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Analytics 3.0
Analytics 3.0
Those of us who have spent years studying “data smart” companies
believe we’ve already lived through two eras in the use of analytics.

We might call them BBD and ABD—before big data and after big data.

Or, to use a naming convention matched to the topic, we might say that
Analytics 1.0 was followed by Analytics 2.0.

Generally speaking, 2.0 releases don’t just add some bells and whistles
or make minor performance tweaks. In contrast to, say, a 1.1 version, a
2.0 product is a more substantial overhaul based on new priorities and
technical possibilities.
Analytics 3.0
When large numbers of companies began capitalizing on vast new
sources of unstructured, fast-moving information—big data—that was
surely the case.

Some of us now perceive another shift, fundamental and far-reaching

enough that we can fairly call it Analytics 3.0.

Briefly, it is a new resolve to apply powerful data-gathering and analysis

methods not just to a company’s operations but also to its offerings—to
embed data smartness into the products and services customers buy.
Analytics 3.0
I’ll develop this argument in what follows, making the case that just as
the early applications of big data marked a major break from the 1.0
past, the current innovations of a few industry leaders are evidence that
a new era is dawning.

When a new way of thinking about and applying a strength begins to

take hold, managers are challenged to respond in many ways.

Change comes fast to every part of a business’s world. New players

emerge, competitive positions shift, novel technologies must be
mastered, and talent gravitates toward the most exciting new work.
Analytics 3.0
Managers will see all these things in the coming months and years. The
ones who respond most effectively will be those who have connected
the dots and recognized that competing on analytics is being rethought
on a large scale.

Indeed, the first companies to perceive the general direction of

change— those with a sneak peek at Analytics 3.0—will be best
positioned to drive that change.
The Evolution of Analytics
My purpose here is not to make abstract observations about the
unfolding history of analytics. Still, it is useful to look back at the last big
shift and the context in which it occurred.

The use of data to make decisions is, of course, not a new idea; it is as
old as decision making itself.

But the field of business analytics was born in the mid-1950s, with the
advent of tools that could produce and capture a larger quantity of
information and discern patterns in it far more quickly than the
unassisted human mind ever could.
The Evolution of Analytics
Analytics 1.0—the era of “business intelligence.” What we are here
calling Analytics 1.0 was a time of real progress in gaining an objective,
deep understanding of important business phenomena and giving
managers the fact-based comprehension to go beyond intuition when
making decisions.

For the first time, data about production processes, sales, customer
interactions, and more were recorded, aggregated, and analyzed. New
computing technologies were key. Information systems were at first
custom-built by companies whose large scale justified the investment;
later, they were commercialized by outside vendors in more-generic
forms.
The Evolution of Analytics
This was the era of the enterprise data warehouse, used to capture
information, and of business intelligence software, used to query and
report it.

New competencies were required as well, beginning with the ability to

manage data.

Data sets were small enough in volume and static enough in velocity to
be segregated in warehouses for analysis. However, readying a data
set for inclusion in a warehouse was difficult. Analysts spent much of
their time preparing data for analysis and relatively little time on the
analysis itself.
The Evolution of Analytics
More than anything else, it was vital to figure out the right few questions
on which to focus, because analysis was painstaking and slow, often
taking weeks or months to perform.

And reporting processes— the great majority of business intelligence

activity—addressed only what had happened in the past; they offered
no explanations or predictions.

Did people see analytics as a source of competitive advantage? In

broad terms, yes—but no one spoke in today’s terms of “competing on
analytics.” The edge came in the form of greater operational
efficiency—making better decisions on certain key points to improve
performance.
The Evolution of Analytics
Analytics 2.0—the era of big data. The basic conditions of the
Analytics 1.0 period predominated for half a century, until the mid-
2000s, when internet-based and social network firms primarily in Silicon
Valley—Google, eBay, and so on—began to amass and analyze new
kinds of information.

Although the term “big data” wasn’t coined immediately, the new reality
it signified very quickly changed the role of data and analytics in those
firms.

Big data also came to be distinguished from small data because it was
not generated purely by a firm’s internal transaction systems.
The Evolution of Analytics
It was externally sourced as well, coming from the internet, sensors of
various types, public data initiatives such as the human genome
project, and captures of audio and video recordings.

