Chapter 2

The Competitive Advantage of Business Analytics

Business analytics enables competitive advantage.1 Regardless of whether one uses classic SWOT (strengths, weaknesses, opportunities, threats) analysis, Porter’s five forces, the resource-based view of the firm, or Wilde and Hax’s delta model to identify and drive toward competitive differentiation, business analytics helps develop sustainable competitive advantage.

Intuitively, this makes sense: Smarter organizations that act on their insights tend to be more successful. Organizations that better understand their customers’ preferences and design their products to suit will easily differentiate themselves in the market. Insurers that have better awareness of the cost of risk will carry lower exposure than those that don’t.

It’s pithy, but it’s true: Making better decisions leads to better results, and business analytics helps organizations make better decisions. Counterintuitively, however, the specifics behind why this is so are harder to explain. Even those with extensive experience in the field often struggle to explain how business analytics supports competitive advantage beyond saying that “it creates better outcomes.” Although true, it lacks clarity, and the link between being smarter and achieving success remains vague.

Some organizations are willing to take this leap of faith. Through experience or experimentation, they succeed. Through a combination of time, trial, and error, they develop an awareness of what works ...

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