In a recent article, “Forecast Snapshot: Prescriptive Analytics, Worldwide, 2015” published on February 5, 2016, Gartner analysts Jim Hare, Christine Adams, Bhavish Sood, Alys Woodward and Hai Hong Swinehart provide encouraging predictions for the prescriptive analytics market.
Gartner defines prescriptive analytics as “the combination of optimization, rules and data that enhances analytics by suggesting the optimal way to handle a future situation and can be applied to strategic, tactical and operational decisions.” In other words, while all analytics approaches aim to improve decision making, only prescriptive analytics recommends (i.e. “prescribes”) the best path.
Prescriptive Analytics Software Market to Reach $1.1 Billion by 2019
In the article, the market for prescriptive analytics software is estimated to grow from approximately $415 million in 2014 to $1.1 billion in 2019, for a 22% CAGR. Current market penetration puts the total addressable market at approximately $10 billion. Gartner provides several statistics worth considering:
- Only 1-5% of the potential target audience has access to prescriptive analytics today. This implies an addressable market of around $10 billion in today’s dollars.
- 10% of organizations currently have some form of prescriptive analytics. The portion of organizations adopting prescriptive analytics is forecasted to grow to 35% by 2020, and the bulk of new adoption will be from large organizations in mature economies.
- The average user count is low today, with at best 5% of seat holders addressed in larger organizations. The seat count will grow to only 15% in the early parts of the forecast, but this growth is expected to accelerate as organizations mature their data and increase their level of process automation.
- In addition to more mature use cases in supply chain and manufacturing, the key industries adopting prescriptive analytics will be financial services, retail and logistics — this will be driven primarily by innovation and product design.
What is Driving this Growth?
While prescriptive analytics — i.e. optimization or linear programming — has been around since the late 1940s, it hasn’t generated significant adoption. It's been very difficult to implement, requiring months or years of effort by highly experienced practitioners. However, this is beginning to change as firms place more emphasis on data science/decision analysis as a result of vendors investing to make their platforms available to business users.
Gartner analysts have identified the following four trends as primary factors in driving growth:
Massive investments in predictive analytics. Oftentimes, firms invest in these capabilities to develop better forecasting and make a better return on their data, but they soon realize that these tools don’t provide all the answers. Nevertheless, the outputs of predictive anlaytics provide valuable inputs for prescriptive analytics to recommend courses of action based on forecasts.
Expansion of key use cases. We see more and more use cases in areas such as logistics or supply chain, where the value is already proven and a broader section of large firms are now adopting the capabilities. Newer use cases are only likely to impact the latter years in the forecast.
Internet of Things (IoT) vendors will look to add prescriptive analytics to their offerings. As all kinds of machines begin to generate data at an ever-increasing frequency — usually in the form of alerts and rudimentary predictions — customers are increasingly asking the question "what do we do with all that information?" Again, prescriptive analytics is an excellent complement to IoT capabilities to dramatically increase the ROI from these investments.
Vendor capability enhancements lead to expansion of the user base within organizations. Proper adoption and maximum value from prescriptive analytics only ensues when the capabilities are deployed across all relevant functions/business units such that the quality of inputs, collaboration around analysis, and implementation are fully embedded into business process. This means broader user bases. Broader user bases are already being facilitated by vendors providing new capabilities for business users to access the power of prescriptive analytics.
Closing Thoughts on Gartner's Prescriptive Forecast
It's certainly encouraging to see the evolution of Gartner’s coverage of prescriptive analytics, further indicating that the market continues to grow. Gartner analyst Lisa Kart published the first Gartner piece on prescriptive back in May of 2015 — it focused on educating end users on the value of prescriptive and how to begin adopting prescriptive analytics. She followed with another piece in the same month that provided an overview of the vendor landscape. Since then, there have been numerous Gartner publications on the topic (not to mention search volume has skyrocketed over the last few years).
Here at River Logic, we've seen our own "boom" in demand for / interest in prescriptive analytics. Our clients and partners continue to see its value, pushing more and more user adoption of our prescriptive-based planning software. Gartner's forecast is just further evidence that business leaders are becoming more aware of the immense value prescriptive analytics adoption can bring to enterprises and mid-sized corporations. If you're interested in learning a bit more about prescriptive analytics application, download a copy of our prescriptive case studies below.