Sunday, January 29, 2012

Do Successful Analytics Companies Require Quant CEOs?

Do Successful Analytics Companies Require Quant CEOs?

I should have read it long ago, but I finally sank my teeth into Competing On Analytics over the holidays. I'm just as enamored with the subject matter as the author, but as expected, the book contained the same examples of analytics competition that I've been hearing for the past decade! I was happy to finally get details on Progressive Insurance's approach, but there was one novel idea which grabbed me... that without an interested and analytics passionate CEO, a company will never be an analytic competitor.

CEO Impact

Davenport gives many examples of analytical companies and emphasizes the importance of the CEO. He even explains how an analytical CEO can turn a company into an 'analytical competitor' in half the time otherwise required. The prototypical example of course, is Gary Loveman. What Davenport fails to mention is that Loveman accomplished this rapid transformation by laying off half the management, but he surpassed all expectations for shareholder value creation.

Davenport emphasizes the importance of the CEO in the following excerpts,
  • "A committed, passionate CEO can put the organization on the fast track to analytical competition." (113)  
  • "Even if an organization has some quality data available, it must also have executives who are predisposed to fact-based decision making." (109)
  • "Leadership and senior executive commitment" is listed as one of the "Key Elements In An Analytical Capability"  (111)
I might restate this idea as follows though:

Without a quant CEO you can't become an analytical competitor.

List of Analytical Competitors

  • Capital One - Richard Fairbank. B.S. Economics, Stanford. MBA,Stanford.
  • Netflix - Reed Hastings. M.S. Computer Science, Stanford.
  • Google - Sergey Brin. Computer Science graduate student, Stanford.
  • Google - Larry Page. Computer Science graduate student, Stanford.
  • D.E. Shaw - David Shaw. Ph.D. Computer Science, Stanford.
  • Cemex - Lorenzo Zambrano. B.S. Mechanical Engineering, ITESM. MBA, Stanford.
  • Facebook - Mark Zuckerberg. Computer Science dropout, Harvard.
  • Microsoft - Bill Gates. Computer Science dropout, Harvard.
  • Oakland A's, San Diego Padres - Paul DePodesta. B.S. Economics, Harvard.
  • Harrah's - Gary Loveman. Ph.D. Economics, MIT.
  • Rennaissance Tech -James Simons. B.S. MIT, Ph.D. Mathematics, Berkeley.
  • Amazon - Jeff Bezos. B.S. Electrical Engineering, Princeton.
  • Schneider International - Chris Lofgren. Ph.D. Operations Research, Georgia Tech.
  • Wal-Mart- Mike Duke. B.S. Industrial Engineering, Georgia Tech.
  • SAS - Jim Goodnight. Ph.D. Statistics, North Carolina State.
  • American Airlines (Yield Management) - Robert Crandall. MBA Wharton, B.S. U of RI.
  • Progressive Insurance - Glenn Renwick. M.S.E. University of Florida.
Non-Quants (at least I don't think they are)
  • Capital One - Nigel Morris. MBA London Business School.
  • Oakland A's - Billy Beane. Attended UCSD, recruited by Stanford before going pro.
  • US GoldCorp Inc. - Rob McEwen. MBA Schulich, B.A. Western Ontario. 
  • E.J. Gallo Winery - Joe Gallo. Modesto Junior College.
The presence of a quant CEO looks mandatory for the creation of an analytical competitor based on this list, with the rare exceptions of Goldcorp's CEO (who pioneered crowdsourcing), Billy Beane (a pro baseball player), Joe Gallo (the oldest entry on the list by a forty year margin), and two people whose undergraduate studies I cannot determine. I would also point out that Economics degrees at Stanford, Harvard, and MIT are very similar in content to statistics or mathematics degrees at other universities... clearly making these people 'quants'.

The other item is that many of these quant CEOs, of the most powerful analytical competitors are also founders. Google, Netflix, Facebook, Amazon, RenTech, D.E. Shaw, SAS, and Microsoft. Why? I think for two significant reasons: first, quants are devotees of Data Driven Decision Making, which gives companies they found an operational advantage; second, quants rarely make it to the CEO role because the quant perspective is antethetical to corporate politics. Quants rarely get into executive positions when not founders, but when they do the results are substantial. Think about it... can you picture your company promoting anyone who looks or acts like Mark Zuckerberg, Bill Gates or Jeff Bezos? But these are precisely the people that revolutionize industries.


I was surprised that AT+T or any of the telecom companies didn't make Davenport's list. I was tempted to add them because data mining texts abound with examples of churn prediction and small business identification from call behavior, but I don't think that any telco has differentiated themselves as a result. Accordingly, it is difficult to single even one of them out as an analytical competitor when the predominant differentiator of performance is iPhone availability.

Being an analytical competitor requires Data Driven Decision Making. As mentioned in my Experimentation ROI blog, intuition is wrong 80% of the time so the DDDM is needed before analytics is respected, applied, and reaped.

Rule of Thumb: To become an analytical competitor, your CEO must have taken multivariable calculus.

Competing On Analytics by Thomas Davenport. Copyright 2007 Harvard Business School Publishing.