Analytics – where do we search for value?

Talking with different people on different organizational levels sometimes I get a feeling that companies still do not know why they should invest in analytics. Having fancy visualizations, automating reports, showing of with real-time monitoring of sensors is not what makes the value.

At least not automatically! What I see is that companies still struggle to define meaningful scenarios that would make difference.

This post is mostly about making difference using analytics.

It all starts with a question!

I tend to ask different people in organization to name me two or three things that they think would make a difference in their organization, their workplace, process. When talking to Operations the conversation is often about efficiency, performance, growth etc., while talking to executives it usually all ends up with a profitability conversation.

And how can an organization influence on profit?

I explain them that implementing Finance Analytics won’t do the job. So, I show them a simple DuPont scheme where we have P&L on top and Balance sheet on bottom. Then I pinpoint Net Profit and explain that in order to influence net profit we need to either improve revenue or decrease expenses and this cannot be done focusing on Finance related data. We need to go to the level of process and operations.

If we want to influence Revenue we could focus on improving Order Conversion Rate, improve Cross-sell/Up-sell, on time delivery rate, Fill rate etc. Or we could decrease Expenses by improving Yield, Production Efficiency, Lower Failure rate, Scrap and Re-work… doing these small steps will eventually lead us to improve Profit by certain %. In one occasion we managed to rise profit by 1% solely by optimizing Customer and Suppliers bonuses.

But there is no general recipe. It’s always different. To find cases we need to focus on Company’s Value chain. And they are different based on industry, company type etc. Let me give you an example based on Manufacturing Value chain where we try to understand how Marketing understand customers, how Purchasing provides materials, how efficient is Production process, does Sales really sell what it should? What is the general feedback of customers. And we extend company’s value chain to include suppliers and customers value chain as well. It is important not to focus only on one process but understand how all chain is interconnected. Think of automatic stock replenishment, Customer Order Processing automation, direct feedback from customers – how they use your products, preventive actions in your operational processes, future predictions and understanding of root causes etc.

For example, if there are Customer Claims it can be that Production did not do the job well or Supplier delivered poor Quality goods it could be logistics problem, design problem. Understanding root cause analysis can help us understand what happened and even prevent it from happening in the future and that is what modern analytics is all about. But it comes with a certain condition. If we want to understand this, we need to integrated data. Integrated value chain means integrated data and this comes from Operational side and Business. Quite some companies view Operational Analytics and Business Analytics as two completely different planets. We learned from experience that connecting those two worlds makes big difference. But this is already a whole new topic.

Analytics must focus on business value and technology will follow. Never make analytics a technology project!