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Excerpted from Competing on Analytics: The New Science of Winning Updated, with a New Introduction. Many of the previous bases for competition are no longer available. Unique geographical advantage doesnt matter in global competition, and protective regulation is largely gone. Proprietary technologies are rapidly copied, and breakthrough innovation in products or services seems increasingly difficult to achieve. As the case of Netflix shows, competing on the basis of analytical capabilities, and being highly successful in your industry, are not unrelated attributes. Harvard Business Review Analytics Software Company ReedThat dent in his wallet got him thinking: why didnt video stores work like health clubs, where you paid a flat monthly fee to use the gym as much as you wanted Because of this experience and armed with the 750 million he received for selling his software company Reed Hastings jumped into the frothy sea of the new economy and started Netflix, Inc. Would people really order their movies online, wait for the US Postal Service (increasingly being referred to as snail mail by the late 1990s) to deliver them, and then go back to the mailbox to return the films Surely Netflix would go the route of the many internet startups that had a business model and a marketing pitch but no customers. The online content creation and distribution company, which has grown from 5 million in revenues in 1999 to 8.3 billion in 2016, is a prominent example of a firm that competes on the basis of its mathematical, statistical, and data management prowess. The first is a movie- recommendation engine called Cinematch thats based on proprietary, algorithmically driven software. Harvard Business Review Analytics Code To DefineNetflix hired mathematicians with programming experience to write the algorithms and code to define clusters of movies, connect customer movie rankings to the clusters, evaluate thousands of ratings per second, and factor in current website behavior all to ensure a personalized web page for each visiting customer. It was an innovative approach to crowdsourcing analytics, even if the winning algorithm was too complex to fully adopt. But no doubt Netflixs data scientists learned from the work and improved the companys own algorithms. CEO Reed Hastings notes, If the Starbucks secret is a smile when you get your latte, ours is that the website adapts to the individuals taste. ![]() In other words, its primary territory is in the long tail the outer limits of the normal curve where the most popular products and offerings dont reside. Netflix has employed analytics to increase the likelihood of its success. It has used attribute analysis, which it developed for its movie recommendation system, to predict whether customers would like a series, and has identified as many as seventy thousand attributes of movies and TV shows, some of which it drew on for the decision whether to create it. Maybe you strive to make money by being better at identifying profitable and loyal customers than your competition, and charging them the optimal price for your product or service. If so, analytics are probably the answer to being the best at it. Perhaps you sell commodity products and need to have the lowest possible level of inventory while preventing your customer from being unable to find your product on the shelf; if so, analytics are often the key to supply chain optimization. Maybe you have differentiated your products and services by incorporating some unique data and proprietary algorithms. Perhaps you compete in a people- intensive business and are seeking to hire, retain, and promote the best people in the industry. Whatever the capabilities emphasized in a strategy, analytics can propel them to their highest level. This post was published on the now-closed HuffPost Contributor platform. Contributors control their own work and posted freely to our site.
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