Innovating with analytics
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Match.com uses data analytics throughout its business to help connect people and foster relationships. Data scientists at Match.com continuously improve over 15 matching algorithms to better match users. This data-driven approach has helped Match.com grow its revenue over 50% in the past two years with over 1.8 million paid subscribers. Match.com's competitors take a more psychological approach, while Match.com believes a mathematical data-backed approach is more effective.
Innovating with analytics
- 1. TK Love is a funny thing. It’s intangible. It’s elusive. It’s illogical, completely beyond quantification. But that doesn’t stop online dating site Match.com from weaving data science into many aspects of its business. Data analytics influences decisions about ev- erything from the company’s marketing and customer care to its mergers and ac- quisitions, with one end goal: to help people connect and fall in love. Andmanydo.Accordingtosurveyscon- ducted in 2009-2010 by Match.com, one in five new committed relationships in the U.S. started online, as had one in six U.S. marriages during the prior three years.1 Match.com is doing its share to increase the ratios. Over the past two years, Match.com has seen more than a 50% increase in reve- nue, with more than 1.8 million paid subscribers in its core business. The biggest contributor to Match.com’s recent growth spurt, according to CEO Mandy Ginsberg, is innovation.2 Several years ago the company began investing in a crack team of data scientists. At the same time, it built out an underlying technology platform that enabled innovation,much of it spurred by data analytics. Because a dating site is only as good as its ability to connect people, Match.com has a group of data scientists who are con- tinuously improving a series of more than W i n n i n g W i t h Data : S u rv e y Match.com CEO Mandy Ginsberg said the com- pany has billions of data points it can analyze. InnovatingwithAnalytics The leading question How are companies using analytics? Findings Sixty-seven percent of survey respon- dents say analytics gives at least a mod- erate competitive advantage. More than half agree somewhat or strongly that analytics improves the organization’s innovation abilities. Some respondents report that analytics is shifting the orga- nization’s power structure. Data-savvyorganizationsareusinganalyticstoinnovate—and,increasingly,togain competitiveadvantage. By David Kiron, Pamela Kirk Prentice and Renee Boucher Ferguson FALL 2012 MIT SLOAN MANAGEMENT REVIEW 47
- 2. 48 MIT SLOAN MANAGEMENT REVIEW FALL 2012 W i n n i n g W i t h Data : S u rv e y 15matchingalgorithms.Theiractivitiesunderliethe company’s innovative approach to connecting peo- ple and support its business advantage in an increasingly competitive market. “Our competition uses a psychological-based methodology and they work closely with psycholo- gists,”said Ginsberg.“Match.com believes that every psychological theory is different, so it becomes diffi- cult to have something that is concrete as opposed to a mathematical equation. We haven’t seen much in the market quite like it. Plus the unique thing about Match.com is that we have billions of data points from the last 17 years to analyze.” Match.com is among a small but growing cadre of companies — both online and off — that are mastering the use of data and analytics to drive in- novation and build competitive advantage. In a recent data and analytics survey conducted by MIT Sloan Management Review in partnership with SAS Institute Inc., we found a strong correlation be- tween the value companies say they generate with analyticsandtheamountof datatheyuse,theneedfor faster results from data,and the ability to operational- ize the results within their organizations.(See“About the Research.”) But perhaps the most intriguing find- ing from the survey is the cultural impact: Some respondents report that the use of analytics is shifting thepowerstructurewithintheirorganizations. The following is a preview of some of our sur- vey’s key findings about topics such as data access, competitive advantage and innovation. More de- tailed findings from our survey will appear in our full report, to be published in November 2012. Data Access Data is the foundation of any effec- tive analytics initiative. And with the continued proliferation of data and the relative ease of its cap- ture and storage, organizations now have more information than they ever thought possible. But having the data is not enough. The good news is that a substantial majority of our respondents say their access to useful informa- tion has increased over the past year, as has their confidence in data. (See“Data Access Improving.”) However, most organizations use less than half of their data and even with all that is available to them, just 35% of our respondents say they frequently or always have access to the information they need to make key decisions. But for those who are able to tap into the insights provided by their data, the benefits are substantial. Competitive Advantage Despite issues with ac- cessing data to make key decisions, 67% of our respondents say that using analytics has created at least a moderate competitive advantage for them. This represents a significant jump from prior sur- veys.3 In fact, the percentages can’t rise too much further