Advantages and Limitations of Data Analytics

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Author: Palak Kumar

Data analytics is the process of examining and analysing datasets to draw conclusions about the information they hold. The data analytics techniques help uncover the patterns from raw data and derive valuable insights from it. Data analytics helps businesses get real-time insights about sales, marketing, finance, product development, and more. It allows teams within businesses to collaborate and achieve better results. It is useful for businesses to analyse past business performance and optimize future business processes. Analytics helps businesses gain a competitive advantage.

There are several advantages and limitations of data analytics and in this article, we look at the top 5 benefits & limitations of data analytics. By being aware of them, organizations can take actions to leverage the advantages and modify their way of working to overcome the limitations.

Advantages

• Data analytics helps an organization make better decisions
  Lot of times decisions within organizations are made more on gut feel rather than facts and data. One of the reasons for this could be lack of access to quality data that can help with better decision making. Analytics can help with transforming the data that is available into valuable information for executives so that better decisions can be made. This can be a source of competitive advantage if fewer poor decisions are made since poor decisions can have a negative impact on a number of areas including company growth and profitability.
• Increase the efficiency of the work
  Analytics can help analyse large amounts of data quickly and display it in a formulated manner to help achieve specific organizational goals. It encourages a culture of efficiency and teamwork by allowing the managers to share the insights from the analytics results to the employees. The gaps and improvement areas within a company become evident and actions can be taken to increase the overall efficiency of the workplace thereby increasing productivity.
• The analytics keeps you updated of your customer behavioural changes
  In today’s world, customers have a lot of choices. If organizations are not tuned to customer desires and expectations, they can soon find themselves in a downward spiral. Customers tend to change their minds as they are continuously exposed to new information in this era of digitization. With vast amount of customer data, it is practically impossible for organizations to make senses of all the changes in customer perception data without using the power of analytics. Analytics gives you insights into how your target market thinks and if there is any change. Hence, being aware of shift in customer behaviour can provide a decisive advantage to companies so that they can react faster to the market changes.
• Personalization of products and services
  Gone are the days where a company could sell a standard set of products and services to customers. Customers crave products and services that can meet their individual needs. Analytics can help companies keep track of what kind of service, product, or content is preferred by the customer and then show the recommendations based on their preferences. For example, in social media, we usually see what we like to see, all of this is made possible due to the data collection and analytics that companies do. Data analytics can help provide targeted services to customers based on their individual requirements.
• Improving quality of products and services
  Data analytics can help with enhancing the user experience by detecting and correcting errors or avoiding non-value-added tasks. For example, self-learning systems can use data to understand the way customers are interacting with the tools and make appropriate changes to improve user experience. In addition, data analytics can help with automated data cleansing and improving the quality of data and consecutively benefiting both customers and organizations.

Limitations

• Lack of alignment within teams
  There is a lack of alignment between different teams or departments within an organization. Data analytics may be done by a select set of team members and the analysis done may be shared with a limited set of executives. However, the insights generated by these teams are either of not much value or are having limited impact on organizational metrics. This could be due to a “silos” way of working with each team only using their existing processes disconnected from other departments. The analytics team should be focussed on answering the right questions for the business and the results generated by data analytics teams needs to be properly communicated to the right employees to drive the right set of actions and behaviours so that it can have an positive impact on the organization.
• Lack of commitment and patience
  Analytics solutions are not difficult to implement, however, they are costly, and the ROI is not immediate. Especially, if existing data is not available, it may take time to put processes and procedures in place to start collecting the data. By nature, the analytics models improve accuracy over time and require dedication to implement the solution. Since the business users do not see results immediately, they sometimes lose interest which results in loss of trust and the models fail. When an organization decides to implement data analytics methods, there needs to be a feedback loop and mechanism in place to understand what is working and what is not, and corrective actions are required to fix things that are broken. Without this closed loop system, senior management may decide that analytics is not working or much valuable and may abandon the entire exercise.
• Low quality of data
  One of the biggest limitations of data analytics is lack of access to quality data. It is possible that companies already have access to a lot of data, but the question is do they have the right data that they need? A top down approach is required where the business questions that need to be answered need to be known first and what data is required to answer these questions can then be determined. In some cases, data may have been collected for historical reasons may not be suitable to answer the questions that we ask today. At other times, even though we have the right metrics that we are collecting data on, the quality of the data collection may be poor. There can be instances where adequate data is not available or is missing for proper analytics to be done. As they say, garbage-in garbage-out. If the data quality is poor, the decision made by using this data is also going to be poor. Hence, actions must be taken to fix the quality of the data before it can be effectively used within organizations.
• Privacy concerns
  Sometimes, data collection might breach the privacy of the customers as their information such as purchases, online transactions, and subscriptions are available to companies whose services they are using. Some companies might exchange those datasets with other companies for mutual benefit. Certain data collected can also be used against a person, country, or community. Organizations need to be cautious of what sort of data they are collecting from customers and ensure the security and confidentiality of the data. Only the data required for the analysis needs to be captured and if there is sensitive data, it needs to be anonymized so that sensitive data is protected. Data breaches can cause customers to lose trust in the organizations which may result in a negative impact on the organization.
• Complexity & Bias
  Some of the analytics tools developed by companies are more like a black box model. What is inside the black box is not clear or the logic the system uses to learn from data and create a model is not readily evident. For example, a neural network model that learns from various scenarios to decide who should be given a loan and who should be rejected. The usage of these tools may be easy but the logic of how decisions are made is not clear to anyone within the company. If companies are not careful and a poor quality data set is used to train the model, there may be hidden biases in the decisions made by these systems which may not be readily evident and organizations may be breaking the law by discriminating against race, gender, sex, age etc.

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