Predictive analytics has emerged as another tool for businesses to bolster their risk management approach and in turn, retain their competitive advantage. With big data at its very heart the technology presents users with hugely valuable learnings that inform their most important decisions. While many are yet to leverage predictive analytics, TDWI has compiled a 2014 report highlighting the main reasons why businesses have and should adopt this vital tool.
The primary driver behind the adoption of predictive analytics, according to TDWI’s report, is its ability to predict trends. According to Anne Liser Kjaer, CEO of trend forecasting agency Kjaer Global, trends “should inspire and inform companies’ future vision from the board, brand and marketing to innovation strategies for developing products, services and experiences that will fulfil and meet the needs of tomorrow’s people.” The learnings that are gained and outcomes that are foreseen are therefore not for one-time use. They can inform your own product or service strategies from the very beginning, putting you on a path that poses less risk and gives your customer what they truly want and need.
The second driver was the understanding of customers that predictive analytics can deliver. The process that leads to predictions involves the analysis of past customer data which in itself is valuable even without an estimate of what could happen next. By understanding how customers have behaved in the past your business can see which sales and marketing strategies have and haven’t worked, highlight how the needs of buyers has evolved, and identify why they choose you over a competitor.
In the context of predictive analytics, the third driver – improving business performance – focuses on a forward-looking stance rather than a view of previous success (or lack of) to generate higher revenue. To improve business performance, predictive analytics promotes a proactive approach led by decisions that are based on the expected behaviour of customers and movements of markets. One example that ties back in with the second driver (understanding customers) would be a firm using historical buying data to spot when purchases of a specific product rise and fall, enabling them to adjust price ahead of time to match this fluctuation in demand.
Interestingly, driving strategic decision making was only the fourth most common reason why businesses invested in predictive analytics. These types of decisions are far more important and influential than many of the everyday judgements you are likely to make, as they are underpinned by the company’s mission and objectives. A degree of risk is always faced when making choices that alter strategy, but predictive analytics ensures the decision is more calculated and therefore more likely to be the right one. Put simply, previous business actions and their outcomes can be analysed and used to map out future consequences based on similar actions. Whether the outcome is good for your business or not, you can adjust the strategy accordingly.
The fifth and arguably the most valuable driver behind leveraging predictive analytics is its ability to anticipate behaviour. Knowing your customers can help you to guess when and what they will buy next, but predictive analysis goes further by forecasting actions that could be damaging. This could include a view of customer payment performance to anticipate if and when they may struggle to honour a credit agreement, giving you the chance to take the necessary risk management steps.
It is only recently that the true value of predictive analytics has been realised. The firms that get on board with it today can gain a clear advantage over their competitors, but it requires a strong commitment to sourcing, integrating and analysing data first. One prediction seems certain to materialise: this multi-billion dollar industry is set to rise.