Analytical Innovators: What makes companies that are great at analytics different from everyone else

From Value to Vision: Reimagining the Possible with Data Analytics

Big Idea: Data & Analytics March 05, 2013

David Kiron, Renee Boucher Ferguson and Pamela Kirk Prentice

Introduction

Signs of an Analytics Revolution

Case Study: Oberweis Dairy

Three Ways to Compete with Analytics

Case Study: Caesars Entertainment

The Analytical Innovators

Mindset and Culture

Key Actions

Outcomes: Power Shifts to Those with Insight

On Becoming an Analytics Innovator

The Analytically Challenged

The Analytics Practitioners

Conclusion

About the Research

Acknowledgments

Authors

David Kiron is the executive editor of MIT Sloan Management Review’s Big Ideas initiatives. He can be reached at dkiron@mit.edu.

Renee Boucher Ferguson is the Data & Analytics contributing editor at MIT Sloan Management Review, researching the current and new analytical approaches that change how executives make decisions and innovate. She can be reached at rbfergus@mit.edu.

Pamela Kirk Prentice is the chief research officer at SAS Institute Inc., specializing in deriving insights from qualitative and quantitative information to help address key business issues. She can be reached at pamela.prentice@sas.com.

Companies benefit from analytics

Global study from MIT Sloan Management Review and SAS finds companies gain competitive edge by using analytics.

March 5, 2013

New research released today by MIT Sloan Management Review and SAS reports that 67 percent of companies surveyed are gaining a competitive advantage by using analytics — marking a 15 percent increase from last year and 80 percent increase from two years ago.

The report, “From Value to Vision: Reimagining the Possible with Data Analytics,” derived from a global survey of more than 2,500 business executives, identifies a group of companies leading the way in the analytics revolution, dubbed “Analytical Innovators.” Companies in this category report both strong competitive advantage and improved innovation from using analytics, which are means of interpreting certain data to gain insight and drive business planning. Analytical Innovators are significantly more likely to exhibit three characteristics: a widely shared belief that data is a core asset; more effective use of more of their data for faster results; and support for analytics by executives.

Another important characteristic of Analytical Innovators is their report of power shifts in their organizations: Analytical Innovators are four times more likely than less analytically inclined companies to say that analytics have shifted the power structure within their organizations.

“This is a significant finding, in that power shifts can be disruptive. They often call into question experience and intuition that managers and employees have built up over years,” says David Kiron, executive editor for MIT Sloan Management Review. “Now, those who know how to marshal the data and put analytics behind their decision making are in a position of advantage.”

The study also identified two types of companies less analytically sophisticated than Analytical Innovators: Analytics Practitioners (representing 60 percent of respondents), which have made significant progress, but have not achieved the top level of competitive advantage and innovation from using analytics; and the Analytically Challenged (28 percent of respondents), which are less mature in their use of analytics and have not derived as much value from them as the other groups.

“As we studied all three groups, we were able to clearly see the specific differentiators among the groups,” says Pamela Prentice, chief research officer for SAS. “This enabled us to develop a framework for companies to evaluate their own standing, and to provide recommendations based on a company’s current status.”

The study’s recommendations for the Analytically Challenged include:

  • Start improvements at the local level before trying to address organization-wide issues of technology latency.
  • To further collaboration, build ongoing relationships, facilitate discussions and share information of value to other departments.
  • Fight inertia by developing an executive communication strategy for your analytics case, including a return on investment rate and recommended actions.

Fear of China bank crisis keeps Aberdeen alert

Fear of China bank crisis keeps Aberdeen alert

By Elva Muk | 6 March 2013 (48 minutes ago)

If the nation’s shadow-banking system blows up, banks will foot the bill, its managers argue. But they see opportunity in HK-domiciled firms exposed to Greater China consumption. Aberdeen International fund managers are fearful of a China banking crisis, but see opportunity in Hong Kong-domiciled firms exposed to Greater China consumption. Asian equities manager Kathy Xu argues one of the biggest downside risks to China’s stock market this year is the country’s shadow-banking, or private lending, system. As a consequence she is bearish on the mainland banking sector. “This area is not transparent nor strongly regulated enough,” she says. “If the shadow banking [system] burst, we worry what banks would have to pay the bills.” China’s shadow-banking sector is enormous, encompassing trust funds, wealth management products (WMPs), products from securities firms, underground lending and local government financing vehicles. Together it is estimated these account for Rmb22.8 trillion ($3.6 trillion), or 44% of China’s national GDP. Read more of this post

Berkshire’s BNSF Railway to Test Switch to Natural Gas; BNSF, the largest railroad in the U.S., estimates it is the second-biggest user of diesel in the country, after the U.S. Navy.

March 5, 2013, 6:24 p.m. ET

Berkshire’s BNSF Railway to Test Switch to Natural Gas

By RUSSELL GOLD

BNSF Railway Co., one of the country’s biggest consumers of diesel fuel, plans this year to test using natural gas to power its locomotives instead.

If successful, the experiment could weaken oil’s dominance as a transportation fuel and provide a new outlet for the glut of cheap natural gas in North America.

The surplus, spurred by new technologies that unlock the fuel from underground rock formations, has sent natural-gas prices plummeting. That has prompted industries from electric utilities to tugboat operators to switch to gas. If freight rail joins the parade, it would usher in one of the most sweeping changes to the railroad industry in decades.

“This could be a transformational event for our railroad,” BNSF Chief Executive Matt Rose said of the plan, which hasn’t been publicly announced. Shifting to natural gas would “rank right up there” with the industry’s historic transition away from steam engines last century, he said.

