Business analytics
Encyclopedia
Business analytics refers to the skills, technologies, applications and practices for continuous iterative exploration and investigation of past business performance to gain insight and drive business planning. Business analytics focuses on developing new insights and understanding of business performance based on data
and statistical methods
. In contrast, business intelligence
traditionally focuses on using a consistent set of metrics to both measure past performance and guide business planning, which is also based on data and statistical methods.
Business analytics
makes extensive use of data, statistical
and quantitative
analysis, explanatory and predictive modeling, and fact-based management to drive decision making
. Analytics may be used as input for human decisions or may drive fully automated decisions. Business intelligence is querying
, report
ing, OLAP
, and "alerts".
In other words, querying, reporting, OLAP, and alert tools can answer questions such as what happened, how many, how often, where the problem is, and what actions are needed. Business analytics can answer questions like why is this happening, what if these trends continue, what will happen next (that is, predict), what is the best that can happen (that is, optimize).
Banks, such as Capital One
, use data analysis
to differentiate among customers based on credit risk, usage and other characteristics and then to match customer characteristics with appropriate product offerings. Harrah’s
, the gaming firm, uses analytics in its customer loyalty programs. E & J Gallo Winery
quantitatively analyzes and predicts the appeal of its wines. Between 2002 and 2005, Deere & Company
saved more than $1 billion by employing a new analytical tool to better optimize inventory.
in the late 19th century. Henry Ford
measured pacing of assembly line. But analytics began to command more attention in the late 1960s when computers were used in decision support systems. Since then, analytics have evolved with the development of enterprise resource planning
(ERP) systems, data warehouses, and a wide variety of other hardware and software tools and applications.
Data
The term data refers to qualitative or quantitative attributes of a variable or set of variables. Data are typically the results of measurements and can be the basis of graphs, images, or observations of a set of variables. Data are often viewed as the lowest level of abstraction from which...
and statistical methods
Statistics
Statistics is the study of the collection, organization, analysis, and interpretation of data. It deals with all aspects of this, including the planning of data collection in terms of the design of surveys and experiments....
. In contrast, business intelligence
Business intelligence
Business intelligence mainly refers to computer-based techniques used in identifying, extracting, and analyzing business data, such as sales revenue by products and/or departments, or by associated costs and incomes....
traditionally focuses on using a consistent set of metrics to both measure past performance and guide business planning, which is also based on data and statistical methods.
Business analytics
Analytics
Analytics is the application of computer technology, operational research, and statistics to solve problems in business and industry. Analytics is carried out within an information system: while, in the past, statistics and mathematics could be studied without computers and software, analytics has...
makes extensive use of data, statistical
Statistics
Statistics is the study of the collection, organization, analysis, and interpretation of data. It deals with all aspects of this, including the planning of data collection in terms of the design of surveys and experiments....
and quantitative
Quantitative research
In the social sciences, quantitative research refers to the systematic empirical investigation of social phenomena via statistical, mathematical or computational techniques. The objective of quantitative research is to develop and employ mathematical models, theories and/or hypotheses pertaining to...
analysis, explanatory and predictive modeling, and fact-based management to drive decision making
Decision making
Decision making can be regarded as the mental processes resulting in the selection of a course of action among several alternative scenarios. Every decision making process produces a final choice. The output can be an action or an opinion of choice.- Overview :Human performance in decision terms...
. Analytics may be used as input for human decisions or may drive fully automated decisions. Business intelligence is querying
Information retrieval
Information retrieval is the area of study concerned with searching for documents, for information within documents, and for metadata about documents, as well as that of searching structured storage, relational databases, and the World Wide Web...
, report
Report
A report is a textual work made with the specific intention of relaying information or recounting certain events in a widely presentable form....
ing, OLAP
OLAP
In computing, online analytical processing, or OLAP , is an approach to swiftly answer multi-dimensional analytical queries. OLAP is part of the broader category of business intelligence, which also encompasses relational reporting and data mining...
, and "alerts".
In other words, querying, reporting, OLAP, and alert tools can answer questions such as what happened, how many, how often, where the problem is, and what actions are needed. Business analytics can answer questions like why is this happening, what if these trends continue, what will happen next (that is, predict), what is the best that can happen (that is, optimize).
Examples of application
Banks, such as Capital One
Capital One
Capital One Financial Corp. is a U.S.-based bank holding company specializing in credit cards, home loans, auto loans, banking and savings products...
, use data analysis
Data analysis
Analysis of data is a process of inspecting, cleaning, transforming, and modeling data with the goal of highlighting useful information, suggesting conclusions, and supporting decision making...
to differentiate among customers based on credit risk, usage and other characteristics and then to match customer characteristics with appropriate product offerings. Harrah’s
Harrah's Entertainment
Caesars Entertainment Corporation is a private gaming corporation that owns and operates over 50 casinos, hotels, and seven golf courses under several brands. The company, based in Paradise, Nevada, is the largest gaming company in the world, with yearly revenues $8.9 billion...
