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Tuesday, October 17, 2017

The data-driven executive

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By Reynaldo C. Lugtu Jr.

Reynaldo C. Lugtu Jr.

Reynaldo C. Lugtu Jr.

Dashboards have become fashionable in recent years due to advances in data analytics and how processed data is presented and visualized to help business executives in making decisions. They have become a critical and important resource for organizations to improve their profitability, enhance customer experience, and look for opportunities to make operations efficient.

This have spawned the new breed of business executives – one that is data-driven, willing to invest in big data and data scientists to churn out actionable data, willing to learn how to interpret dashboards, and perennially curious about relationships of data sets to tests business hypotheses.

In fact, “big data” has come a long way since its rise to hype-dom in 2014 such that businesses are truly deriving benefits form data analytics. Business executives can now be presented with various forms of data and relationships between and among variables to provide them with descriptive analytics which provides hindsight (what happened?), diagnostic and predictive analytics that provide insight (why did it happen? what will happen?), and prescriptive analytics which provides foresight (how can we make it happen?).

Descriptive analytics is a preliminary stage of data processing that produces a summary of historical data to yield useful information, providing hindsight on what happened. Historical sales presented in a bar graph with a super-imposed trend line or Twitter trending in the last 30 days are examples of descriptive analytics.

Diagnostic and predictive analytics, on the other hand, are more advanced data analyses. The former provides a deeper look at data to attempt to understand the causes of events and behaviors. The latter identifies future probabilities and trends by providing information about what might happen in the future. For example, business process outsourcing companies in the Philippines uses diagnostic and predictive analytics to understand causes of employee absenteeism and low productivity, and predict who and how many will eventually leave the company.

Lastly, prescriptive analytics is dedicated to finding the best course of action, given the certain parameters, and suggest decision options to best take advantage of a future opportunity or mitigate a future risk. Some examples of prescriptive analytics applications are self-driving cars which make multiple decisions about what to do given situations in traffic, pedestrians crossing, and so on; or the ones used by the oil and gas industry to optimize operations on where to explore new oil sites to predict performing and non-performing oil wells.

Despite these advances and available opportunities for enhanced decision-making, majority of the business executives use only descriptive analytics. I estimate that in the Philippines, 98% of business decision-makers use this method only to analyse historical patterns and make “guestimates” on future forecasts. Only a measly 2% of business executives, mainly in the banking sector to in risk management predictions and BPO sector to predict employee attrition. A negligible number of executives dabble in prescriptive analytics, mainly those in tech start-ups.

Not only that. Research firm Forrester reported that although 74% of enterprises globally say they strive to be data driven, only 29% say their organizations are good at turning data insights into actionable business outcomes. This means that, whether descriptive or diagnostic analytics, majority of the business executives are not able to take advantage of the power of dashboards to help them in decision-making. This probably stems from the inability of many business decision-makers to formulate hypotheses about their business, test these hypotheses using the tools of advanced analytics, and eventually make decisions.

This only shows the enormous opportunities for Philippine businesses to take advantage of advanced data analytics to help them making better decisions. But its supremely incumbent upon business leaders to create a data-driven culture. It starts from them – to be open about learning these new tools, immersing themselves in creative ways of using and interpreting data, and investing in data tools and resources.

The ultimate winners in business are those that are able to make use of the power of data to provide hindsight, insight, and foresight.

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The opinions expressed here are the views of the writer and do not necessarily reflect the views and opinions of FINEX.The author may be emailed at reylugtu@reylugtu.com.

The author is a senior executive in an information and communications technology firm. He is the Chairman of the ICT Committee of the Financial Executives Institute of the Philippines (FINEX). He teaches strategic management in the MBA Program of De La Salle University. He is also an Adjunct Faculty of the Asian Institute of Management.

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