Insights for executives5

Predictive analytics The C-suite’s shortcut to the business of tomorrow

Of special interest to Chief executive officerChief financial officerChief marketing or sales officerChief information officer

2 | 5 Insights for executives

In the era of big data, companies across a range of industries are recognizing the need for better intelligence and insight about their business. They want to work out how to make the best decisions, drawing on the right information, at the right time.

One organization that has been pioneering in its use of predictive analytics has been the United States Postal Service. Using an analytical approach, it predicted which workers’ compensation claims and payments were unwarranted — and saved some US$9.5 million during 2012 alone. This is not an isolated example: many leading organizations have started to regard their information as a corporate asset.

Business benefit can be gained by creating systems that can convert information into actionable insights, all within the context of key business priorities. Some of these include:

• Finding and accelerating growth opportunities — drawing on internal and external data to help model and predict business outcomes, identify the most profitable opportunities and differentiate the business from its rivals.

• Improving business performance — enabling agile planning, more accurate forecasting, better budgeting and trusted decision-making support.

• Managing risk and regulatory pressures — improving reporting processes through the exploitation of more robust data, while also identifying potential risk areas, such as compliance violations, fraud or reputational damage.

• Exploiting emerging technologies — continually identifying new opportunities to gain insights from data.

35 Insights for executives |

What’s the issue?Very few companies are fully exploiting the potential of predictive analytics. And these new aspirations also often collide with the struggle to contain and cut IT spend.

The key questions start with the ability to quantify the value of available information within the context of an organization, a department or business function — working out which data sources might help to strengthen the generation of new insights.

At the outset, issues range from working out how to derive benefits from information and in which context such data might be relevant. There is also a need to prioritize those activities, not least as views may differ sharply between what IT considers important versus what the rest of the business does. Finally, there is the challenge of determining how to perform and operationalize analytics, while taking the impact on processes and behaviors into account.

Why now?We operate in a digital world, with vast — and constantly increasing — volumes of data being generated. Every minute of the day, more than 200 million emails are sent globally, while Google receives more than 2 million search queries. The retailer Walmart now handles about 1 million transactions every hour, adding to a database that is nearly 2.5 petabytes in size. By 2020, some 450 billion online transactions are expected to take place every day. Sources of data, both structured and unstructured, are multiplying rapidly, from external social networking interactions to internal call center transcripts. Indeed, organizations now embrace data as a fourth factor of production, alongside capital, people and materials. They use it to help sharpen their business performance by differentiating their offerings, uncovering new opportunities and minimizing their risk exposure.

Predictive analytics is not brand new, but the technologies that help firms make sense of their data have only recently become available. This is allowing firms to uncover and exploit patterns in their historical data, identifying both risks and opportunities ahead. In short, businesses can use data to look forward, rather than at past performance.

Leading organizations increasingly recognize that predictive analytics can deliver more than just customer insight; it can also have a positive impact on compliance, security, fraud detection and risk management.

Predictive analytics is not brand new, but the technologies that help firms make sense of their data have only recently become available.

4 | 5 Insights for executives

How does it affect you?Many businesses report a disconnect between their desire to capitalize on data and their ability to do so. It becomes even more imperative for business and IT to develop a joint model and terminology for valuing information, which is directly linked to the organization’s key performance indicators.

Efficient analytics-enabled business processing measurably impacts performance by supporting better planning, forecasting and decision-making. It can help boost revenues, reduce risks and increase agility. But getting this right often demands that traditional IT and operational roles, structures and culture adapt to a new way of working, not least through the introduction of specialist positions, such as data scientists.

The adoption of analytics also brings with it new risks. Traditional levels of comfort around data quality, privacy, intellectual property and reputation management must evolve. This, in turn, impacts people’s behavior.

Efficient analytics-enabled business processing measurably impacts performance.

Ensuring that all parts of the business are engaged, so that the full picture is captured and information gaps are minimized, is another challenge. Customer data is a typical example: sales holds some data, such as billing addresses and transaction records, while marketing may hold customer feedback insights, and logistics holds physical delivery details. Information is often either duplicated or inconsistent, if it is available at all.

