Business Analytics for Competitive

Advantage

BUSINESS ANALYTICS

Prof. Aditya Suresh Kasar

Unit 1
 WHAT IS ANALYTICS?
Analytics is the use of data, information technology, statistical analysis,
quantitative methods, and mathematical or computer-based models to help
managers gain improved insight about their business operations and make better,
fact-based decisions.

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 BUSINESS ANALYTICS - DEFINITION
 Business analytics (BA) refers to the tools, techniques and processes

for continuous exploration and investigation of past data to gain

insights and help in decision making and problem solving.

 Business Analytics is an integration between business/problem context,

technology and data science that assist data driven decision

making/problem solving.

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EXTRACTING VALUE FROM THE DATA
Statistical models & Machine
Data Science Learning Algorithms

Problems, Opportunities, Data collection, storage,

Decision Scenarios retrieval Software tools

Business
Technology
Context
WHY ANALYTICS?
 ANALYTICS

Competitive
Strategy
Data is everything

Decision Making
(What promotion Strategy to use)

Problem Solver
(Optimal Product Mix)

Process Improvement
(Reduce procurement cycle time)
 ANALYTICS FOR PROCESS IMPROVEMENT

 Banking – Cheque clearance time

 Healthcare – Patient discharge time

 Manufacturing – Waste minimization

 Retail – Waiting time at check out counters

 E-commerce – Time to deliver the customer order

 ANALYTICS FOR PROBLEM SOLVING
 Banking – Reduce non-performing assets, Predict Fraud

 Healthcare – Improve net promoter’s score (NPS)

 Manufacturing – Reduce inventory management cost

 Retail – Assortment planning and shelf space allocation

 E-commerce – Predict customer cancellations and Fraud

 ANALYTICS FOR DECISION MAKING

 Banking – Loan approval and the interest rate

 Healthcare – Introducing new specialties

 Manufacturing – Whether to introduce a new product

 Retail – Markdown Pricing

 E-commerce – Promotions
COMPONENTS OF ANALYTICS
 COMPONENTS OF ANALYTICS

Predicting future
Data synthesis events
and Visualization
Descriptive Predictive
Analytics Analytics

Prescriptive
Analytics
Optimization and
decision making
COMPONENTS OF ANALYTICS
SCOPE OF ANALYTICS
 SCOPE OF ANALYTICS

Descriptive Predictive Prescriptive

Analytics Analytics Analytics

What Happened ? What Will Happen ? What Action to Take ?

© U. Dinesh Kumar, IIM Bangalore

 SCOPE OF ANALYTICS

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 SCOPE OF ANALYTICS
Example - Retail Markdown Decisions

Most department stores clear seasonal inventory by reducing prices.

The question is: When to reduce the price and by how much?

 Descriptive Analytics: examine historical data for similar products (prices, units sold,

advertising, …)

 Predictive Analytics: predict sales based on price

 Prescriptive Analytics: find the best sets of pricing and advertising to maximize sales

revenue

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APPLICATION OF ANALYTICS
 APPLICATION OF ANALYTICS
 Management of customer relationships

 Financial and marketing activities

 Supply chain management

 Human resource planning

 Pricing decisions

 Sport team game strategies

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 DESCRIPTIVE ANALYTICS APPLICATIONS
 Most shoppers turn towards right when they enter the a retail store.

 Conversion rate of women shoppers is higher than male shoppers

among electronic gadgets purchasers (Radio Shack).

 Strawberry pop-tarts sell 7 times more during hurricane compared to

regular period (Wal Mart).

 Women car buyers prefer women sales person.

 PREDICTIVE ANALYTICS PROBLEMS

 Which product the customer is likely to buy in his next purchase

(recommender system).

 Which customer is likely to default in his/her loan payment.

 Who is likely to cancel the product that was ordered through e-

commerce portal.
ANALYTICS IN E-COMMERCE (BIG BASKET)
 PRESCRIPTIVE ANALYTICS PROBLEM
 What is the optimal product mix?

 What is the optimal route for a delivery truck.

 Best markdown pricing for fashion products.

 Optimal assignment of aircraft to flight.

