Archive for July 13th, 2011

Having moved back into the analytic world of bank risk management, I’m pleased to be surrounded by familiar friends: statistical data and number crunchers. I thought this time would be a good starting point to refresh the critical-thinker blog with a few updates on how the financial world has evolved since the financial crisis of 2008 (of which we have written about in a number of previous posts).

One thing I’ve noticed is that banks have become more quantitative and rigorous with their desire for data than ever. One of the smarting lessons of the financial crisis seems to be: you can never have enough information, especially when it involves risk.

This is an interesting thing for us–as we’ve aluded to the Texas Sharpshooter Fallacy before. Nevertheless, corporations (not just financial institutions) continue to amass huge quantities of data in the hopes of gaining an edge not only on competition but against disaster.

In a 2006 Harvard Business Review Article: Competing On Analytics, author Thomas Davenport elucidates 10 guiding criteria that determines if an individual or organization is serious about its data. The principles also help illustrate exactly the dimensions by which companies are moving forward with their information requirements (although noting that this was written prior to the financial crisis). Having moved back into risk analytics–I can only confirm that this is more the case than ever in the wake of the crisis.

You Know You Compete On Analytics When…

  1. You apply sophisticated information systems and rigorous analysis not only to your core capability but also to a range of functions as varied as marketing and human resources.
  2. Your senior executive team not only recognizes the importance of analytics capabilites but also makes their development and maintenance a primary focus.
  3. You treat fact-based decision making not only as a best practice but also as a part of the culture that’s constantly emphasized and communicated by senior executives.
  4. You hire not only people with analytical skills but a lot of people with the very best analytical skills–and consider them a key to your success.
  5. You not only employ analytics in almost every function and department but also consider it so strategically important that you manage it at the enterprise level.
  6. You not only are expert at number crunching but also invent proprietary metrics for use in key business processes.
  7. You not only use copious data and in-house analysis but also share them with customers and suppliers.
  8. You not only avidly consume data but also seize every opportunity to generate information, creating a “test and learn” culture based on numerous small experiments.
  9. You not only have committed to competing on analytics but also have been building your capabilities for several years.
  10. You not only emphasize the importance of anaytics internally but also make quantitative capabilities part of your company’s story, to be shared in the annual report and in discussions with financial analysts.

More on analytics in future posts.

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