, the gaming firm, uses analytics in its customer loyalty programs. E & J Gallo Winery
E & J Gallo Winery
E & J Gallo Winery was founded in 1933 by Ernest Gallo and Julio Gallo in Modesto, California. E & J Gallo Winery is the largest exporter of California wines and is a large promoter of wines from Sonoma County.-History:...
quantitatively analyzes and predicts the appeal of its wines. Between 2002 and 2005, Deere & Company
Deere & Company
Deere & Company, usually known by its brand name John Deere , is an American corporation based in Moline, Illinois, and the leading manufacturer of agricultural machinery in the world. In 2010, it was listed as 107th in the Fortune 500 ranking...
saved more than $1 billion by employing a new analytical tool to better optimize inventory.
Types of analytics
- Reporting or Descriptive Analytics
- Modeling or Predictive analyticsPredictive analyticsPredictive analytics encompasses a variety of statistical techniques from modeling, machine learning, data mining and game theory that analyze current and historical facts to make predictions about future events....
- Data-Driven Strategy
- Clustering
- Affinity grouping
Basic domains within analytics
- Retail Sales analytics
- Financial Services analytics
- Risk & Credit analytics
- Marketing analytics
- Collections analytics
- Fraud analytics
- Pricing analytics
- Telecommunications
- Supply Chain analytics
- Transportation analytics
History
Analytics have been used in business since the time management exercises that were initiated by Frederick Winslow TaylorFrederick Winslow Taylor
Frederick Winslow Taylor was an American mechanical engineer who sought to improve industrial efficiency. He is regarded as the father of scientific management and was one of the first management consultants...
in the late 19th century. Henry Ford
Henry Ford
Henry Ford was an American industrialist, the founder of the Ford Motor Company, and sponsor of the development of the assembly line technique of mass production. His introduction of the Model T automobile revolutionized transportation and American industry...
measured pacing of assembly line. But analytics began to command more attention in the late 1960s when computers were used in decision support systems. Since then, analytics have evolved with the development of enterprise resource planning
Enterprise resource planning
Enterprise resource planning systems integrate internal and external management information across an entire organization, embracing finance/accounting, manufacturing, sales and service, customer relationship management, etc. ERP systems automate this activity with an integrated software application...
(ERP) systems, data warehouses, and a wide variety of other hardware and software tools and applications.
Challenges
Analytics is dependent on data. The most important factor to the successful implementation of business analytics practices is sufficient volumes of high quality data. The difficulty in ensuring data quality is integrating and reconciling data across different systems, and then deciding what subsets of data to make available.Competing on analytics
Davenport argues that businesses can optimize a distinct business capability via analytics and thus better compete. He identifies these characteristics of an organization that are apt to compete on analytics:- One or more senior executives who strongly advocate fact-based decision making and, specifically, analytics
- Widespread use of not only descriptive statisticsDescriptive statisticsDescriptive statistics quantitatively describe the main features of a collection of data. Descriptive statistics are distinguished from inferential statistics , in that descriptive statistics aim to summarize a data set, rather than use the data to learn about the population that the data are...
, but also predictive modeling and complex optimizationOptimization (mathematics)In mathematics, computational science, or management science, mathematical optimization refers to the selection of a best element from some set of available alternatives....
techniques - Substantial use of analytics across multiple business functions or processes
- Movement toward an enterprise level approach to managing analytical tools, data, and organizational skills and capabilities
See also
- Data miningData miningData mining , a relatively young and interdisciplinary field of computer science is the process of discovering new patterns from large data sets involving methods at the intersection of artificial intelligence, machine learning, statistics and database systems...
- AnalyticsAnalyticsAnalytics is the application of computer technology, operational research, and statistics to solve problems in business and industry. Analytics is carried out within an information system: while, in the past, statistics and mathematics could be studied without computers and software, analytics has...
- Business IntelligenceBusiness intelligenceBusiness intelligence mainly refers to computer-based techniques used in identifying, extracting, and analyzing business data, such as sales revenue by products and/or departments, or by associated costs and incomes....
- Test and LearnTest and learnTest and Learn is a set of practices followed by retailers, banks and other consumer-focused companies to test ideas in a small number of locations or customers to predict impact...
- Business Process DiscoveryBusiness Process DiscoveryBusiness process discovery related to process mining is a set of techniques that automatically construct a representation of an organization’s current business processes and its major process variations...
- OLAPOLAPIn computing, online analytical processing, or OLAP , is an approach to swiftly answer multi-dimensional analytical queries. OLAP is part of the broader category of business intelligence, which also encompasses relational reporting and data mining...
- StatisticsStatisticsStatistics is the study of the collection, organization, analysis, and interpretation of data. It deals with all aspects of this, including the planning of data collection in terms of the design of surveys and experiments....
- Customer dynamicsCustomer dynamicsCustomer Dynamics is an emerging theory on customer-business relationships that describes the ongoing interchange of information and transactions between customers and organizations. These exchanges occur over a wide range of communication channels, such as phone, email, Web and text, including...