The Value of Business Analytics: Identifying the Path to Profitability

ROLE OF THE ORGANIZATION

To understand how business analytics helps create competitive advantage, it helps to revisit the role of the organization in the market and society. Because business analytics requires business relevancy, creating real competitive differentiation requires a strong comprehension of why organizations exist. By understanding these drivers, one uncovers the critical role analytics plays in enabling competitive advantage.

Private Sector Perspective

There are multiple perspectives on the role of the organization in the private sector. Some of the most common reasons include:

• To increase the efficiency of converting inputs into value-added outputs
• To deliver a return to shareholders
• To jointly benefit stakeholders

Organizations do not exist within a vacuum. They operate in what is often a highly complex interexchange with other organizations, individuals, and regulatory forces. Not surprisingly, a great deal of research has been conducted into why organizations form in the first place.

Value-Added Transformation

In principle, all of the elements necessary to produce a given output already exist in the market (in an economic sense). If this is the case, why should organizations appear?

One of the original (and most influential) perspectives on why this formation takes place was developed by Ronald Coase in the early twentieth century.¹ Coase’s argument was that the formation of an organization is an economically efficient outcome where there exists the opportunity ...