.
There are many use cases that fall under this. Following are a few.
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 thinking about canaries in the coal mines. Years ago, miners 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.
Yet, the 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 (i.e. processed claims count) and the second should measure the quality (i.e. mistakes occurred). Together, two KPIs provide a holistic view of an organization.
Most domains have well-defined KPIs. Defining new KPIs is hard work.
