Monday, January 5, 2009

Super Crunchers: Chapter 1

The following summary was written by Frank Voisin, who regularly writes for Frankly Speaking. Recently, Frank sold four restaurants and returned to school to complete a combined LLB/MBA.

The Wisdom of Crowds allows groups to help find things that are best for individuals. By telling Amazon what books you like, it can tell you what groups of people who have bought those books have liked as well. This kind of data mining - from group behaviour to create individual recommendations - has been shown to be more effective than regular book or movie reviews (in that individuals report greater satisfaction with the recommendations).

Regression: A statistical tool that looks at raw data (what happened) and derives relationships between variables to help make predictions about the future. This is one of the most powerful tools in the arsenal of modern analytics practitioners. The output of regression is an equation of the line that best fits the raw data. This equation is then used with different inputs to generate the output of theoretical scenarios.

Finding these relationships is important for business: helping companies assess demand and move to just-in-time inventories, assess the true characteristics of good employees and thus reduce turnover, and determine which customers are likely to leave and how this can be prevented.

Conclusion: Companies won’t survive as their competitors become super crunchers, learning how to extract more profitability from their customers while preventing them from defecting and simultaneously learning how to most efficiently steal your best customers. As a businessperson, you need to learn how to become a supercruncher, just so you can survive. As a customer, you need to be vigilant in your dealings with companies that are soliciting your business (this is an indication you’ve been overpaying!) or offering you extra features at a price (these are often not a good deal!).

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