Home > Articles

What Are Business Analytics?

Learn the definition of business analytics, the relationship of analytics and business intelligence to the subject of business analytics, the three steps of the business analytics process, four data classification measurement scales, and the relationship of the business analytics process with the organization decision-making process.
This chapter is from the book

Chapter objectives:

  • Define business analytics.
  • Explain the relationship of analytics and business intelligence to the subject of business analytics.
  • Describe the three steps of the business analytics process.
  • Describe four data classification measurement scales.
  • Explain the relationship of the business analytics process with the organization decision-making process.

1.1. Terminology

Business analytics begins with a data set (a simple collection of data or a data file) or commonly with a database (a collection of data files that contain information on people, locations, and so on). As databases grow, they need to be stored somewhere. Technologies such as computer clouds (hardware and software used for data remote storage, retrieval, and computational functions) and data warehousing (a collection of databases used for reporting and data analysis) store data. Database storage areas have become so large that a new term was devised to describe them. Big data describes the collection of data sets that are so large and complex that software systems are hardly able to process them (Isson and Harriott, 2013, pp. 57–61). Isson and Harriott (2013, p. 61) define little data as anything that is not big data. Little data describes the smaller data segments or files that help individual businesses keep track of customers. As a means of sorting through data to find useful information, the application of analytics has found new purpose.

Three terms in business literature are often related to one another: analytics, business analytics, and business intelligence. Analytics can be defined as a process that involves the use of statistical techniques (measures of central tendency, graphs, and so on), information system software (data mining, sorting routines), and operations research methodologies (linear programming) to explore, visualize, discover and communicate patterns or trends in data. Simply, analytics convert data into useful information. Analytics is an older term commonly applied to all disciplines, not just business. A typical example of the use of analytics is the weather measurements collected and converted into statistics, which in turn predict weather patterns.

There are many types of analytics, and there is a need to organize these types to understand their uses. We will adopt the three categories (descriptive, predictive, and prescriptive) that the Institute of Operations Research and Management Sciences (INFORMS) organization (www.informs.org) suggests for grouping the types of analytics (see Table 1.1). These types of analytics can be viewed independently. For example, some firms may only use descriptive analytics to provide information on decisions they face. Others may use a combination of analytic types to glean insightful information needed to plan and make decisions.

Table 1.1 Types of Analytics

Type of Analytics

Definition

Descriptive

The application of simple statistical techniques that describes what is contained in a data set or database. Example: An age bar chart is used to depict retail shoppers for a department store that wants to target advertising to customers by age.

Predictive

An application of advanced statistical, information software, or operations research methods to identify predictive variables and build predictive models to identify trends and relationships not readily observed in a descriptive analysis. Example: Multiple regression is used to show the relationship (or lack of relationship) between age, weight, and exercise on diet food sales. Knowing that relationships exist helps explain why one set of independent variables influences dependent variables such as business performance.

Prescriptive

An application of decision science, management science, and operations research methodologies (applied mathematical techniques) to make best use of allocable resources. Example: A department store has a limited advertising budget to target customers. Linear programming models can be used to optimally allocate the budget to various advertising media.

The purposes and methodologies used for each of the three types of analytics differ, as can be seen in Table 1.2. It is these differences that distinguish analytics from business analytics. Whereas analytics is focused on generating insightful information from data sources, business analytics goes the extra step to leverage analytics to create an improvement in measurable business performance. Whereas the process of analytics can involve any one of the three types of analytics, the major components of business analytics include all three used in combination to generate new, unique, and valuable information that can aid business organization decision-making. In addition, the three types of analytics are applied sequentially (descriptive, then predictive, then prescriptive). Therefore, business analytics (BA) can be defined as a process beginning with business-related data collection and consisting of sequential application of descriptive, predictive, and prescriptive major analytic components, the outcome of which supports and demonstrates business decision-making and organizational performance. Stubbs (2011, p. 11) believes that BA goes beyond plain analytics, requiring a clear relevancy to business, a resulting insight that will be implementable, and performance and value measurement to ensure a successful business result.

Table 1.2 Analytic Purposes and Tools

Type of Analytics

Purpose

Examples of Methodologies

Descriptive

To identify possible trends in large data sets or databases. The purpose is to get a rough picture of what generally the data looks like and what criteria might have potential for identifying trends or future business behavior.

Descriptive statistics, including measures of central tendency (mean, median, mode), measures of dispersion (standard deviation), charts, graphs, sorting methods, frequency distributions, probability distributions, and sampling methods.

Predictive

To build predictive models designed to identify and predict future trends.

Statistical methods like multiple regression and ANOVA. Information system methods like data mining and sorting. Operations research methods like forecasting models.