As analytics entered the 2.0 phase, the need for powerful new tools—
and the opportunity to profit by providing them—quickly became
apparent.

Companies rushed to build new capabilities and acquire customers.

The broad recognition of the advantage a first mover could gain led to
an impressive level of hype but also prompted an unprecedented
acceleration of new offerings.
The Evolution of Analytics
LinkedIn, for example, has created numerous data products, including
People You May Know, Jobs You May Be Interested In, Groups You
May Like, Companies You May Want to Follow, Network Updates, and
Skills and Expertise.

To do so, it built a strong infrastructure and hired smart, productive data

scientists. Its highly successful Year in Review, which summarizes the
job changes of people in a member’s network, was developed in just a
month.

And LinkedIn is not the only company focused on speed.

The Evolution of Analytics
One CEO of a big data start-up told me, “We tried agile [development
methodology], but it was too slow.”

Innovative technologies of many kinds had to be created, acquired, and

mastered.

Big data couldn’t fit or be analyzed fast enough on a single server, so it

was processed with Hadoop, an open source software framework for
fast batch data processing across parallel servers.

To deal with relatively unstructured data, companies turned to a new

class of databases known as NoSQL.
The Evolution of Analytics
Much information was stored and analyzed in public or private cloud-
computing environments.

Other technologies introduced during this period include “in memory”

and “in database” analytics for fast number crunching.

Machine-learning methods (semi-automated model development and

testing) were used to rapidly generate models from the fast-moving
data.

Black-and-white reports gave way to colorful, complex visuals.

The Evolution of Analytics
Thus, the competencies required for Analytics 2.0 were quite different
from those needed for 1.0.

The next-generation quantitative analysts were called data scientists,

and they possessed both computational and analytical skills.

Soon the data scientists were not content to remain in the back office;
they wanted to work on new product offerings and help shape the
business.
The Evolution of Analytics
Analytics 3.0—the era of data-enriched offerings. During 2.0, a
sharp-eyed observer could have seen the beginnings of analytics’ next
big era.

The pioneering big data firms in Silicon Valley began investing in

analytics to support customer-facing products, services, and features.

They attracted viewers to their websites through better search

algorithms, recommendations from friends and colleagues, suggestions
for products to buy, and highly targeted ads, all driven by analytics
rooted in enormous amounts of data.
The Evolution of Analytics
Analytics 3.0 marks the point when other large organizations started to
follow suit. Today it’s not just information firms and online companies
that can create products and services from analyses of data.

It’s every firm in every industry. If your company makes things, moves
things, consumes things, or works with customers, you have increasing
amounts of data on those activities.

Every device, shipment, and consumer leaves a trail. You have the
ability to analyze those sets of data for the benefit of customers and
markets. You also have the ability to embed analytics and optimization
into every business decision made at the front lines of your operations.
The Evolution of Analytics
Like the first two eras of analytics, this one brings new challenges and
opportunities, both for the companies that want to compete on analytics
and for the vendors that supply the data and tools with which to do so.

How to capitalize on the shift is a subject we will turn to shortly.

First, however, let’s consider what Analytics 3.0 looks like in some well-
known firms—all of which were decidedly offline businesses for most of
their many decades in operation.
The Next Big Thing, in Beta
The Bosch Group, based in Germany, is 127 years old, but it’s hardly
last-century in its application of analytics. The company has embarked
on a series of initiatives across business units that make use of data
and analytics to provide so-called intelligent customer offerings.

These include intelligent fleet management, intelligent vehicle-charging

infrastructures, intelligent energy management, intelligent security
video analysis, and many more.

To identify and develop these innovative services, Bosch created a

Software Innovations group that focuses heavily on big data, analytics,
and the “Internet of Things.”
The Next Big Thing, in Beta
Schneider Electric, a 170-year-old company based in France, originally
manufactured iron, steel, and armaments. Today it focuses primarily on
energy management, including energy optimization, smart-grid
management, and building automation.

It has acquired or developed a variety of software and data ventures in

Silicon Valley, Boston, and France. Its Advanced Distribution
Management System, for example, handles energy distribution in utility
companies. ADMS monitors and controls network devices, manages
service outages, and dispatches crews. It gives utilities the ability to
integrate millions of data points on network performance and lets
engineers use visual analytics to understand the state of the network.
The Next Big Thing, in Beta
One of the most dramatic conversions to data and analytics offerings is
taking place at General Electric, a company that’s more than 120 years
old.

