Real-time business, based on the collection of current data, has become the standard operating procedure for leading-edge companies over the past decade, enabling them to respond rapidly to changing business conditions. Now we are seeing a transition to what I call Predictive Business™, or the ability to anticipate problems and opportunities and to act preemptively. Real-time business was about doing things faster. Predictive Business is about doing things you could not do before.

What exactly do I mean by The Power to Predict? Primarily, I believe that Predictive Business does two things. First, it helps you seize opportunities as they are unfolding. Perhaps you've said to yourself, "I know what's about to happen." With Predictive Business, you can be much more definitive. Second, it allows you to anticipate adverse conditions so that seemingly small and unrelated events do not become the precursors to disaster. It's extremely rare that major events suddenly happen with no warning signs, small events or out-of-tolerance situations. Correlating those items will allow you to take preemptive action.

WINNERS AND LOSERS

You can get pretty inventive about this. Say you are running a national promotion. You are collecting data about how well the promotion is going in different time zones while also making small adjustments to product distribution to optimize fulfillment in each region. But what do you do if a new and unanticipated event occurs that changes the game, and, all of a sudden, you start to see stock wiped out in a particular area? Can you arrange rerouting of goods that are in transit to keep the shelves stocked? What business rules will you apply to help smooth out the demand patterns that are emerging?

For a real-life example of a business turning on a dime to address unexpected changes in demand, look at how Wal-Mart dealt with the impact of Hurricane Frances in Florida in 2004. As soon as the hurricane warning was issued, Wal-Mart's promotions machine revved up. Using information it gathered about spending patterns three weeks earlier (when Hurricane Charlie hit), Wal-Mart was able to predict the likely sales of beer and Pop-Tarts. It then made sure there were plenty of these products available to Floridians before Frances made landfall. In what has now become the stuff of retailing legend, Wal-Mart used its knowledge of customer behavior in these special circumstances to figure out what it had to do and how its processes needed adjustment. The company then applied rules to ensure that its Florida stores could adequately cope with demand. Wal-Mart turned a potential business disruption into a business opportunity.

There is a retail paradox that large companies are always striving to overcome. The small retailer develops customer intimacy as a survival mechanism. In the single store outlet, staff members know their customers by sight and name after serving them for years. They don't usually need much computing power to know individual customer buying preferences. Intimacy goes one step further because, in this scenario, individual staff members "own" individual customers. It is this direct, continuing human interaction that makes certain upscale retailers highly profitable. In turn, these stores have a pretty good idea of what kinds of products their customers will buy and they stock accordingly.

Large retail organizations cannot achieve the same level of intimacy using the same methods. There are many reasons for this, but margin pressure, for instance, does not allow retailers to expend the same amount of employee dollars per dollar of revenue as their small competitors. Also, large retailers have the constant headache of juggling complex inventories among thousands of stores across multiple geographies. Therefore, large retailers have to rely on technology as the basis for fostering lasting relationships and for delivering the right combination of products that will appeal to the largest customer segments.

Becoming a predictive business is fundamental to the future of any company. I used to say that you are "real-time or you are history." Similarly, in four or five years I believe that it will be true to say that large-scale businesses will be either predictive or historical. Getting a head start on this transformation will give companies a huge competitive advantage over others that fail to orchestrate their analytical and real-time information systems.