Freight railroads overwhelmingly are powered by diesel fuel refined from crude oil. BNSF, the largest railroad in the U.S., estimates it is the second-biggest user of diesel in the country, after the U.S. Navy. Read more of this post

Druckenmiller: “When You Get This Kind Of Rigging, It Will End Badly”; When even Home Depot’s Ken Langone is questioning the reality of this rally (CEO of one of the best performing stocks since the Dow last traded here), you have to be a little concerned

Druckenmiller: “When You Get This Kind Of Rigging, It Will End Badly”

Tyler Durden on 03/05/2013 14:00 -0500

When even Home Depot’s Ken Langone is questioning the reality of this rally (CEO of one of the best performing stocks since the Dow last traded here), you have to be a little concerned. However, it is Duquesne’s Stanley Druckenmiller’s point that with QE4EVA it is impossible to know when this will end but warns that “all the lobsters are in the pot” now as he notes that “if you print enough money, everything is subsidized – bonds, stocks, real estate.” He dismisses the notion of any sell-off in bonds for the same reason as the Fed is buying $85 bn per month (75-80% all off Treasury issuance). The Fed has cancelled all market signals (whether these are to Congress or market participants) and just as we did in the 1970s, we will find out about all the mal-investments sooner or later. “This is a big, big gamble,” he notes, “manipulating the most important price in all of free markets,” that ends one of only two ways, a mal-investment bust (as we saw in 2007-8) or full debt monetization and “off we go into inflation.” Read more of this post

Suppliers prefer Aldi to Coles, Woolies because it pays invoices faster and is easier to deal with

Suppliers prefer Aldi to Coles, Woolies

March 6, 2013

Lucy Battersby

Easier to deal with: Suppliers say Aldi pays faster than the big two supermarket chains. Photo: Peter Braig

A number of suppliers producing a range of groceries have spoken out against the dominant supermarket chains, Woolworths and Coles, saying they prefer dealing with German-owned rival Aldi.

BusinessDay has revealed Woolworths produced a dossier that claims Aldi’s arrival in Australia has led to a rise in private label products and a tough competitive environment.

Several suppliers have spoken out about their experience supplying Australian supermarkets on the condition of anonymity, fearing contracts would be cancelled in retribution. They say they prefer dealing with Aldi because it pays invoices faster and is easier to deal with. One said it was ”so much better and much more stable to do business with”. Another said Coles and Woolworths reduced supplier prices and took an extra 3 er cent to cover marketing costs when products go on sale, where Aldi would absorb the losses sales into its own profit margin.

Woolworths enjoys some of the best profit margins in the world, according to Bank of America Merrill Lynch analyst David Errington. ‘Within its Australian food and liquor business, Woolworths currently enjoys the highest margins of any retailer globally, at … 9.3 per cent (lease adjusted), compared to its nearest global competitor at 7.9 per cent,” Mr Errington wrote in a note to clients. Read more of this post

Mandatory vs. Voluntary Management Earnings Forecasts in China

Mandatory vs. Voluntary Management Earnings Forecasts in China

Xiaobei Huang University of International Business and Economics – Business School

Xi Li Temple University – Fox School of Business and Management

Senyo Y. Tse Texas A&M University – Lowry Mays College & Graduate School of Business

Jenny Wu Tucker University of Florida – Warrington College of Business Administration

January 14, 2013
Mays Business School Research Paper No. 2012-82 

Abstract: 
Capital-market regulators face the question of whether a forecast mandate would improve the information environment or be counterproductive if managers are unable or unwilling to provide reliable forward-looking information. We examine the efficacy of forecast regulation in the emerging market of China, which mandates management earnings forecasts in certain performance regions such as anticipated losses, turning profits, or large changes in earnings from the previous year and allows voluntary forecasts in other circumstances. We examine the quantity, quality, and usefulness of mandatory forecasts by comparing managerial behavior under the mandatory vs. voluntary regime within China. We gain further insight by examining forecast behavior in the US, where forecasts are voluntary, in performance regions similar to those defined by the Chinese mandate. Our results suggest that the Chinese mandate substantially increases the quantity of information available to investors, particularly by state-owned enterprises (SOE) – firms that play a major role in the economy but are reluctant to provide forecasts voluntarily. After issuing mandatory forecasts, firms are more likely to issue voluntary forecasts in the subsequent year. Mandatory forecasts are less timely and less precise than voluntary forecasts, but the evidence on forecast accuracy is inconclusive. Investors react to mandatory forecasts as if they are useful. One unintended consequence of the Chinese mandate is that firms appear to manage their reported earnings to avoid the bright-line threshold for mandatory forecasts of large earnings decreases. Overall, our evidence provides feedback to regulators in developed economies and guidance to regulators in emerging markets.

Fund Management and Systemic Risk – Lessons from the Global Financial Crisis

Fund Management and Systemic Risk – Lessons from the Global Financial Crisis

Elias Bengtsson Sveriges Riksbank

February 1, 2013
CITYPERC Working Paper Series No. 2013/06 

Abstract: 
Fund managers play an important role in increasing efficiency and stability in financial markets. But research also indicates that fund management in certain circumstances may contribute to the buildup of systemic risk and severity of financial crises. The global financial crisis provided a number of new experiences on the contribution of fund managers to systemic risk. In this article, we focus on these lessons from the crisis. We distinguish between three sources of systemic risk in the financial system that may arise from fund management: insufficient credit risk transfer to fund managers; runs on funds that cause sudden reductions in funding to banks and other financial entities; and contagion through business ties between fund managers and their sponsors. Our discussion relates to the current intense debate on the role the so-called shadow banking system played in the global financial crisis. Several regulatory initiatives have been launched or suggested to reduce the systemic risk arising from non-bank financial entities, and we briefly discuss the likely impact of these on the sources of systemic risk outlined in the article.

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