What do kinesiology, a wine connoisseur’s palate, and employee smiles have in common? Answer: companies have analyzed data about these intangible factors to improve operating results, says Jeanne Harris, an executive research fellow at the Accenture Institute of High Performance. In addition, senior executives at what Harris characterizes as high-performing corporations say they are using analytics to identify new areas of investment so their companies emerge from the economic crisis stronger than ever.
Harris drove home her theme of “blending the science of quantitative analysis with the art of intuition” on Monday as the keynote speaker at CFO‘s Corporate Performance Management conference, being held this week in New York. Using a bevy of anecdotes culled from her latest book, Analytics at Work (co-written with Thomas H. Davenport and Robert Morison), Harris pointed to the emergence of a new generation of leaders who are more comfortable with technology, data collection, and data analytics than their predecessors.
What’s more, Harris’s decade-long examination of companies in 35 countries within 19 industry sectors showed that CFOs in high-performance companies use data analytics to drive new opportunities, manage risk, and leverage existing investments. On the flip side, they also are using analytics to make tough cuts during lean times by reducing staff, products, and programs with “laser-like precision, rather than with the blunt instruments we used in the past.”
The data-driven convention known as analytics has been around for “a long time,” according to Harris. The term generally refers to the process of using decision-support systems, business intelligence, statistics, executive-information systems, and predictive models to give companies a competitive edge. Today, says Harris, analytics is taking “center stage” in high-performance organizations that have discovered ways to put data to work to improve profitability.
For example, electronics retailer Best Buy found that when “employee engagement” of a customer increases by one-tenth of a point, the company’s operating income rises by $100,000. As a result, Best Buy now provides its “blue shirt” sales staff with more product information so they can tell customers, for instance, the salient differences between LG and Samsung flat-screen televisions or between Whirlpool and Maytag washers.
In another case, Hilton Worldwide calculated that for every 5% improvement in customer retention the hotelier records, revenue increases by 1.1% — a clear indication of where Hilton’s management needs to focus efforts and resources.
Harris says it’s critical to identify what data is key to a company’s profitability. In the case of Italian soccer powerhouse AC Milano, kinesiology information is an important data set. In a lab setting, quants at AC Milano model each player’s movements on the pitch and isolate which moves cause injuries to particular athletes. The information is then used to train and condition the players to prevent injuries and increase the team’s prospects for a winning season, says Harris.
California winemakers E&J Gallo provide another example of analyzing intangible factors to boost bottom-line results. Harris explains that the wine-making family’s new generation of executives, armed with Harvard MBA degrees, focused on a relatively new metric that influences the price of wine: ratings awarded by Wine Spectator magazine. Basically, a wine rated 90 or better by the magazine can be sold for more than a bottle rated 80.
Committed to capturing “important” data, Gallo “reverse-engineered the taste buds of [Wine Spectator's] taster” to reveal the type of wine that consistently scored in the 90s, says Harris. The company used that information to change its grapes and rework its processes, including watering and picking schedules. The focus on the taste-bud metric has helped Gallo reshape its brand from the king of inexpensive screw-top wines to one that offers a line of highly rated vintages.
Some companies even study the impact of employee smiles on business. At casinos owned by Harrah’s Entertainment and at retail stores such as The Gap, analysts have calculated how often employees need to smile at customers to make them feel good about the establishment. Although it may get “a little creepy” if an employee is always grinning, says Harris, the point is that there is science behind those happy greeters.
In the end, Harris recommends that companies take an enterprisewide approach to analytics. That produces a single version of the data and leads to smarter decisions, she says. But she adds a caveat: too much centralization “gets you this ‘Communist Manifesto’ approach that drives out innovation.” Using analytics properly, says Harris, “is always a balance.”