 How to manage the fleet of vehicles owned by a company for employee

drop and pick up?
INDUSTRY WIDE APPLICATIONS OF ANALYTICS
Industry Sector Sample Analytical problems Data Sources

 Supply Chain Analytics  Procurement , sales and production

 Quality and process improvement data
Manufacturing  Revenue and cost management  Warranty and after sales service
 Warranty Analytics  Commodity Price Data
 Manufacturing Data
 Macroeconomic Data

 Assortment Planning  Price data

 Promotion Planning  Demand data at SKU and at category
 Demand forecasting level
 Market Basket Analysis  SKU level sales data with and without
Retail
 Customer Segmentation promotions
 Planogram
 Customer demographics data
 Point of sales data
 Loyalty program data

 Clinical care • All patient care related data

Healthcare
 Hospitality related data • Hospitality related data
• Patient feedback data
INDUSTRY WIDE APPLICATIONS OF ANALYTICS
Industry Sector Sample Analytical problems Data Sources

 Demand forecasting  Transactional and feedback data

 NPS Optimization  Pricing and demand data
Service  Service Quality Analysis  Promotional data
 Customer Segmentation
 Promotion

 Assortment Planning  Customer transactional data

 Promotion Planning  Loan originating data
Banking & Finance  Demand forecasting  Credit scoring data
 Market Basket Analysis
 Customer Segmentation

 Demand for Analytics Services  Customer interaction and market

IT and ITES(IT enabling  Software Development Cycle time research data
Services)  Internal product development data

**Primary sources of data and secondary sources to be used in solving these analytical problems
BIG DATA
 BIG DATA
 Big data refers to high volume of data generated at high velocity
that contains large variety of data.

 According to Gartner Report, data is classified as big data, when:

 Volume: Exabytes
 Velocity: Sub-second
 Variety: 25+ formats
 Veracity: Accuracy of the data
 SOURCES OF BIG DATA

 Transactional data that are generated at high speed (mobile services, banking and
financial services, healthcare, entertainment etc).

 Machine generated data (electricity and water meters, sensors installed in various
systems).

 Social media data.

 Machine generated unstructured data (videos, satellite images etc).

 DATA MINING
 The process of discovering patterns in large data sets involving methods at the

intersection of machine learning, statistics, and database systems.

Ex. Amazon recommendation

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 DATA VISUALIZATION
Communicating / Understanding

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4 BINS OF ANALYTICS
PROBLEMS
 4 BINS OF ANALYTICS PROBLEMS

Prediction Classification Matching Optimization

Fingerprint
Forecasting Customer Vehicle
matching
Churn Routing
Customer
Recommender
lifetime value Credit Risk Bin-packing
Systems
 ANALYTICS – LIFE CYCLE - STAGES

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ANALYTICS FRAMEWORK
FRAMEWORK- DATA-DRIVEN DECISION MAKING
Problem or Opportunity Identification
• Domain knowledge is very important at this stage of the analytics project.
• This will be a major challenge for many companies who do not know the capabilities of analytics.

Collection of relevant data

• Once the problem is defined clearly, the project team should identify and collect the relevant
data.
• This may be an interactive process since "relevant data" may not be known in advance in
many analytics projects.
• The existence of ERP systems will be very useful at this stage.

Data Pre-processing
• Data preparation and data processing forms a significant proportion of any analytics project.
• This would include data imputation and the creation of additional variables such as
interaction variables and dummy variables in the case of predictive analytics projects.

Model Building
• Analytics model building is an iterative process that aims to find the best model.
• Several analytical tools and solution procedures will be used to find the best analytical model
in this stage.

Communication and deployment of the data analysis

• The communication of the analytics output to the top management and clients plays a crucial
role.
• Deploy the solution
 IMPLEMENTING ANALYTICS
o Understand the company’s products in depth

o Establish tracking mechanisms to retrieve the data about the products

o Deploy good quality data throughout the enterprise

o Apply real time analysis to the data

o Use business intelligence to standardize reporting

o Use more advanced analytics functions to discover important patterns

o Obtain insights to extract relevant knowledge from the patterns

o Make decisions to derive value using the knowledge discovered

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