What’s the (real) value of analytics?
By: Freddy Loo
Tags: Consulting, Analytics Value, Analytics

During my years as a management consultant, I was often asked by clients, “what’s the benefit of implementing a system? What is the value of a particular project?”. Clients typically based this as the justification for their investments. Which I admit makes perfect mathematical sense. If a project is able to save RM10, then the client is happy to invest RM 9. And the value gained is RM 1.

And for most projects this can be (somewhat) quantified. A process improvement project for manufacturing can reduce material wastages by Y % which in turn saves RM Z. A financial system that optimises the effort taken to close an account will save precious manpower, which can also be quantified by the reduction in headcount costs.

But what about the value of analytics? Can it be quantified in the same way? I dare say that most consultants struggle with this one. (If you don’t believe me, try asking them about it the next time you speak to one).

Let me give you a couple of examples

In retail, one of the values of analytics is to increase sales by cross promoting products to the customer. For example, analytics can tell us that historically, customers have a propensity to buy wine with cheese. So the next time Freddy walks in to pick up a bottle of Merlot, the store manager will have the insight required to promote the Gouda cheese (and maybe even throw in a free box of crackers). Based on what analytics tells us, there is a higher chance that Freddy will buy the cheese. That’s the value of analytics. Or is it? Detractors may argue that Freddy’s purchase of the cheese is due to the Store Manager’s persuasion skills (or maybe she was really good looking!) or perhaps that Freddy was going to buy the cheese anyway. Basically, analytics or not, it would have been sold anyway!

Also during my time in Star Media, analytics was used to indicate (with some degree of certainty) who is likely to cancel the subscription. The insights (from the black box of machine learning) will then be used by marketing to re-engage subscribers with promotions hoping to change their minds. So, is this the value of analytics in retaining customers or is it marketing that does that by creating compelling campaigns? No campaigns, no retention.

So what is the value of analytics then?

I would say that it’s not the churn models, propensity scoring or insights on the top 100 most profitable customers. Those don’t directly impact the top or bottom line. The insights need to be acted upon. Analytics on its own is half the story. It’s like a football coach without a team of players! Instead, analytics creates value by enabling the respective call center agents, store managers, digital marketers to take the necessary action based on the insights.

That’s not all, though.

I personally believe that the real value of analytics lies in its ability to change behaviours and habits. We are all creature of habits (apparently 45% of all our daily activities are driven out of habit**). If we keep doing the same thing, how can we expect different results??

Analytics halts our long held assumptions (like a speed bump), questions our gut and highlights inconspicuous signals. It cuts through the noise and ultimately asks us if we have considered all options. This is my conviction on the true value of analytics. It’s not a technical tool (algorithms and dashboards) nor a business tool (analytics driven strategy, targeted marketing). Instead, it is one that helps us change our behaviours and hopefully position us better in this dynamic and ever changing world.

*Freddy is on a mission to build a team (now) to help companies in realising the value of analytics. And he is looking for like-minded, driven and fun individuals. Hit him up now!

** I picked this up from the book Atomic Habit by James Clear. Good read, check it out. And would like to know what you think too!