Unit 3: Business Analytics:

Sources of Market Data (Primary and Secondary) for Analytics. Overview of Big Data
Analytics. Application of Analytics in Retail, HR, Marketing, Healthcare and Supply Chain.

Introduction to Business Analytics

Analytics is not just about number crunching. It has evolved into a competitive strategy that
drives innovation across several organizations.
During the early period of the 20th century, many companies were taking business decisions
based on ‘opinions’ rather than decisions based on proper data analysis. Opinion-based
decision making can be very risky and often leads to incorrect decisions. One of the primary
objectives of business analytics is to improve the quality of decision-making using data
analysis.

Every organization across the world uses performance measures such as market share,
profitability, sales growth, return on investment (ROI), customer satisfaction, and so on for
quantifying, monitoring, benchmarking, and improving its performance. It is important for
organizations to understand the association between key performance indicators (KPIs) and
factors that have a significant impact on the KPIs for effective management. Knowledge of
the relationship between KPIs and factors would provide the decision maker with appropriate
actionable items.

Analytics is a body of knowledge consisting of statistical, mathematical, and operations

research techniques; artificial intelligence techniques such as machine learning and deep
learning algorithms; data collection and storage; data management processes such as data
extraction, transformation, and loading (ETL); and computing and big data technologies such
as Hadoop, Spark, and Hive that create value by developing actionable items from data.
Two primary macro-level objectives of analytics are problem solving and decision making.
Analytics helps organizations to create value by solving problems effectively and assisting in
decision making.

Business analytics is a set of statistical and operations research techniques, artificial

intelligence, information technology and management strategies used for framing a business
problem, collecting data, and analysing the data to create value to organizations.

Example: In May 2022, During Big Billion Sale Flipkart sold over 200 million products from
more than 1,75,000 sellers through their platform. The number of visits to their portal was
around 1.6 million users per second and the number of shipments exceeded 10 million
shipments in the first fie days of its sale.
A few of the problems that e-commerce companies such as Amazon and Flipkart try to
address are as follows:
1. Forecasting demand for products directly sold by the company; excess inventory and
shortage can impact both the top line and the bottom line.
2. Cancellation of orders placed by customers before their delivery. Ability to predict
cancellations and intervention can save cost incurred on unnecessary logistics.
3. Fraudulent transactions resulting in financial loss to the company.
4. Predicting delivery time since it is an important service level agreement from the customer
perspective.
5. Predicting what a customer is likely to buy in future to create recommender systems.

Analytics is used to solve a wide range of problems starting with simple process
improvement such as reducing procurement cycle time to complex decision-making problems
such as farm advisory systems that involve accurate weather prediction, forecasting
commodity price etc, so that farmers can be advised about crop selection, crop rotation, etc.

Business analytics − Data-driven decision-making flow diagram

Pyramid of analytics: This figure shows the pyramid of analytics applications, at the bottom
of the pyramid analytics is used for process improvement and at the top it is used for decision
making and as a competitive strategy.

Component of Business Analytics

Business Analytics can be broken into 3 components:
1. Business Context
2. Technology
3. Data Science
1. Business Context
Business analytics projects start with the business context and ability of the organization to
ask the right questions. In analytics, knowledge of business context is important for the
ability to ask the right questions to start the analytics project.
Example: A good example of business context driving analytics is the ‘did you forget feature’
used by the Indian online grocery store bigbasket.com. Many customers have the tendency to
forget items they intended to buy. Forgetfulness can have significant cost impact for the
online grocery stores. The customers may buy the forgotten items from a nearby store where
they live, but since she/ he is already in the store she/he may buy more items resulting in
reduction in basket size in the future for online grocery stores such as bigbasket.com.
Alternatively, the customer may place another order for forgotten items, but this time, the
size of the basket is likely to be small and results in unnecessary logistics cost. Thus, the
ability to predict the items that a customer may have forgotten to order can have a significant
impact on the profits of online grocers such as bigbasket.com.
Another problem that online grocery customers face while ordering the items is the time
taken to place an order. Unlike customers of Amazon or Flipkart, online grocery customers
order several items each time; the number of items in an order may cross 100. Searching for
all the items that a customer would like to order is a time-consuming exercise, especially
when they order using smart phones. Thus, bigbasket created a ‘smart basket’ which is a
basket consisting of items that a customer is likely to buy (recommended basket) reducing the
time required to place the order.

