Investing in data analytics aren't for every firm, but could be key to making money in mature markets, said the managing director of TCG Advisors Geoffrey Moore.
Speaking to attendees of the Teradata Partners Conference in Las Vegas late yesterday, Moore said investment in data analytics must be strategic.
"It's an era of building great systems of record - it's like the pyramids," he said. "Data builds up, and you can learn from this stuff."
"Companies which deal with high data volumes can make clear use of such business intelligence, but so can those operating in mature markets. Technology firms dislike the idea of maturing markets, preferring to stay in the early phase of the business cycle, where the innovation is new and leading the market - a phase he called the "product leadership zone".
But he warned that customers - be they businesses or individuals - aren't as myopic and won't keep paying a premium for new innovations. "If you push 'product leadership zone' forever, eventually people don't care," he said, noting the printer industry as an example: "1200 dpi? Wow, I don't care. I'm not paying anymore than for 600."
When the market hits this mature phase, companies need to find other ways to differentiate themselves from their competitors, he said, suggesting the use of data analytics to increase customer intimacy or operational excellence. "The technology sector is trying to solve it with technology, but not with understanding and empathy," he explained.
As the market matures, finer layers of granularity are needed to engage more deeply with their customers, and need solid information to do so. Moore suggested four ways of extending a product's reach: line extension, enhancement innovation, marketing innovation and experiential innovation. Expanding a line, adding a small detail, marketing in a new way or discovering a new market - such as ring tones for phones - can all be ways to squeeze more out of a mature market.
Using these methods, companies can create a competitive advantage so huge that they no longer appear to have competitors at all. "The iPod did it, Zune did not. You can prove it by giving a Zune to your kid for Christmas," he said.
From an operational standpoint, companies can use data to improve their business processes by integration or value engineering - which can cut costs - or through value migration, where the data you collect from a transaction could be worth more than the transaction itself, he said.
It works with processes, he said, noting Dell as an example where operational data was used to create an unmatchable competitive advantage.
But firms should be wary of investing in data analytics and the data warehousing that backs it up, he said. Companies that use that combination successfully do one of three things, he said. They either go all the way, using their understanding of their customers to create an unmatchable competitive advantage, such as Apple's iPod. Or, firms can use the information to catch up to such firms. But using such a heavy investment to place your company anywhere between that is a mistake, he warned. "You'll spend an enormous amount on innovation and not get paid," he said.
The third option is the easy choice, he said. Simply use the data you have to improve productivity and take costs down. "Analytics are core... you can't do it at scale any other way," he said.
