Issue link: http://www.e-digitaleditions.com/i/124472
The Rise of Analytics-Based Firms Of course, FAC is one of many firms turning to analytics to enhance organizational performance. When I asked Patrick Byrne, president and CEO of Overstock.com, to describe his company, he referred to it not as an online retailer, but as "a business intelligence company." Overstock. com uses analytics to gather intelligence on its customers so that when they visit its website, the company can make product recommendations based on their search terms, clicks on the site, past purchasing behavior, and the online shopping carts of other shoppers. It sends them email promotions that have passed data-based tests of what messages are most effective. I refer to organizations like Overstock.com as analytics-based 50 May/June 2013 BizEd organizations. Their leaders realize that they must employ analytics if they want to be competitive. There is mounting evidence to support that realization. For example, Ian Ayres' best-selling book, Super Crunchers, describes how organizations ranging from Amazon to Capital One analyze massive amounts of data about their customers to discover new insights. Tom Davenport and Jeanne Harris in Competing on Analytics and Analytics at Work describe how companies are gaining competitive advantage from analytics—whether it's Netflix learning more about its customers' movie-viewing habits or Harrah's increasing play at its casinos through carefully designed customer loyalty programs. In a 2011 study, Eric Brynjolfsson of MIT, Lorin Hitt of the University of Pennsylvania, and Heekyung Hellen Kim of MIT found that the relationship between the use of data and analytics affects performance measures such as asset utilization, return on equity, and market value. They also found that firms that base their decision making largely on data and analytics increase their output and productivity by 5 percent to 6 percent, compared to those that don't. ("Strength in Numbers: How Does Data-Driven Decision Making Affect Firm Performance?" is available at ssrn.com/ abstract=1819486.) Rob i n Lyn n e G i b son /G etty Imag es I interviewed the CEO who drove the changes at FAC. When I asked him about the impacts on personnel, he answered that the most dramatic change was in the company's marketing team. Before the implementation of the new strategy, the company had 12 marketing people. Afterward, the company still had 12 marketing people, but none of the same people were in the same jobs. The company had brought in new hires with skills in both marketing and analytics. Members of the old team either left the bank or took other positions. The CEO explained that the previous team thought that marketing was just about "giving out balloons and suckers along the teller line and running focus groups." But analytics helped FAC's managers see its marketing—and its business—in a new light.