2. Technology
To find out whether a customer has forgotten to place an order for an item, we need data. In
both the cases, the point-of-sale data has to be captured consisting of past purchases made by
the customer. Information Technology (IT) is used for data capture, data storage, data
preparation, data analysis, and data share. Technology is also required to deploy the solution.
An important output of analytics is automation of actionable items derived from analytical
models; automation of actionable items is usually achieved using IT.

3. Data Science
Data Science is the most important component of analytics, it consists of statistical and
operations research techniques, machine learning and deep learning algorithms. Given a
problem, the objective of the data science component of analytics is to identify the most
appropriate statistical model /machine learning algorithm that can be used. There are several
techniques available for solving classification problems such as logistic regression,
classification trees, random forest, adaptive boosting, neural networks, and so on. The
objective of the data science component is to identify the technique that is best based on a
measure of accuracy. Usually, several models are developed for solving the problem using
different techniques and a few models may be chosen for deployment of the solution.

Types of analytics
Business analytics can be grouped into three types: descriptive analytics, predictive analytics,
and prescriptive analytics.

Descriptive Analytics
Descriptive analytics is the simplest form of analytics that mainly uses simple descriptive
statistics, data visualization techniques, and business-related queries to understand past data.
One of the primary objectives of descriptive analytics is innovative ways of data
summarization. Descriptive analytics is used for understanding the trends in past data which
can be useful for generating insights.
Descriptive analytics using visualization identifies trends in the data and connects the dots to
gain insights about associated businesses. In addition to visualization, descriptive analytics
uses descriptive statistics and queries to gain insights from the data.
The following are a few examples of insights obtained
using descriptive analytics reported in literature:
1. Most shoppers turn towards the right side when they enter a retail store (Underhill, 2009,
pages 77−79). Retailers keep products with higher profit on the right side of the store since
most people turn right.
2. Married men who kiss their wife before going to work live longer, earn more and get into
less number of accidents as compared to those who do not (Foer, 2006).
3. Correlated with Facebook relationship breakups, divorces spike in January. According to
Caroline Kent (2015), January 3 is nicknamed ‘divorce day’.
4. Men are more reluctant to use coupons as compared to women (Hu and Jasper, 2004).
While sending coupons, retailers should target female shoppers as they are more likely to use
coupons.
Google search keywords are used to predict demand for different apparel styles, jewellery,
footwear, and so on to understand demand trends for many products. These trends help
retailers take better decisions regarding procurement and inventory planning.

Predictive Analytics
predictive analytics comes after descriptive analytics and is the most important analytics
capability. It aims to predict the probability of occurrence of a future event such as
forecasting demand for products/services, customer churn, employee attrition, loan defaults,
fraudulent transactions, insurance claim, and stock market fluctuations. While descriptive
analytics is used for finding what has happened in the past, predictive analytics is used for
predicting what is likely to happen in the future.
The ability to predict a future event such as an economic slowdown, a sudden surge or
decline in a commodity’s price, which customer is likely to churn, what will be the total
claim from auto insurance customer, how long a patient is likely to stay in the hospital, and
so on will help organizations plan their future course of action.
Predictive analytics is the most frequently used type of analytics across several industries.
The reason for this is that almost every organization would like to forecast the demand for the
products that they sell, prices of the materials used by them, and so on. Irrespective of the
type of business, organizations would like to forecast the demand for their products or
services and understand the causes of demand fluctuations. The use of predictive analytics
can reveal relationships that were previously unknown and are not intuitive.

