The Analytic Entrepreneur Series: Dr. Robert Phillips

Bob Phillips, a legend in revenue management and pricing circles, guest-lectured to my MIT Sloan analytics class last week. It was a treat for the students to listen to and interact with someone who I think of as the quintessential “Analytic Entrepreneur”.

As I listened to him, it occurred to me that it would be great to share his ideas and perspectives with the readers of this blog. More generally, there are great Analytic Entrepreneurs like him out there and it would be wonderful to hear about how they view the world.

So, that brings us to … drumroll, please …. the Analytic Entrepreneur Series! Every so often, I will chat with an Analytic Entrepreneur and share the highlights of the conversation here. I am delighted to kickoff the series with Bob Phillips.

First, some background on Bob (detailed bio).

Bob is currently Founder and Chief Science Officer of Nomis Solutions, a company that’s applying price optimization analytics to consumer financial services. In parallel, he is Professor of Professional Practice at Columbia University Graduate School of Business.

Before founding Nomis in 2002, Bob served as CTO of Manugistics and prior to that, he was Founder and CEO of Talus Solutions (I still remember reading the news reports when Manugistics announced its acquisition of Talus for $366m in the Fall of 2000).

Over the past 15 years, he has helped optimize price and revenue across a dizzying variety of industries including airlines, rental cars, hotels, automotive, electric power, freight transportation, and manufacturing. His 2005 book, Pricing and Revenue Optimization, is a model of clear writing and would be my hands-down first choice of textbook if I teach an MBA course on pricing.

Bob has a Ph.D. in Engineering-Economic Systems from Stanford and holds undergraduate degrees in Mathematics and Economics from Washington State.

OK, on to the Q&A.

What led you to the idea for Nomis?
When I was working at Manugistics, we did a small pilot project on pricing optimization for a bank.  While this did not turn into a full-fledged sale, it convinced me that there was an opportunity in this industry.  After I left Manugistics, I partnered with Simon Caufield, who had an extensive background in financial services.  We did some research, talked to a number of different banks and convinced ourselves that there was a major opportunity in helping banks set and adjust rates for loans and deposits better.

If you were starting a new analytics-powered business today, which industries would you target?
It depends upon what you are trying to sell, but the short answer is industries that need what you are selling and do not have either large internal analytics groups or competitors who are trying to sell them similar things. Of course, if you have something truly great and compelling, you can probably find a way to sell it anywhere.  But some industries, such as the major airlines, tend to have large internal analytic groups already as well as many analytic consultants and software vendors focusing on them, so it is harder to get “mindshare” from them.  Some of the best industries to sell can be those that aren’t “sexy” or obvious.  Many manufacturing and distribution companies have tremendous logistical, pricing, and marketing challenges and do not have the internal capabilities to address them.  If you can find ways to help them with these issues, they can provide real opportunity.

If an entrepreneur approaches you with an idea for an analytics business, what would you look for in the idea?
That’s easy — how big is the potential market?  Is this a million dollar idea, a ten million dollar idea, a hundred million dollar idea or a billion dollar idea?  To answer that question, the entrepreneur needs to answer a number of prior questions, namely – who in an organization would be the buyer for my product — is it the VP of IT, the VP of Marketing, the VP of Operations, or … ?  What would they be willing to pay for it?  What is the business case that I will present to them — will it save them money or increase revenues?  What industry or industries would constitute the market?  Given the price I plan to charge, how many companies in those industries are big enough to pay that price?  The answers to these questions will determine the best strategy for the entrepreneur to pursue.

What was your most fulfilling moment in applying analytics to business?
There have been many of them but they all have the same characteristic — they involved a situation in which I was part of a team that delivered a solution that was put into practice and delivered benefits that were recognized by the customer.  As one example, we built a revenue management system in conjunction with the Scandinavian Airlines System (SAS).  We piloted the system initially on a handful of routes.  At the end of the first week of the pilot, the yields on the flights covered by the pilot had increased to the level that we had forecast.  I think that seeing something, that is based in part on your ideas, deliver real and recognized benefits to a customer is easily the most fulfilling part of the business.

What have you found most frustrating about applying analytics to business?
That’s easy too — the cases in which a company believes that implementing an analytic solution would make them money well beyond the investment, but they don’t do it.  This happens more often than many people might believe where an executive will say “I believe that implementing your solution would make us lots of money and pay for itself many times over but we are not going to do it.”   The potential reasons include budget, organizational bandwidth, politics, or sheer inertia.  Somehow I find that more frustrating than the cases in which I have not been able to persuade companies of the benefits.

What are your favorite analytics tools/software?
I am not a great programmer so I am a big fan of spreadsheets as a way of prototyping ideas.  I use Excel plus Solver and Crystal Ball a lot.

Analytics books you’d want to take with you to the proverbial desert island?
Probably Elements of Statistical Learning by Hastie, Tibshirani and Friedman  (Rama: This is one of my favorite books too. Amazingly, this fantastic book is available as a free download from the authors – PDF).