Nevertheless, correctly navigating such challenges is worth the effort. In an era of consumerization, those organizations able to monitor and predict customer behavior and preferences closely, without crossing the line on privacy, can gain significant advantage.

55 Insights for executives |

What’s the fix?Bringing technology-driven analytics to bear on a project involves several key steps:

As such steps become embedded, a portfolio of analytics projects should be developed. Quite simply, with limited resources, the most important initiatives need to be pushed to the front. As part of this, an implementation roadmap needs to be set out that also charts the likely impacts a given project might have.

4. Act on the findings — even if they imply a major shift — by adapting processes and behaviors to capitalize fully on the transformative potential of predictive analytics.

3. Perform the analytics, using mathematical algorithms to help uncover patterns within the data. These findings need to be translated back to the business problem to help interpret the outcomes in the most useful context.

1. Understand the problem and address it in a way that it becomes clear which insights need to be discovered through predictive analytics.

2. Collect the information needed to tackle the problem. This demands an analysis of which data is most needed, what is already available and where any key gaps lie, along with an assessment of data quality and a sense of where missing data might

be sourced.

6 | 5 Insights for executives

What’s the bottom line?The information war has already started. From here on in, business performance will depend to a great extent on an organization’s ability to gain access to the right information and to exploit it fully.

• At a high level, predictive analytics can help companies to:

• Move from a retroactive and intuitive decision-making process to a proactive data-driven one

• Build models that more closely predict future real-world scenarios and their related problems and opportunities

• Uncover hidden patterns and relationships in the firm’s data

More specifically, information-led companies will be able to sharpen their competitive edge. There are numerous examples of what this might deliver: attracting more valuable and loyal customers, charging prices closer to the market rate, ensuring more focused and relevant marketing campaigns, running more-efficient and less-risky supply chains, ensuring the best product or service quality levels, ensuring highly individualized customer service and guaranteeing a deep understanding of how process performance drives financial performance.

75 Insights for executives |

Want to learn more?

For related thought leadership, visit www.ey.com

The answers in this issue are supplied by:

Drazen NikolicEMEIA LeaderEnterprise Intelligence, EMEIA Advisory Center Ernst & Young AG+ 49 89 14331 19481drazen.nikolic@de.ey.com

Robert HirtDirectorEnterprise Intelligence, EMEIA Advisory Center Ernst & Young LLP+ 44 20 7951 4086 rhirt@uk.ey.com

Torsten KiewertExecutive DirectorEnterprise Intelligence, EMEIA Advisory Center Ernst & Young AG+ 49 89 14331 13974torsten.kiewert@de.ey.com

EY | Assurance | Tax | Transactions | Advisory

We want to hear from you!Please let us know if there are subjects you would like 5: insights for executives to cover.

You can contact us at: fiveseries.team@ey.com

This issue was created in collaboration with the CIO Program. Visit ey.com/cio.

About EYEY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities.

EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com.

About EY’s Advisory Services Improving business performance while managing risk is an increasingly complex business challenge. Whether your focus is on broad business transformation or more specifically on achieving growth, optimizing or protecting your business having the right advisors on your side can make all the difference. Our 30,000 advisory professionals form one of the broadest global advisory networks of any professional organization, delivering seasoned multidisciplinary teams that work with our clients to deliver a powerful and exceptional client service. We use proven, integrated methodologies to help you solve your most challenging business problems, deliver a strong performance in complex market conditions and build sustainable stakeholder confidence for the longer term. We understand that you need services that are adapted to your industry issues, so we bring our broad sector experience and deep subject matter knowledge to bear in a proactive and objective way. Above all, we are committed to measuring the gains and identifying where your strategy and change initiatives are delivering the value your business needs.

© 2013 EYGM Limited. All Rights Reserved.

EYG No. AU1979ED 0714

This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice.

ey.com/5