Why is Business Analytics important?

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Target, a US company used analytics to determine the set of pregnant customers amongst their current customers. But why? What worth was it for a grocery company to determine if someone is pregnant or not?

It is not a rocket science to know that, in pregnancy period, we tend to be more sensitive to healthcare and the products to buy. Researches have proved that humans to tend to buy products even if at a higher price considering the health. And the pregnancy period is not only just nine months, it continues few more years after the birth of the child. It is surprising that the pregnancy product market is of 37 Billion USD.

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An early start gives an added advantage to the company. By recognizing if the customer is in the pregnancy phase or not, a company can utilize their buying potential.

Thus, Business Analytics has a very impactful role in our lives. There has been a lot of buss for the term “Business Analytics.” But what does it really mean? An IIM Bangalore professor defines it as

“Business Analytics is a multi-disciplinary field that uses expertise such as statistical learning, machine learning, artificial intelligence, computer science, information technology, and management strategies to generate value from the data.” Business Analytics has three main componenets: Data Science, Technology and Business Context.

Have you heard about the Monty Hall Problem?

This is based on a TV reality game “Let’s Make a Deal” hosted by Monty Hall in 1960s. There are three locked doors and there is a treasure behind only one random door. The player is asked to choose any one of the door where s/he thinks the treasure is. Let’s assume s/he chooses door 3. Mr. Hall opens the first door (say Door 1) and it is empty. Now there are only two doors left (door 2 and door 3). Now, here is a twist.

Mr. Hall gives an option. S/he can continue with the same door or change the door. If you were there, what would you do to get the treasure?

Marilyn Vos Sayant, a columnist at Parade Magazine wrote a paper concluding that “the player should change the initial choice as there will be 66.66% chance of winning…” Is it so? 92% of the general public and 65% of the university graduates, major of whom were PhD candidates didn’t agree with her. But the inference was true and later it was accepted, Marilyn used data analysis to come to the conclusion. We had only two options to choose from but business and organizations have hundreds of factor to consider fir decision-making. This is where data analysis and business analytics is required.

An article published at MIT Sloan Management Review in 2010 claims that there is a striking correlation between an organization’s analytics sophistication and its competitive performance. Amazon has been using analytics and it reports that 35% of the sales come from recommendation. There are several other companies that has integrated analytics into their function. HP has an analytics model that determines if the employee is about to leave; and if the employee is important, they retain him/her. Google has page ranking algorithm for displaying search results. Capital One uses analytics to determine the most profitable customers from their existing set of customers.

There are four major segments of Analytics: Descriptive Analytics, Diagnostic Analysis, Predictive Analytics and Prescriptive Analytics. To describe in laymen terms, Descriptive Analytics describes what happened in the past using historic data and Diagnostic Analysis explains why did it happen. Predictive Analytics predicts what will happen in the future and Prescriptive Analysis helps what decision to take.t
Read more about the types of Analytics here.

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