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The Power of Insights: How to find them fast, and make them work for you

Thursday, 04 September 2008

Data provides essential building blocks for success, but all the leading businesses know that’s just the first step. To support a sturdy decision making system they need something more; they need the ability to parlay facts into wisdom. The clarity of purpose is this: To gain a competitive advantage, companies must utilize data, capture information, and reveal insights. This requires going beyond the data; it requires a nuanced information ecosystem that takes advantage of data and information to provide actionable insights. Data is the first stepping-stone on the path to powerful insights, which guide decisions that boost market share and profits. Reacting to marketplace changes is not enough. To succeed, businesses need the right information, at the right time, to plan more effectively. In this article, you will find best practices to help your business identify those critical insights quickly, and take action for profitable growth.

Emerging from the Data Avalanche

If you’ve ever felt buried under a mountain of data, you’re not alone. Now more than ever, information overload weighs heavily on businesses. Consider these survey results from IDC:

• On a scale of 1-to-5, 40 percent of decision-makers rate their level of being overwhelmed by data at a 4.
• Of the decision-makers surveyed, 33 percent noted a significant increase in available information since 2006[1].

As executives struggle with information overload, they also know “more” does not always mean “better”. With most of your competitors working with the same level of raw material, little competitive advantage can be gained if that material is not enhanced in any significant manner.

This sets up a perplexing problem in today’s competitive marketplace. Challenges like consumer fragmentation and channel blurring create a more complex business landscape, where the rules of the game keep changing. This ever-evolving landscape places a premium on effective analysis tools. Whether it’s assessing promotional effectiveness or core consumer behavior, the right data can help deliver much-needed answers.

Companies need something more than an array of interesting data points; they need data which yields relevant insights. Unfortunately, that’s not always the case. Less than 50 percent of available information is useful for making decisions, according to IDC [2].

The right insights can help companies grow volume, profit, and share. It is imperative to understand the best method for discovering insights that drive step changes in your business or enhance tactical execution rapidly.

Mining for Gold?

In the pursuit of true insights, companies face some formidable challenges: While the amount of available information keeps increasing, less than half of it will lend any real value to business decisions.

From Data to Insights: Bridging the Gap

Initially, it is important to distinguish the essential elements of the information ecosystem; data, information, and insights. Data – whether you are working with internal or external raw data, it must be cleansed to provide a solid foundation, or the rest of the process will crumble. Information – stacks of relevant data organized by function. This requires data that’s both synthesized and organized. Insights – to provide real value, an insight must reflect five key elements:

• Specific
• Timely
• Relevant
• Critical
• Actionable

By no means are we saying data is not important. Quite to the contrary, it is the main construct on which the ecosystem exists. Data is the core component, or building block, without data there is no next step. For data to provide the necessary fuel, it must be clean and timely. Information is the organization of data into logical stacks. These stacks can be organized in numerous ways including functionally (Sales, Marketing, Finance), regionally (North, Central, Country), or vertically by industry (Automotive, Consumer Goods, Banking).True insights address not only the “what” of business performance, but also “why” it’s performing the way it is, and “how” one might influence that performance. For years, industry reports have been adept at explaining what happened.

But, to what degree does reporting enhance efficiency and value? If an information eco system is configured to predominately address the “what” of past performance, companies will risk spending a disproportionate amount of time and resources focused on the rear view mirror.To navigate the road to success, which comes at an ever-increasing velocity, we must have visibility to what lies ahead. That is why insights are essential. Insights work similar to headlights; they illuminate the path ahead to reduce the risk of potential hazards. The more visibility I have, the faster I can go. With increased insights I will be able to make faster decisions while navigating my business. Insights let companies plan effectively, and facilitate business decisions that help grow profit, volume, and share.

Fostering a Healthy Ecosystem

The best insights arise from a healthy information ecosystem with technology/data stacks that have a high-level of interoperability; where each component, from data collection to business intelligence, plays an indispensable role. A strong information ecosystem allows an enterprise to mine data in order to reveal the root cause of business drivers. The inner workings of this ecosystem are made of work processes that support each other with a high level of interoperability. The ultimate goal is informed business decisions based on relevant insights. If any component is not healthy, the entire ecosystem suffers. Therefore, businesses must carefully guard the health of each component of the information ecosystem.

The Anatomy of the Information Ecosystem

Data Collection – this is where it all begins. When data is not clean, it is like introducing a contaminant into a habitat. All it takes is one weak component to harm the entire ecosystem. Look for sources that have a long history as a market leader and will bring substantial value-added Intellectual property (IP) to data collection. Master Data Management – as stated earlier, information is data organized in logical stacks. Those stacks could be logistics information, sales and marketing information, or Enterprise Resource Planning (ERP) information. To make those stacks work together, Master Data Management (MDM) is required. MDM is the initial and ongoing, harmonization, and synchronization of data assets. For example in a global context, it provides multi-country harmonization with a consistent metadata layer. That broad integration capability allows the ecosystem to interoperate and keeps it healthy. Relying on manual updating of reference data and metadata introduces risk to maintaining a healthy ecosystem. Look for companies that either provide tools or off er MDM services.

Demand Signal Repository – with the initial two components functioning well, demand signal can help pave the way for savvy business choices. Look for a flexible database architecture that can dynamically join data, enabling delivery of data on a daily, weekly, or should your business require even day-part basis. For example, if a company decides to run a three-week promotion atspecifi c stores and wants to keep the shelves stocked. A demand signal can be produced each day indicating what was sold, what is in transit, and what is being produced. It can then generate a forecast by store that is synchronized with delivery dates and times.

