Analytics and the Power of Early Information

June 13, 2012

    What kind of an edge can analytics give your business?

It’s a question that’s been asked by anyone who has ever considered investing in analytic technology of any kind. Another way of asking the same question is, “What is the ROI of analytics?”

During a recent visit to San Francisco, an interesting history lesson revealed a powerful answer.

The History Lesson

On this trip to the Bay Area I walked up several of San Francisco’s famous hills: Nob Hill, Russian Hill, Rincon Hill, and Telegraph Hill. Telegraph Hill is an iconic part the San Francisco skyline and is visible from the entire North Bay. Adorning its summit is Coit Tower, a 210-foot art deco pillar. It was built in 1933 as part of a civic beautification project, but it wasn’t the first tower built on Telegraph Hill.

In 1849 a different tower was erected where Coit Tower now stands. The tower was a semaphore telegraph, a windmill-looking structure used to signal the type of ships that were entering the San Francisco Bay. Watchmen would carefully scan the horizon for ships coming to the city and would then arrange the semaphore’s arms to signal whether a steamer, sailing boat, naval vessel, or other ship was arriving. This information could be used to deduce which type of cargo would be unloaded at San Francisco’s famous piers.

The information was commonly used by traders, merchants, financiers, and speculators to gain advance knowledge that could be turned into financial gain. Knowing in advance that a particular cargo was entering the Bay meant a shrewd trader could safely bet that the price of that commodity was about to drop. An increased supply of any good will always result in lower prices. Merchants didn’t want to pay too much, and speculators were on hand to buy and sell futures as well as commodities at their lowest possible prices for the purpose of selling it later, once the price had gone back up. This practice is known as arbitrage.

Just a few hours notice was all it took to give traders the edge. That’s the power of advanced information. It allows decision makers to reduce the risk involved in choosing between different courses of action.

The Answer

Analytics about a business’s customers is perhaps the most important analytics of all. Knowing what the customer is experiencing helps decision makers shape a product that is more appealing and satisfying, which drives new sales and repeat business.

Just as Telegraph Hill allowed 19th-century businesspeople to get a few hours edge on their competitors, real-time customer analytics can give a business an edge over competitors who rely on slower market research studies. How much is it worth to know that a customer has slipped on a wet floor minutes after the event occurs? Or how much is it worth to find out that one of your customer service representatives is giving out bad information. At a more aggregate level, what is it worth to find out that customer service always drops every Wednesday afternoon after 2:00 PM? And, even better, what’s it worth to find out why?

That’s the power of analytics. Advance notice that leads to faster and more correct information.