GE’s manufacturing businesses are increasingly becoming providers of

asset and operations optimization services.

With sensors streaming data from turbines, locomotives, jet engines,

and medical-imaging devices, GE can determine the most efficient and
effective service intervals for those machines.
The Next Big Thing, in Beta
To assemble and develop the skilled employees needed for this work,
the company invested more than $2 billion in a new software and
analytics center in the San Francisco Bay area.

It is now selling technology to other industrial companies for use in

managing big data and analytics, and it has created new technology
offerings based on big data concepts, including Predix (a platform for
building “industrial internet” applications) and Predictivity (a series of 24
asset or operations optimization applications that run on the Predix
platform across industries).
The Next Big Thing, in Beta
UPS, a mere 107 years old, is perhaps the best example of an
organization that has pushed analytics out to frontline processes—in its
case, to delivery routing.

The company is no stranger to big data, having begun tracking

package movements and transactions in the 1980s.

It captures information on the 16.3 million packages, on average, that it

delivers daily, and it receives 39.5 million tracking requests a day. The
most recent source of big data at UPS is the telematics sensors in
more than 46,000 company trucks, which track metrics including speed,
direction, braking, and drivetrain performance.
The Next Big Thing, in Beta
The waves of incoming data not only show daily performance but also
are informing a major redesign of drivers’ routes.

That initiative, called ORION (On-Road Integrated Optimization and

Navigation), is arguably the world’s largest operations research project.

It relies heavily on online map data and optimization algorithms and will
eventually be able to reconfigure a driver’s pickups and deliveries in
real time. In 2011 it cut 85 million miles out of drivers’ routes, thereby
saving more than 8.4 million gallons of fuel.
The Next Big Thing, in Beta
The common thread in these examples is the resolve by a company’s
management to compete on analytics not only in the traditional sense
(by improving internal business decisions) but also by creating more-
valuable products and services. This is the essence of Analytics 3.0.

Some readers will recognize the coming era as the realization of a

prediction made long ago. In their 1991 book 2020 Vision, Stan Davis
and Bill Davidson argued that companies should “informationalize” their
businesses—that is, develop products and services on the basis of
information.
The Next Big Thing, in Beta
They observed that companies emit “information exhaust” that could be
captured and used to “turbocharge” their offerings. At the time, their
ideas gained traction only among companies already in the information
business, such as Quotron (stock data) and the Official Airline Guide
(flight data).

But today banks, industrial manufacturers, health care providers,

retailers—any company, in any industry, that is willing to exploit the
possibilities—can develop valuable products and services from their
aggregated data.
The Next Big Thing, in Beta
Davis and Davidson wrote at a time when supplying information was
enough. But these days we are inundated with information and have
little time to turn it into insight. Companies that were information
providers must become insight providers, using analytics to digest
information and tell us what to do with it.

Online businesses, with vast amounts of clickstream data at their

disposal, have pioneered this approach: Google, LinkedIn, Facebook,
Amazon, and others have prospered not by giving customers
information but by giving them shortcuts to decisions and actions.
Companies in the conventional information industry are now well along
this path too.
Ten Requirements for Capitalizing on
Analytics 3.0
This strategic change in focus means a new role for analytics within
organizations. Companies will need to recognize a host of related
challenges and respond with new capabilities, positions, and priorities.

Multiple types of data, often combined. Organizations will need to

integrate large and small volumes of data from internal and external
sources and in structured and unstructured formats to yield new
insights in predictive and prescriptive models—ones that tell frontline
workers how best to perform their jobs.
Ten Requirements for Capitalizing on
Analytics 3.0
The trucking company Schneider National, for example, is adding data
from new sensors to its logistical optimization algorithms, allowing it to
monitor key indicators such as fuel levels, container location and
capacity, and driver behavior. It aims to steadily improve the efficiency
of its route networks, lower its fuel costs, and decrease the risk of
accidents.