before there is no longer an “advantage.” After all, the idea of an advantage is that someone else doesn’t have it. Innovation Analytics, our survey respondents indi- cated,can spur innovation.Sixty-one percent of our respondentssomewhatorstronglyagreethatanalyt- ics has improved their organizations’ ability to innovate. (See “Analytics Facilitates Innovation.”) Thetopthreeareaswhereanalyticshasimprovedin- novation are marketing,operations and finance. Analytical Innovators: In the Forefront The idea that data and analytics can be used to build competitive advantage and advance innovation is es- sential to the business models of many online companies,suchasMatch.com,PayPal,eBay,Amazon and Google. For other companies,data and analytics tend to be a less natural and less essential feature of theirstrategiesforcompetitionandinnovation. By combining responses to two of our questions — one about creating a competitive advantage with analytics and one about using analytics to innovate — we identified five distinct levels of About the REsearch To deepen our understanding of the challenges and opportunities associated with the use of business analytics, MIT Sloan Management Review, in partnership with SAS Institute Inc., conducted a survey to which more than 2,500 business executives, managers and analysts responded from organizations located around the world. Our analysis includes individuals in 123 countries and 25 industries. Participating organiza- tions also ranged widely in size. Respondents included MIT alumni and MIT Sloan Management Review subscribers, SAS clients and other interested parties. In addition to these survey results, we interviewed academic experts and subject matter experts from a number of industries and disciplines to understand the practical issues facing organizations today in their use of analytics. In this article, the term “analytics” refers to the use of data and related business in- sights developed through applied analytical disciplines (such as statistical, contextual, quantitative, predictive, cognitive and other models) to drive fact-based planning, deci- sions, execution, management, measurement and learning.
- 3. sloanreview.mit.edu FALL 2012 MIT SLOAN MANAGEMENT REVIEW 49 analytics sophistication among survey respon- dents. The levels ranged from those companies least effective at creating a competitive advantage and driving innovation with analytics (which we call Level 1), to those who seem on their way to mastering the use of analytics in both of these areas (which we call Level 5). We found that companies where analytics has improved innovation and created a competitive ad- vantage (Level 5 organizations) have several distinguishing features. This group — whom we are calling Analytical Innovators — represents 11% of respondents and includes different-sized com- panies from a variety of industry sectors and geographic regions. In general,Analytical Innovators are more likely to use most or all of their data than other respondent groups, are more likely to be effective at embedding analytics in their organizations, tend to want faster dataanalysisand,perhapsmostinterestingly,aremore likely than other companies to have seen a power shift within their organizations as a result of analytics. In particular,AnalyticalInnovatorsdifferfromothersur- veyrespondentsinthefollowingkeyareas. 1.AnalyticalInnovatorsTendtoUseMoreData. A substantial majority of Analytical Innovators say they tendtousemuchorallof thedatatheirorganiza- tionsgenerate.(See“AnalyticalInnovatorsTendtoUse More Data.”) This contrasts sharply with the other four groups of organizations we identified.Analytical Innovatorsarethreetimesmorelikelytosaytheyusea great deal or all of their data than the 8% of respon- dents who are the least effective at using analytics for competitive advantage and innovation and whom we callLevel1.Moregenerally,wesawastrongcorrelation between how much a given company uses analytics to create competitive advantage and advance innovation andhowmuchof theirdatathatcompanyuses. 2.Analytical Innovators Manage Information More Effectively. We also found that there is a strong correlation between driving competitive ad- vantage and innovation with analytics and a company’s effectiveness at managing the informa- tion transformation cycle, that is: capturing data, analyzing information,aggregating and integrating data,using insights to guide future strategy and dis- seminatinginformationandinsights.(See“Managing Analytics Facilitates Innovation Sixty-one percent of our respondents somewhat or strongly agree that analytics has improved their organizations’ ability to innovate. Data Access Improving A substantial majority of our respondents say their access to useful information — and their confidence in data — has increased over the past year. Percentage of respondents Access to useful data has increased over the past year Confidence in data has increased over the past year Accuracy of internal data has increased over the past year Accuracy of external data has increased over the past year Use most or all of data generated by organization Always or frequently have access to data to make decisions 70% 60% 60% 45% 43% 35% To what extent do you agree with the following statement? “Analytics has helped improve my organization’s ability to innovate.”Somewhat agree 16% 45% 4% 10% 25% Q26 Strongly agree Strongly disagree Somewhat disagree Neither 16% 45% 4% 10% 25% Strongly agree Strongly disagree Somewhat disagree NeitherSomewhat agree