Prescriptive

To allocate resources optimally to take advantage of predicted trends or future opportunities.

Operations research methodologies like linear programming and decision theory.

Business intelligence (BI) can be defined as a set of processes and technologies that convert data into meaningful and useful information for business purposes. While some believe that BI is a broad subject that encompasses analytics, business analytics, and information systems (Bartlett, 2013, p.4), others believe it is mainly focused on collecting, storing, and exploring large database organizations for information useful to decision-making and planning (Negash, 2004). One function that is generally accepted as a major component of BI involves storing an organization’s data in computer cloud storage or in data warehouses. Data warehousing is not an analytics or business analytics function, although the data can be used for analysis. In application, BI is focused on querying and reporting, but it can include reported information from a BA analysis. BI seeks to answer questions such as what is happening now and where, and also what business actions are needed based on prior experience. BA, on the other hand, can answer questions like why something is happening, what new trends may exist, what will happen next, and what is the best course for the future.

In summary, BA includes the same procedures as in plain analytics but has the additional requirement that the outcome of the analytic analysis must make a measurable impact on business performance. BA includes reporting results like BI but seeks to explain why the results occur based on the analysis rather than just reporting and storing the results, as is the case with BI. Analytics, BA, and BI will be mentioned throughout this book. A review of characteristics to help differentiate these terms is presented in Table 1.3.

Table 1.3 Characteristics of Analytics, Business Analytics, and Business Intelligence

Characteristics

Analytics

Business Analytics (BA)

Business Intelligence (BI)

Business performance planning role

What is happening, and what will be happening?

What is happening now, what will be happening, and what is the best strategy to deal with it?

What is happening now, and what have we done in the past to deal with it?

Use of descriptive analytics as a major component of analysis

Yes

Yes

Yes

Use of predictive analytics as a major component of analysis

Yes

Yes

No (only historically)

Use of prescriptive analytics as a major component of analysis

Yes

Yes

No (only historically)

Use of all three in combination

No

Yes

No

Business focus

Maybe

Yes

Yes

Focus of storing and maintaining data

No

No

Yes

Required focus of improving business value and performance

No

Yes

No

InformIT Promotional Mailings & Special Offers

I would like to receive exclusive offers and hear about products from InformIT and its family of brands. I can unsubscribe at any time.

Overview


Pearson Education, Inc., 221 River Street, Hoboken, New Jersey 07030, (Pearson) presents this site to provide information about products and services that can be purchased through this site.

This privacy notice provides an overview of our commitment to privacy and describes how we collect, protect, use and share personal information collected through this site. Please note that other Pearson websites and online products and services have their own separate privacy policies.

Collection and Use of Information


To conduct business and deliver products and services, Pearson collects and uses personal information in several ways in connection with this site, including:

Questions and Inquiries

For inquiries and questions, we collect the inquiry or question, together with name, contact details (email address, phone number and mailing address) and any other additional information voluntarily submitted to us through a Contact Us form or an email. We use this information to address the inquiry and respond to the question.

Online Store

For orders and purchases placed through our online store on this site, we collect order details, name, institution name and address (if applicable), email address, phone number, shipping and billing addresses, credit/debit card information, shipping options and any instructions. We use this information to complete transactions, fulfill orders, communicate with individuals placing orders or visiting the online store, and for related purposes.

Surveys

Pearson may offer opportunities to provide feedback or participate in surveys, including surveys evaluating Pearson products, services or sites. Participation is voluntary. Pearson collects information requested in the survey questions and uses the information to evaluate, support, maintain and improve products, services or sites, develop new products and services, conduct educational research and for other purposes specified in the survey.

Contests and Drawings

Occasionally, we may sponsor a contest or drawing. Participation is optional. Pearson collects name, contact information and other information specified on the entry form for the contest or drawing to conduct the contest or drawing. Pearson may collect additional personal information from the winners of a contest or drawing in order to award the prize and for tax reporting purposes, as required by law.

Newsletters

If you have elected to receive email newsletters or promotional mailings and special offers but want to unsubscribe, simply email information@informit.com.

Service Announcements

On rare occasions it is necessary to send out a strictly service related announcement. For instance, if our service is temporarily suspended for maintenance we might send users an email. Generally, users may not opt-out of these communications, though they can deactivate their account information. However, these communications are not promotional in nature.

Customer Service

We communicate with users on a regular basis to provide requested services and in regard to issues relating to their account we reply via email or phone in accordance with the users' wishes when a user submits their information through our Contact Us form.

