Investing in analytics yields substantial profit returns

Global management consultancy A.T. Kearney has joined forces with the Melbourne Business School to release its latest Analytics Impact Index.

Following up on its inaugural launch last year, global strategy and management consultancy A.T. Kearney has once again joined forces with the Melbourne Business School to investigate the actual bottom-line impact of analytics on businesses, a rarely charted area of analytics research which it says can grant organisations a better understanding of the potential of data technology as well as the capabilities required to capture its maximum value.

The analysts altogether surveyed more than 350 cross-industry companies from 46 countries worldwide (with the participating firms pulling in median revenues of US $745 million), assessing and comparing respondents on two measures; the maturity of the companies’ analytics operating models and the impact of analytics on their profitability. The study found that analytics leaders generate as much as 83 percent more profits than the laggards. 

To arrive at their findings for the 2019 Analytics Impact Index, A.T. Kearney and the Melbourne Business School first assessed the analytics maturity of each company surveyed, taking into account strategy and leadership, culture and governance, talent and skills, and the firm’s data ecosystem (the technological infrastructure and data management framework in place), before grouping the firms in one of four categories; leaders, explorers, followers and laggards.

Described as led by a C-suite commitment to analytics, with a clearly defined analytics strategy that aligns with the overall business strategy and a pervasive culture of data-driven decision-making, just 6 percent of the companies surveyed were considered leaders – down from 8 percent last year. These leaders, the report says, capitalise on real-time analytics to drive innovation and create a competitive advantage across all areas of their businesses.

To quantify the impact, the analysts then calculated the proportion of each organisation’s profit that is attributable to analytics, determined by modelling the profitability across all organisations and controlling for a variety of factors. As might be expected, those adjudged as more mature in the area experienced greater profitable impact from analytics. While this may not be surprising, the gap is widening, the 60 percent potential profit uplift from last year growing to 83 percent.

Yet, the firm notes that while investing in analytics can yield substantial returns, only a small fraction of companies are extracting the full potential of their data; “Spending more doesn’t deliver value for the business. Without a well-defined strategy and strong leadership as well as supportive culture and governance, the right talent and skills, and the appropriate data ecosystems, companies cannot expect to capture the most value from their analytics.”

Here, the study highlights the structural differences between those considered leaders in the area of analytics and the chasing pack; more than nine out of ten have a well-developed analytics road-map, in notable contrast to the barely one in ten across all other maturity levels, while leaders also have a strong culture of data-driven decision-making and a more comprehensive understanding of the mechanics behind the key performance indicators they track.

In addition, all analytics leaders displayed two aspects in common; an organisation-wide appreciation for and understanding of the benefits of analytics, and access to highly skilled analytics talent (be it through developing internal talent, recruiting, or tapping external partners), while leaders were also far more likely to excel in their data infrastructure across the whole of their organisation, at 95 percent compared to barely a quarter of all other maturity levels.

“Becoming an analytics leader is a lengthy process,” the firm concludes. “In fact, it can take years to advance even a single step, depending on the beginning stage of maturity. This journey requires executive sponsorship and a long-term vision for analytics to create a culture of data-driven decision-making. However, when selecting an investment strategy and the potential business areas and initiatives, organisations must consider their current analytics maturity.”