- 4. 50 MIT SLOAN MANAGEMENT REVIEW FALL 2012 W i n n i n g W i t h Data : S u rv e y theInformationTransformationCycle.”) ThegapbetweenAnalyticalInnovatorsandLevel1 organizations, who innovate with analytics the least and gain the least competitive advantage from analyt- ics,isdramaticacrossallofthesecategories.Compared to Level 1 organizations, Analytical Innovators are more than twice as effective at capturing information, more than three times as likely to say they are effective at analyzing information,and more than four times as effective at aggregating and integrating information. Perhaps most noteworthy,Analytical Innovators are six times more likely than Level 1 companies to say that they are ef- fective at using insights from analyticstoguidefuturestrategies. Notice that all respondents tend to be more effective at cap- turing data than at any other analytics-related activity. Ana- lytical Innovators, however, are the most consistently effective of any group across all categories. For example, Level 1s are twice as likely to say they are effective at capturing data as at dissemi- nating insights. Analytical Innovators, by contrast, have less drop-off in effec- tiveness across these activities. We took a closer look at the ability of Analytical Innovators to disseminate insights — specifically how well they moved insights to customer-facing employees, an extremely valuable activity for many enterprises. Forty-five percent of Analytical Inno- vators strongly agreed that customer-facing employees in their organization have access to in- sights from analytics to drive sales and productivity — something they were 7.5 times more likely to re- port than Level 1 organizations. (See “Getting Insights to the Front Line.”) This characteristic could be one of the ways that Analytical Innovators get a competitive advantage from analytics. 3. Speed is Very Important to Most Analytical Innovators. We also discovered that Analytical In- novators have, as a group, a stronger need for speed than other survey respondents: they are more likely tomarkitsimportance.(See“TheNeedforSpeed.”) Eighty-seven percent of Analytical Innovators re- port that it is very important to have the ability to process and analyze data more quickly. That’s more than twice the percentage of respondents from Level 1 organizations who report that. Analytical Innovators are primarily focused on utilizing speed in three distinct areas: customer experience, pric- ing strategy and, notably, innovation. Interestingly, Analytical Innovators are also much more likely than other groups to say that an- alytics has started to shift the power structure within their organizations. Whereas 59% of Ana- lytical Innovators agree somewhat or strongly that Managing the Information Transformation Cycle Analytical Innovators report that they are more effective at managing all stages of what we call the information transformation cycle, that is: capturing data; analyzing information; aggregating and integrating data; using insights from analytics to guide future strategy; and disseminating information and insights. How effective is your organization at the following analytics-related tasks and activities? (These percentages combine somewhat and very effective responses.) Q25b 80% 100%40% 60%20% Capturing Information Analyzing information Aggregating / integrating information Using insights to guide future strategies Disseminating information and insights Analytical Innovators Level 1 2 3 4 5 Analytical Innovators Tend to Use More Data A substantial majority of Analytical Innovators say they tend to use much or all of the data their organizations generate. Q8 All of it 4% 27% 2% 3% 4% 9% 43% 53% 63% 20% A great deal Level 1 Level 2 Level 3 Level 4 Level 5 Analytical Innovators How much of the data that is generated by your organization does your organization use? Q8 All of it 4% 27% 2% 3% 4% 9% 43% 53% 63% 20% A great deal Level 1 Level 2 Level 3 Level 4 Level 5 Analytical Innovators
- 5. sloanreview.mit.edu FALL 2012 MIT SLOAN MANAGEMENT REVIEW 51 there is such a power shift in their organizations, just 7% of Level 1s say the same thing.(See“Analyt- ics Can Shift the Power Structure.”) Consistent with our other findings, the more an organization uses analytics to build competitive advantage and to innovate, the more likely it is to say analytics has shifted its power dynamics. At PayPal, for example, business analysts — at least a select group of them — are increasingly viewed as ‘thought partners’ who provide not only answers to what to change in the organization, but also how to implement that change. Quantifying impact and leveraging analytics in general are in- creasingly mandated components of every new PayPal initiative across finance, operations and products, according toVeronika Belokhvostova, di- rector of global business analytics at PayPal. How A Data-Oriented Culture Changes Organizations In our survey analysis, we’ve discovered striking differences between Analytical Innovators and their less analytic-driven counterparts. What we found interesting, even surprising, is that Analytical Innovators are not just those companies we would expect — newer, agile online organiza- Getting Insights to the Front Line Analytical Innovators were more likely than other organizations to agree that customer-facing