Other Collection and Use of Information


Application and System Logs

Pearson automatically collects log data to help ensure the delivery, availability and security of this site. Log data may include technical information about how a user or visitor connected to this site, such as browser type, type of computer/device, operating system, internet service provider and IP address. We use this information for support purposes and to monitor the health of the site, identify problems, improve service, detect unauthorized access and fraudulent activity, prevent and respond to security incidents and appropriately scale computing resources.

Web Analytics

Pearson may use third party web trend analytical services, including Google Analytics, to collect visitor information, such as IP addresses, browser types, referring pages, pages visited and time spent on a particular site. While these analytical services collect and report information on an anonymous basis, they may use cookies to gather web trend information. The information gathered may enable Pearson (but not the third party web trend services) to link information with application and system log data. Pearson uses this information for system administration and to identify problems, improve service, detect unauthorized access and fraudulent activity, prevent and respond to security incidents, appropriately scale computing resources and otherwise support and deliver this site and its services.

Cookies and Related Technologies

This site uses cookies and similar technologies to personalize content, measure traffic patterns, control security, track use and access of information on this site, and provide interest-based messages and advertising. Users can manage and block the use of cookies through their browser. Disabling or blocking certain cookies may limit the functionality of this site.

Do Not Track

This site currently does not respond to Do Not Track signals.

Security


Pearson uses appropriate physical, administrative and technical security measures to protect personal information from unauthorized access, use and disclosure.

Children


This site is not directed to children under the age of 13.

Marketing


Pearson may send or direct marketing communications to users, provided that

  • Pearson will not use personal information collected or processed as a K-12 school service provider for the purpose of directed or targeted advertising.
  • Such marketing is consistent with applicable law and Pearson's legal obligations.
  • Pearson will not knowingly direct or send marketing communications to an individual who has expressed a preference not to receive marketing.
  • Where required by applicable law, express or implied consent to marketing exists and has not been withdrawn.

Pearson may provide personal information to a third party service provider on a restricted basis to provide marketing solely on behalf of Pearson or an affiliate or customer for whom Pearson is a service provider. Marketing preferences may be changed at any time.

Correcting/Updating Personal Information


If a user's personally identifiable information changes (such as your postal address or email address), we provide a way to correct or update that user's personal data provided to us. This can be done on the Account page. If a user no longer desires our service and desires to delete his or her account, please contact us at customer-service@informit.com and we will process the deletion of a user's account.

Choice/Opt-out


Users can always make an informed choice as to whether they should proceed with certain services offered by InformIT. If you choose to remove yourself from our mailing list(s) simply visit the following page and uncheck any communication you no longer want to receive: www.informit.com/u.aspx.

Sale of Personal Information


Pearson does not rent or sell personal information in exchange for any payment of money.

While Pearson does not sell personal information, as defined in Nevada law, Nevada residents may email a request for no sale of their personal information to NevadaDesignatedRequest@pearson.com.

Supplemental Privacy Statement for California Residents


California residents should read our Supplemental privacy statement for California residents in conjunction with this Privacy Notice. The Supplemental privacy statement for California residents explains Pearson's commitment to comply with California law and applies to personal information of California residents collected in connection with this site and the Services.

Sharing and Disclosure


Pearson may disclose personal information, as follows:

  • As required by law.
  • With the consent of the individual (or their parent, if the individual is a minor)
  • In response to a subpoena, court order or legal process, to the extent permitted or required by law
  • To protect the security and safety of individuals, data, assets and systems, consistent with applicable law
  • In connection the sale, joint venture or other transfer of some or all of its company or assets, subject to the provisions of this Privacy Notice
  • To investigate or address actual or suspected fraud or other illegal activities
  • To exercise its legal rights, including enforcement of the Terms of Use for this site or another contract
  • To affiliated Pearson companies and other companies and organizations who perform work for Pearson and are obligated to protect the privacy of personal information consistent with this Privacy Notice
  • To a school, organization, company or government agency, where Pearson collects or processes the personal information in a school setting or on behalf of such organization, company or government agency.

Links


This web site contains links to other sites. Please be aware that we are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of each and every web site that collects Personal Information. This privacy statement applies solely to information collected by this web site.

Requests and Contact


Please contact us about this Privacy Notice or if you have any requests or questions relating to the privacy of your personal information.

Changes to this Privacy Notice


We may revise this Privacy Notice through an updated posting. We will identify the effective date of the revision in the posting. Often, updates are made to provide greater clarity or to comply with changes in regulatory requirements. If the updates involve material changes to the collection, protection, use or disclosure of Personal Information, Pearson will provide notice of the change through a conspicuous notice on this site or other appropriate way. Continued use of the site after the effective date of a posted revision evidences acceptance. Please contact us if you have questions or concerns about the Privacy Notice or any objection to any revisions.

Last Update: November 17, 2020