Analytics matters! How shareholders perceive analytics value?

“The reason why it is so difficult for existing firms to capitalize on disruptive innovations is that their processes and their business model that make them good at the existing business actually make them bad at competing for the disruption.” Clayton Christensen

Big corporations across every country in the world and in every industry are trying to integrate cutting edge analytical skills, as machine learning and AI, into their products and process. Companies, named their C-level, have opened minds during the last years and freely established analytics as a true business discipline. We can highlight two main reasons why it happened. The first reason was because their competitors are doing so. The second reason was the desire to generate astonishing returns on investment and ultimately increase shares price.

Lets shed some light above this second reason. For most of the companies, like in education industry, analytics capabilities are still a desire to perceive and heavy investments in people and technology may be under way. For some other companies, for example in telecom and financial services industry, they are already implementing analytics in a small scale, solving some cases, but are unable to scale and just generate short-term results for shareholders. And just a minority of the business is able to scale the analytics across the organization, implementing industrial-scale solutions to perform analytics for deeply business insights and vastly improving decision making. The few business which achieve this maturity become well known by its real data driven culture (i.e. Amazon, Netflix and so on).

But why so few companies are able to achieve this maturity level? We can list three main characteristics why analytics still causes so small impact in market evaluation:

• shareholders have difficulty in distinguishing between traditional BI functions and advanced analytics. BI is a widespread technology and is considered to be a must in the companies, not creating any competitive advantage. In 2017, almost 50% of research companies placed reporting and dashboards as a critical initiative
• analytics is still relatively new and many investors do not understand its potential. Once a company signals to the market it is capable to build analytics cases, it may create a differential in the short-run. However, the market may not be able to valuate it in the long run. Once at this stage, the company is just capable of generate isolated and sub scalable results inside the business units
• the inability of the companies to scale analytics solutions. The financial impact from analytics efforts is usually insignificant for the enterprise P&L, being just a side path to the traditional way of doing businesses.

Nevertheless, to consider how much value analytics can add to the business, it is necessary to acknowledge in which industry the company is operating, both because of the market and the competitors the company is exposed and because some built-in factors, as the growing data availability, computing power and by the new data-storage technologies, which heavily decreased the costs in the past decade. An additional point is understand how these investments in IT and data jobs will affect the company final outcome: better products or services, better user experience, market growth or a new business model.

Thus, the C-level need to keep in mind the need to start small, generating payoffs from the initial work, which supports the next wave of projects, creating a virtuous cycle. Also, the risk of big fails will be mitigated following this way, avoiding bad market impact.

Now it's your turn: How analytics can really make the difference in a organization? What are the drivers to create value and competitive advantage? Finally, make sure you don't miss my future posts and please add me here on LinkedIn. Thank you!

More reading about analytics and digital stuff? 4 (not so) easy steps to implement analytics and Go digital! Factors behind the scene that drive transformation

Sources:

Do shareholders favor business analytics announcements?, The Journal of Strategic Information Systems 25(4) · May 2016

EY Technology M&A: January–March 2017 first look

53% Of Companies Are Adopting Big Data Analytics, Forbes, December 2017