Prescriptive Analytics
Prescriptive analytics is the highest level of analytics capability which is used for choosing
optimal actions once an organization gains insights through descriptive and predictive
analytics. In many cases, prescriptive analytics is solved as a separate optimization problem.
Prescriptive analytics assists users in finding the optimal solution to a problem or in making
the right choice/decision among several alternatives.
Operations Research (OR) techniques form the core of prescriptive analytics. Apart from
operations research techniques, machine learning algorithms, and advanced statistical models
are used in prescriptive analytics.
Descriptive, Predictive, and Prescriptive Analytics Techniques
The most frequently used predictive analytics techniques are regression, logistic regression,
classification trees, forecasting, K-nearest neighbours, Markov chains, random forest,
boosting, and neural networks. The frequently used tools in prescriptive analytics are linear
programming, integer programming, multi-criteria decision-making models such as goal
programming and analytic hierarchy process, combinatorial optimization, non-linear
programming, and meta-heuristics.

Drivers for Business Analytics

The drivers for business analytics can be divided into five integrated stages: problem and
opportunity identification; collection of relevant data; data pre-processing; analytics model
building; and model deployment. The success of analytics projects will depend on how
innovatively the data is used by the organization as compared to the mechanical use of
analytical tools. Although there are several routine analytics projects such as customer
segmentation, clustering, forecasting, and so on, highly successful companies blend
innovation with analytics.

Overview of Big Data Analytics

Big data is a class of problems that challenge existing IT and computing technology and
existing algorithms.
Traditionally, big data is defined as a big volume of data (in excess of 1 terabyte) generated at
high velocity with high variety and veracity. That is, big data is identified using 4 Vs,
namely, volume, velocity, variety, and veracity which are defined as follows:
1. Volume is the size of the data that an organization holds. Typically, this can run into
several petabytes (1015 bytes) or exabytes (1016 bytes). Organizations such as telecom and
banking collect and store a large quantity of customer data. Data collected using satellite and
other machine generated data such as data generated by health and usage monitoring systems
fitted in aircrafts, weather and rain monitoring systems can run into several exabytes since the
data is captured minute by minute.
2. Velocity is the rate at which the data is generated. For example, AT&T customers
generated more than 82 petabytes of data traffic on a daily basis (Anon, 2016).
3. Variety refers to the different types of data collected. In the case of telecom, the different
data types are voice calls, messages in different languages, video calls, use of Apps, etc.
4. Veracity of the data refers to the quality issues. Especially in social media there could be
biased or incorrect data, which can result in wrong inferences.
Sources of Market Data for Analytics
Data collection is the process of acquiring, collecting, extracting, and storing the
voluminous amount of data which may be in the structured or unstructured form like text,
video, audio, XML files, records, or other image files used in later stages of data analysis.
In the process of big data analysis, “Data collection” is the initial step before starting to
analyze the patterns or useful information in data. The data which is to be analyzed must be
collected from different valid sources.
Internal source:
These types of data can easily be found within the organization such as market record, a
sales record, transactions, customer data, accounting resources, etc. The cost and time
consumption is less in obtaining internal sources.
External source:
The data which can’t be found at internal organizations and can be gained through external
third party resources is external source data. The cost and time consumption is more
because this contains a huge amount of data. Examples of external sources are Government
publications, news publications, Registrar General of India, planning commission,
international labor bureau, syndicate services, and other non-governmental publications.
Other sources:
 Sensors data: With the advancement of IoT devices, the sensors of these
devices collect data which can be used for sensor data analytics to track the
performance and usage of products.
 Satellites data: Satellites collect a lot of images and data in terabytes on daily
basis through surveillance cameras which can be used to collect useful
information.
 Web traffic: Due to fast and cheap internet facilities many formats of data
which is uploaded by users on different platforms can be predicted and collected
with their permission for data analysis. The search engines also provide their
data through keywords and queries searched mostly.