November 16, 2010, 1:51 PM — Computer giant HP added $20 million to its bottom line through data mining activities, demonstrating that businesses can see a huge return on their analytics investment.
According to Dr John Elder, chief scientist at data mining and predictive analytics consultancy Elder Research, data mining can help companies in three main ways - by eliminating the bad, discovering the good, and streamlining existing processes.
In HP's case, the company used data mining to 'eliminate the bad', that is, identify fraud activity.
"One of their problems was service fraud. People were tasked with fixing a machine, but they would fill in a form saying they fixed a machine but didn't. The only way HP knew was when a disgruntled former employee would call in with a tip," Elder told the Predictive Analytics World conference in London today.
HP therefore built a mining model based on the known cases, to find the unknown ones.
"[Initially] they had a few part-time people discovering the fraud, but then [with the predictive analytics] they recovered $20 million in nine months, and more people were hired to do it, and it became a profit centre for the company," said Elder.
The company also achieved hidden returns in the process of collecting the data and gathering metrics for the fraud detection model. For example, HP discovered that a large consultancy firm in the US was continually returning laptops before the warranty year-end, even though no problems were found with the devices, so that they would be replaced with a newer model.
"They [HP] had been consistently abused by this partner, and cutting them off saved them millions of dollars that was not looked at," Elder said.
Although using predictive analytics to streamline processes can mean that organisations can reduce staff or increase productivity of staff, Elder said that in every example he has seen in the real world, staff numbers are not cut. Furthermore, as with the case of HP, the profitability of the analytics division means that staffing levels can actually grow.
"Every single time, staff increases because the group becomes successful, they become a profit centre, and they get other work to do," he said.
Meanwhile for pharmaceutical company Pharmacia and Upjohn, which merged with Pfizer in 2003, data mining enabled it to continue developing a drug that became one of its most successful products.
The company simply needed to find out if a new drug was effective enough to warrant major investment for development.