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Business analytics (BA) refers to the skills, technologies, 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 statistical analysis, including explanatory and predictive modeling, and fact-based management to drive decision making. It is therefore closely related to management science. Analytics may be used as input for human decisions or may drive fully automated decisions. Business intelligence is querying, reporting, online analytical processing (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 (predict), and what is the best outcome that can happen (optimize).
Examples of application
Banks, such as Capital One, use data analysis (or analytics, as it is also called in the business setting), 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 analyses 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. A telecoms company that pursues efficient call center usage over customer service may save money as well.
Types of analytics
- Decision Analytics: supports human decisions with visual analytics that the user models to reflect reasoning.
- Descriptive Analytics: gains insight from historical data with reporting, scorecards, clustering etc.
- Predictive Analytics: employs predictive modelling using statistical and machine learning techniques
- Prescriptive Analytics: recommends decisions using optimization, simulation, etc.
Basic domains within analytics
- Behavioral analytics
- Cohort Analysis
- Collections analytics
- Contextual data modeling - supports the human reasoning that occurs after viewing "executive dashboards" or any other visual analytics
- Cyber analytics
- Enterprise Optimization
- Financial services analytics
- Fraud analytics
- Health care analytics
- Marketing analytics
- Pricing analytics
- Retail sales analytics
- Risk & Credit analytics
- Supply Chain analytics
- Talent analytics
- Transportation analytics
- Customer Journey Analytics
- Market Basket Analysis
Analytics have been used in business since the management exercises were put into place by Frederick Winslow Taylor in the late 19th century. Henry Ford measured the time of each component in his newly established 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 changed and formed with the development of enterprise resource planning (ERP) systems, data warehouses, and a large number of other software tools and processes.
In later years the business analytics have exploded with the introduction to computers. This change has brought analytics to a whole new level and has brought about endless possibilities. As far as analytics has come in history, and what the current field of analytics is today, many people would never think that analytics started in the early 1900s with Mr. Ford himself.
Business analytics depends on 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.
Previously, analytics was considered a type of after-the-fact method of forecasting consumer behavior by examining the number of units sold in the last quarter or the last year. This type of data warehousing required a lot more storage space than it did speed. Now business analytics is becoming a tool that can influence the outcome of customer interactions. When a specific customer type is considering a purchase, an analytics-enabled enterprise can modify the sales pitch to appeal to that consumer. This means the storage space for all that data must react extremely fast to provide the necessary data in real-time.
Competing on analytics
Thomas Davenport, professor of information technology and management at Babson College 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 statistics, but also predictive modeling and complex optimization 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
- Business analysis
- Business analyst
- Business intelligence
- Business process discovery
- Customer dynamics
- Test and learn
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- Davenport, Thomas H.; Harris, Jeanne G. (2007). Competing on analytics : the new science of winning. Boston, Mass.: Harvard Business School Press. ISBN 978-1-4221-0332-6.
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- Davenport, Thomas H.; Jeanne G. Harris (March 2007). Competing on Analytics: The New Science of Winning. Harvard Business School Press.