Final words of advice for “analytic entrepreneurs” out there?
Just have fun – don’t lose sight of what got you excited about “analytics” in the first place.  And stay close to the market — the more time you spend with companies helping them solve their real problems, the better your ultimate offering will be.

Thank you, Bob.

9 thoughts on “The Analytic Entrepreneur Series: Dr. Robert Phillips”

  1. I believe which is one of the more substantial information and facts to me. And i’m contented examining ones document. Nevertheless would like to affirmation with quite a few normal factors, The site preference is ideal, the content articles is definitely good. Very good work, regards

  2. I like what you guys are usually up too. Such clever work and coverage!
    Keep up the great wodks guys I’ve dded you guys to my personal blogroll.

  3. Rama — great site, thanks for the opportunity to express some of my thoughts and the kind words. Regarding the questions, I definitely believe that the current financial situation has definitely made some companies more reluctant to invest in new things. In many cases, the budget for innovative approaches has simply disappeared. Selling to financial services companies, I have seen plenty of that over the last year! Clearly some fi-serve companies have also been rattled by the apparent failure of many of their current systems that failed to anticipate the meltdown. On the other hand, these situations create opportunities to sell to companies who are looking for a new way of doing things. So, at least at Nomis, we are begining to see a definite pick up in business and interest over the last four months.

    Regarding the gain-share arrangements that Satish mentions — I have mixed feelings. I think it is important to offer gain-share and be willing to negotiate it if the customer insists but I have had very few cases in which we have ended up concluding a gain-share agreement. Obviously, there is the need to have a very clear metric which both parties agree on as a “fair” measure of benefit regardless of market changes which has often been difficult. Secondly, in the areas in which I have worked, the potential upside has often been so large — $100s of millions in some cases — that companies have realized that they would be better off with a fixed fee. Finally, I have been somewhat hesitant to enter gainshare arrangements because I don’t like to give customers a motivation — even unconsciously — to try to minimize the benefits that one of our solutions has provided. I would rather have them out saying that my company’s solution made them $500 million to the world rather than being concerned about how large they can say the benefits are publically.

    But, I know that some companies have been quite successful with gain-sharing engagements, so it is probably partly just me.

    Finally, to Vijay’s point, I think there are two issues. One is “faith in analytics”, which varies from company to company and industry to industry with financial services and airlines (to mention two industries with which I am quite familiar) ranking very high and, perhaps hotels (especially ten years ago) ranking lower. Not much you can do about this except acknowledge that, in some cases, you are not only selling your solution, you are also selling the idea of analytics. The second issue is coming in, in the wake of a failed engagement in which someone else’s solution, for whatever reason, did not deliver the promised benefits and ended up abandoned. I guess the biggest reason that I see for this is a combination of lack of appropriate senior commitment at the company initially combined with a lack of follow-up and true pro-active support from the solution provider. The first six months following installation of a new analtyic solution is critically important and to be successful often requires heroic efforts on the part of provider that go beyond the traditional definitions of “support” and “maintenance”. The combination of a weakly committed management and an insufficiently active supplier is a recipe for rejection, no matter how “good” the solution might be in technical terms.

    Sorry to be so long winded — hope this is useful.

  4. Rama – great idea. Looking forward to more.

    Had a question for Bob – he alluded to budget, organizational bandwidth, politics, or sheer inertia being reasons why analytics isn’t implemented.

    More often than not, when I run into cases where analytics isn’t embraced, there is a story that involves investments the company made, low subsequent adoption, hard to tease out and quantify value leading to a spiralling downwards cycle that ends up with a complete loss of faith. I suspect the reasons he mentioned all play a part, but can he comment on the notion of faith in analytics (as oxymoronic as it sounds), and what we in the analytical world can do better?

    Vijay Subramanian
    Engagement Director, Oracle Retail

  5. Great interview! Bob made some fantastic points. Solving real world business problems is what any “real business” is about and frankly analytics is an enabler! As a company trying to do this Analytics thingy in the Indian market, I am fascinated by how quickly companies adopt “data based marketing practices” as long as Analytics is presented in the right context with a practical “execution orientation”. Loved your blog! Look forward to reading more of it. You can also check us out at

  6. Great interview with Bob! I would like to know from Bob if he has had customers tell him “Prove it to me that your analytics works by sharing both risks and rewards!”. What has Bob’s experience been like in successfully establishing KPI-based compensation for his analytics solutions?

  7. interesting interview.

    just one thought: when enumerating the reasons why companies don’t implement analytics, he listed “budget, organizational bandwidth, politics, or sheer inertia”. i wish you would have drawn him into expanding on that, particularly in the context of the current economy. one would suspect that feelings of uncertainty about the future would tend to hit this sector twice over: few companies have the stomach for investment and fewer still believe in solutions that promise better decision-making when the future looks so murky.

    if you’ve seen that reaction, this joke will be particularly bitter-sweet:

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