employees in their organizations have access to insights from analytics. “We are proud that renowned supply chain management expert Yossi Sheffi has highlighted Singapore as one of the successful logistics clusters alongside cities like Memphis, Chicago, Rotterdam and Los Angeles. Based on solid research and practical examples, Sheffi offers a perceptive understanding of the roles governments, businesses and academia can play to create an enabling environment for logistics clusters to thrive.” — LEO YIP, CHAIRMAN, SINGAPORE ECONOMIC DEVELOPMENT BOARD Visit our e-books store: http://mitpress-ebooks.mit.edu To order call 800-405-1619 • http://mitpress.mit.eduThe MIT Press CELEBRATING 50 YEARSF I F T Y “Yossi Sheffi’s book provides a fascinating description of the power of clusters in services and the evolution of logistics clusters globally. This interesting book shows how clusters are getting more important in the global economy, not less, defying predictions of the end of geography.” — MICHAEL E. PORTER, BISHOP WILLIAM LAWRENCE UNIVERSITY PROFESSOR, HARVARD BUSINESS SCHOOL Somewhat agree Strongly agree17% 10% 23% 44% 49% 33% 15% 21% 45% 6% Level 1 Level 2 Level 3 Level 4 Level 5 Analytical Innovators To what extent do you agree with the statement “Customer-facing employees have access to insights to help drive sales and productivity”? Q23 Somewhat agree Strongly agree17% 10% 23% 44% 49% 33% 15% 21% 45% 6% Level 1 Level 2 Level 3 Level 4 Level 5 Analytical Innovators
- 6. 52 MIT SLOAN MANAGEMENT REVIEW FALL 2012 W i n n i n g W i t h Data : S u rv e y tions or huge companies with vast analytics investments. Rather, this group represents vari- ously sized companies across industry sectors and geographies. We also identified interesting charac- teristics shared by Analytical Innovators. They are more likely to use more of their data. They tend to be more effective at driving the information transformation cycle — capturing, analyzing, aggregating, integrating and disseminating infor- mation — and thus embedding analytics in the organization. More of them report a greater need for speed in processing and analyzing data. Perhaps most intriguingly, not only do we see a shift of power with the effective use of analytics, we also note a marked cultural difference.While many respondents have yet to develop a data-oriented culture, Analytical Innovators as a group tend to score high on those attributes that define such a culture. They tend to be open to new ideas. Cus- tomer-facing employees are more likely to have access to data they need. Executives foster analyt- ics-driven decisions and analytics champions are more likely to exist within these organizations.And more of the companies are able to use analytics to collaborate effectively. One important takeaway is that a data-oriented culture makes it easier for organizations to inno- vate when decision makers have confidence in where the data comes from,how it is developed and by whom. But another, perhaps more important takeaway is that Analytical Innovators are not just seeing analytics as an important path to value. Instead, they are evolving and changing as organi- zations as a result of their experience with analytics. David Kiron is executive editor of MIT Sloan Man- agement Review’s Innovation Hubs. Pamela Kirk Prentice is the chief research officer of SAS Institute Inc. Renee Boucher Ferguson is the contributing editor for MIT Sloan Management Review’s Data and Analytics Innovation Hub. Comment on this article at http://sloanreview.mit.edu/x/54117, or contact the authors at smrfeedback@mit.edu. REFERENCES 1. Match.com and Chadwick Martin Bailey 2009-2010 surveys, http://cp.match.com/cppp/media/CMB_ Study.pdf. 2. “Match.com’s Ginsberg on Subscribers, Strategy,” Bloomberg video, May 20, 2012, www.bloomberg.com/ video/70015972-match-com-s-ginsberg-on-subscribers- strategy.html. 3. D. Kiron and R. Shockley, “Creating Business Value With Analytics,” MIT Sloan Management Review 53, no 1 (fall 2011): 57-63. Reprint 54117. For ordering information, see page 6. Copyright © Massachusetts Institute of Technology, 2012. All rights reserved. Analytics Can Shift the Power Structure Analytical Innovators are more likely than other groups to strongly agree that analytics has shifted the power structure within their organizations. The Need for Speed Analytical Innovators have, as a group, a stronger need for speed than other survey respondents. How important is the ability to process and analyze data more quickly to your organization? Q13 Somewhat important Very Important 35% 35% 44% 44% 22% 11% 48% 76% 87% 38% Level 1 Level 2 Level 3 Level 4 Level 5 Analytical Innovators How important is the ability to process and analyze data more quickly to your organization? Q13 Somewhat agree Strongly agree6% 4% 1% 27% 36% 35% 6% 13% 24% 1% Level 1 Level 2 Level 3 Level 4 Level 5 Analytical Innovators To what extent do you agree with the statement “Analytics has shifted the power structure within my organization”? Q23 Somewhat agree Strongly agree6% 4% 1% 27% 36% 35% 6% 13% 24% 1% Level 1 Level 2 Level 3 Level 4 Level 5 Analytical Innovators SAS and all other SAS Institute Inc. product or service names are registered trademarks or trademarks of SAS Institute Inc. in the USA and other countries. ® indicates USA registration. Other brand and product names are trademarks of their respective companies. 106096_S100383.1112