Analytics Require Continuous Improvement Too?

In a recent Inc. Magazine article, Ilan Mochari claims that “the use of analytics is commonplace—to the point where it’s no longer easy to sustain an advantage by using them”. Given this, Ilan asserts that analytics do not necessarily create a long term advantage. Ilan’s article is based upon the scholarly research by Peter C. Bell, a professor of management science at the Ivey Business School. Bell’s research showed that "there is strong evidence that American Airlines maintained a revenue advantage through its pricing analytics from 1985 to 1995”. But today, Bell has found that "almost every airline employs the same basic methodology to maximize their revenue per seat mile flown."

Do Analytics Have a Lifecycle Curve Too?

The question is do analytics have a life cycle curve and therefore, need continual improvement just like the products and businesses that they support? The answer has to be yes if the analytics are built upon service capabilities which are common between industry competitors. This is because people move between organizations in search of new opportunities. This action over time diffuses most approaches and even ideas. Given this, analytic commoditization occurs naturally for shared capabilities. However, I believe there are two ways for firms to protect their analytical investments.

Plan for An Analytics Lifecycle

First is to plan for an analytics lifecycle for capabilities that are common between industry players. Analytics like products, over time, will become more and more alike. So the question that analytical leaders should regularly be asking themselves is what are next places where the business needs improvement and therefore, what are the next set of analytic measures that will provide the business competitive advantage? So in the airlines case what are the measures that go beyond revenue per seat mile flown? Are there leading indicators that could actually drive overall performance of this metric? I would argue that the value of this metric has declined because too many of airlines have been built identically. The only thing that builds loyalty in airlines today is frequent flyer programs. As an American Gold Member and a former United IK member, I like these benefits. The problem is there too little difference between airlines other than convenience, size, and routes. The business question that should be asked is how can airlines differentiate themselves within their core business processes. Where can they use technology and metrics to drive further differentiated performance in common capabilities?

Could an airline work their systems to guarantee bags are delivered within 10 minutes of arrival? And could they measure success here. This could move me and others to check bags more often. Could an airline figure out how to ensure under most conditions that flights arrive on time? Or could they invest to automatically deliver an optimized alternative when nature or equipment requires a change? Is this measured and managed to? And could they provide better meals, and the list goes on. So I would contend that where metrics and KPIs are created for things that are common between industry competitors, the expectation needs to be that over time analytic approaches will diffuse and the advantage gained from them will be lost unless a continuous improvement program is in place.

Making Sustainable Analytics Investment

Next organizations should tie their metrics and KPIs to their capabilities systems—these will not go out to date. “Your capabilities system is a combination of three to six mutually reinforcing activities” (The Essential Advantage, Paul Leinwand, page 14). Each capability enables your company to consistently outperform revivals. For analytical leaders, the message is to search out where you have “the ability to reliably and consistently deliver a distinctive outcome, relevant to your business” (The Essential Advantage, Paul Leinwand, page 14). With these, you should continually refine and improve your analytics related to your capabilities system. In these cases, your analytics can never lose competitive advantage because they are about the core of what you do. And if they are copied then you have lost the war and your business capability has been effectively copied by others.

Given this, let me look back at the airlines. I would contend that revenue per seat mile flown, while an interesting metric, could never be sustained as a metric because it wasn’t about a core business capability. Instead, it was about something that could be compared naturally between market players. Instead, American should have focused on analytics that supported their way to play. “Southwest Airlines, Ryanair, and Singapore Airlines, in particular, are known for their well-matched systems of capabilities” (The Essential Advantage, Paul Leinwand, page 38). A company’s way to play--its approach for creating and capturing value in a market that differentiates you from all other companies—should be the starting point for all analytical initiatives.

Parting Remarks

All things considered, you should assume that your analytics have a life cycle just like products or businesses. With this said, if you focus your analytics upon your capabilities system, you have a chance to lessen the impact of analytic commoditization by focusing on how your business wins in its respective markets.