A new set of data management options. In the 1.0 era, firms used
data warehouses as the basis for analysis. In the 2.0 era, they focused
on Hadoop clusters and NoSQL databases.
Ten Requirements for Capitalizing on
Analytics 3.0
Today the technology answer is “all of the above”: data warehouses,
database and big data appliances, environments that combine
traditional data query approaches with Hadoop (these are sometimes
called Hadoop 2.0), vertical and graph databases, and more.

The number and complexity of choices IT architects must make about

data management have expanded considerably, and almost every
organization will end up with a hybrid data environment. The old
formats haven’t gone away, but new processes are needed to move
data and analysis across staging, evaluation, exploration, and
production applications.
Ten Requirements for Capitalizing on
Analytics 3.0
Faster technologies and methods of analysis. Big data technologies
from the 2.0 period are considerably faster than previous generations of
technology for data management and analysis were.

To complement them, new “agile” analytical methods and machine-

learning techniques are being used to produce insights at a much faster
rate. Like agile systems development, these methods involve frequent
delivery of partial outputs to the project stakeholders; as with the best
data scientists’ work, they have an ongoing sense of urgency.
Ten Requirements for Capitalizing on
Analytics 3.0
The challenge in the 3.0 era is to adapt operational, product
development, and decision processes to take advantage of what the
new technologies and methods can bring forth.

Embedded analytics. Consistent with the increased speed of data

processing and analysis, models in Analytics 3.0 are often embedded
into operational and decision processes, dramatically increasing their
speed and impact.
Ten Requirements for Capitalizing on
Analytics 3.0
For example, Procter & Gamble is integrating analytics in day-today
management decision making through more than 50 “business sphere”
decision rooms and more than 50,000 “decision cockpits” on employee
computers.

Some firms are embedding analytics into fully automated systems

through scoring algorithms and analytics-based rules. Some are
building analytics into consumer-oriented products and features.
Whatever the scenario, integrating analytics into systems and
processes not only means greater speed but also makes it harder for
decision makers to avoid using analytics—which is usually a good
thing.
Ten Requirements for Capitalizing on
Analytics 3.0
Data discovery. To develop products and services on the basis of data,
companies need a capable discovery platform for data exploration
along with the requisite skills and processes.

Although enterprise data warehouses were initially intended to facilitate

exploration and analysis, they have become production data
repositories for many organizations, and, as previously noted, getting
data into them is time-consuming.

Data discovery environments make it possible to determine the

essential features of a data set without a lot of preparation.
Ten Requirements for Capitalizing on
Analytics 3.0
Cross-disciplinary data teams. In online firms and big data start-ups,
data scientists are often able to run the whole show (or at least to have
a lot of independence).

In larger and more conventional firms, however, they must collaborate

with a variety of other players to ensure that big data is matched by big
analytics. In many cases the “data scientists” in such firms are actually
conventional quantitative analysts who are forced to spend a bit more
time than they’d like on data management activities (hardly a new
phenomenon). Companies now employ data hackers, who excel at
extracting and structuring information, to work with analysts, who excel
at modeling it.
Ten Requirements for Capitalizing on
Analytics 3.0
Both groups have to work with IT, which supplies the big data and the
analytical infrastructure, provisions the “sandboxes” in which the groups
explore the data, and turns exploratory analysis into production
capabilities.

The combined team takes on whatever is needed to get the analytical

job done, with frequent overlap among roles.

Chief analytics officers. When analytics are this important, they need
senior management oversight. Companies are beginning to create
“chief analytics officer” roles to superintend the building and use of
analytical capabilities.
Ten Requirements for Capitalizing on
Analytics 3.0
Organizations with C-level analytics leaders include AIG, FICO, USAA,
the University of Pittsburgh Medical Center, the Obama reelection
campaign, Wells Fargo, and Bank of America. The list will undoubtedly
grow.

Prescriptive analytics. There have always been three types of

analytics: descriptive, which reports on the past; predictive, which uses
models based on past data to predict the future; and prescriptive, which
uses models to specify optimal behaviors and actions.
Ten Requirements for Capitalizing on
Analytics 3.0
Although Analytics 3.0 includes all three types, it emphasizes the last.
Prescriptive models involve large-scale testing and optimization and
are a means of embedding analytics into key processes and employee
behaviors.

