Using Analytics to Improve Strategy

If we put as much effort into understanding and optimizing the factors in a strategy as we did into tactical optimization, we’d probably be four or five times more effective.

Why?

Tactical testing and analysis, when done well and right, can yield returns of approximately 2% to 20%. In certain industries, like airlines and travel arbitrage, the profit margin is made up entirely on tactical testing and optimization. Revenue management, logistics, and competing on analytics is simply the norm. Compete or die. So I’m not knocking tactical analytics.

In most instances, however, companies do not have to compete using analytics. That is to say, most companies do not see analytics as a key factor in their strategies.

Most companies certainly see strategy as the most important factor.

There are a few methodologies for producing what is likely, quantitatively, a good strategy. Five Forces and Six Sigma are two.

What should analytics contribute anything to the formulation of strategy?