They provide a high level of operational benefits but require high-quality

planning and execution in return. For example, if the UPS ORION
system gives incorrect routing information to drivers, it won’t be around
for long. UPS executives say they have spent much more time on
change management issues than on algorithm and systems
development.
Ten Requirements for Capitalizing on
Analytics 3.0
Analytics on an industrial scale. For companies that use analytics
mainly for internal decision processes, Analytics 3.0 provides an
opportunity to scale those processes to industrial strength.

Creating many more models through machine learning can let an

organization become much more granular and precise in its predictions.

IBM, for instance, formerly used 150 models in its annual “demand
generation” process, which assesses which customer accounts are
worth greater investments of salesperson time and energy.
Ten Requirements for Capitalizing on
Analytics 3.0
Working with a small company, Modern Analytics, and using a “model
factory” and “data assembly line” approach, IBM now creates and
maintains 5,000 such models a year—and needs just four people to do
so. Its new systems can build 95% of its models without any human
intervention, and another 3% require only minimal tuning from an
analyst.

And the new models address highly specific products, customer

segments, and geographies. A test conducted in one large Asian
market showed that such models doubled customer response rates
compared with nonstatistical segmentation approaches.
Ten Requirements for Capitalizing on
Analytics 3.0
New ways of deciding and managing. In order for analytics to power
the data economy in your company, you’ll need new approaches to
decision making and management.

Many will give you greater certainty before taking action. Managers
need to become comfortable with data-driven experimentation. They
should demand that any important initiative be preceded by small-scale
but systematic experimentation of this sort, with rigorous controls to
permit the determination of cause and effect. Imagine, for example, if
Ron Johnson’s tenure as CEO of J.C. Penney had involved limited
experiments rather than wholesale changes, most of which turned out
badly.
Ten Requirements for Capitalizing on
Analytics 3.0
Paradoxically, some of the changes prompted by the widespread
availability of big data will not yield much certainty. Big data flows
continuously—consider the analysis of brand sentiment derived from
social media sources—and so metrics will inevitably rise and fall over
time.

Such “digital smoke signals,” as they have been called, can serve as an
early warning system for budding problems. But they are indicative, not
confirmatory. Managers will have to establish guidelines for when early
warnings should cue decisions and action.
Ten Requirements for Capitalizing on
Analytics 3.0
Additional uncertainty arises from the nature of big data relationships.
Unless they are derived from formal testing, the results from big data
generally involve correlation, not causation, and sometimes they occur
by chance (although having greater amounts of data increases the
likelihood that weak results will be statistically significant).

Some managers may be frustrated by these facts. If the issue under

consideration is highly important, further investigation may be
warranted before a decision is made.
Ten Requirements for Capitalizing on
Analytics 3.0
The use of prescriptive analytics often requires changes in the way
frontline workers are managed. Companies will gain unprecedented
visibility into the activities of truck drivers, airline pilots, warehouse
workers, and any other employees wearing or carrying sensors
(perhaps this means all employees, if smartphone sensors are
included).

Workers will undoubtedly be sensitive to this monitoring. Just as

analytics that are intensely revealing of customer behavior have a
certain “creepiness” factor, overly detailed reports of employee activity
can cause discomfort. In the world of Analytics 3.0, there are times we
need to look away.
Creating Value in the Data Economy
Does Analytics 3.0 represent the ultimate form of competing on
analytics? Perhaps not. But it seems safe to say that it will be viewed
as the point in time when participation in the data economy went
mainstream.

The online companies that unleashed big data on the world were built
around it from the beginning. They didn’t need to reconcile or integrate
big data with traditional sources of information and the analytics
performed on it, because for the most part, they didn’t have those
traditional sources.
Creating Value in the Data Economy
They didn’t need to merge big data technologies with traditional IT
infrastructures; in their companies, those infrastructures didn’t exist. Big
data could stand alone, big data analytics could be the only analytics,
and big data technology architectures could be the only IT
architectures. But each of these companies now has its own version of
Analytics 3.0.

One thing is clear: The new capabilities required of both long-

established and start-up firms can’t be developed using old models for
how analytics supported the business. The big data model was a huge
step forward, but it will not provide advantage for much longer.
Creating Value in the Data Economy
Companies that want to prosper in the new data economy must once
again fundamentally rethink how the analysis of data can create value
for themselves and their customers. Analytics 3.0 is the direction of
change and the new model for competing on analytics.