Business Intelligence – the BI layer is the face of the ecosystem to your enterprise and to your collaborative partners. The BI layer takes full use of the entire ecosystem. While demand signal can address some key business concerns, the source of true insights is business intelligence. The rest of the ecosystem feeds into this layer. The BI layer is where you drive value through addressing business issues within context and drive IP by leveraging Best Demonstrated Practice (BDP) workflows combined with your own. We are not talking about a simple BI tool that displays information, but BI in context. To produce BI in context requires advanced analytics built into the layer along with work processes that can integrate with your own work processes.

To maintain a healthy information ecosystem, industry leaders adhere to these best practices:

• Utilize multiple sources of cleansed data
• Create stacks of information that are organized, relevant, and harmonized
• Drive integrated information to the demand signal
• Incorporate a business intelligence tool that reveals high-value insights to drive eff ective business decisions

Time Lag Equals Business Drag

The “business as usual” approach to analysis takes several days to yield results. However, when business leaders tune their ecosystem with technology they can uncover the root cause of an issue in just hours.

While this may be a straightforward statement, the ability for companies to implement highly tuned ecosystems driven by technology, has proved challenging. The challenges are vast and range from, lack of change management processes, to rigid legacy systems and applications, to a closed ecosystem built internally making it resistant to many of the new technologies necessary to enhance the environment. A significant gap exists between total data managed versus data utilized. Operating under the “business as usual” approach, one would struggle to bridge that gap anytime soon. Consider the average company’s process, detailed above. The result? It takes 4 to 5 days to get actionable information. When each data element is addressed as a single instance and then brought back together, it is time-consuming and fraught with potential errors. This manual process increases the time it takes to get insights that will give you a competitive advantage in the marketplace.

What if your business could uncover insights in a matter of hours? Imagine that same solution is easily accessible to everyone and can help guide decisions with simulations and forecasts. That’s hardly “business as usual”.

The result? It only took hours to get actionable facts, run scenarios, formulate, and implement decisions. In this approach, technology does the heavy lifting and the competitive advantage comes from advanced, behind-the-scenes, analytics. It takes business intelligence and puts it in a business context. Because the information ecosystem puts data elements in logical information stacks, it allows the data to be staged together to address a business issue. With access to integrated information from multiple data sources, organized in logical information stacks, this sophisticated approach looks at specific thresholds to determine whether price, promotions, or other key drivers are affecting a given variance. Using embedded analytics, the business intelligence tool does more than data mining. It evaluates the most relevant factors, so you can identify the root cause faster. This benefit reinforces the need for a healthy information ecosystem. Without it the symbiotic relationships between each component will fail and critical insights will be lost.

Sharing Insights, Taking Action

Businesses with a winning edge know how to adapt to market shifts by leveraging insights into action. Here are the essential steps to make that happen:

1. Share information with relevant stake holders in a seamless and most efficient way possible.
2. Ensure that everyone is looking at the same insight. To facilitate decision making, you need one version of the truth.
3. Confirm that there is interoperability between applications to execute recommended actions based on insights.
4. Allow the ability to create simulations based on the insight. This will help you understand which levers can be pulled to drive profit, volume, and share.

The real value of information rests with the ability to guide strategic decisions. To that end, the most powerful insights are:

• Uncovered rapidly through data analysis
• Discovered easily by any user
• Shared quickly throughout the company
• Poised to guide actions that drive profitable growth

To derive swift action from valuable insights, the healthy ecosystem comes into play once again. A tightly integrated technology system makes nimble responses possible.

Perhaps you’ve just made a change in the three-week promotion we spoke of earlier. That information needs to travel down many paths: to the ERP system, so retailers are billed correctly; to operations, so trucks are loaded properly and sufficient orders are placed; and to the sales force, which can now create new forecasts. It’s all part of a powerful information loop that’s sustained by the health of each ecosystem component.

By making it easy for any user to discover insights and share information, a tightly integrated information ecosystem enables swift action.

The Hidden Cost Behind Some Investments

Consider the net-present value of an early warning system that fosters a proactive approach versus a system that makes businesses play a losing game of catch-up.

All businesses invest in data analysis at some level. In addition, it can be a struggle to accurately derive a return on that investment, in terms of decisions that were made as a result of that analysis that impacted the business.

To maintain a healthy information ecosystem that supports a business intelligence tool with embedded analytics, the up-front cost will be higher than some data-analysis systems. Therefore, it is imperative that companies can derive a cost model that will warrant such an organizational investment.

We recommend using two existing, tried and true, models to illustrate that return: Net Present Value (NPV) and Internal Rate of Return (IRR). NPV is defined as the present value of net cash fl ows. It’s an indicator of how much value an investment adds to the value of a fi rm. The IRR will help determine the efficiency and growth the investment is expected to generate.

To demonstrate how the proactive approach will add value and efficiency to your organization, imagine you are a Brand Manager. You have just launched a new item that is expected to take the market by storm and as a result, you have a very aggressive revenue target. To hit this aggressive target you have set a six-month distribution target of 90%. Unfortunately, things are not going quite as planned.

Based on the information system you have in place there are two scenarios that will get your launch back on track. The first scenario, highlights the necessary steps and time line that will correct your performance using the simple alert in the “business as usual” information system. The second scenario, highlights corrective measures utilizing a proactive, smart alert found in the highly tuned information ecosystem.

Scenario 1 - Business as usual information system

At 6 months you look back on your performance and begin to compile the data

+ 2 weeks
The simple alert system notifies you in month six that you missed your target.

+ 3 weeks
You now begin to dig through the data to understand what happen and why it happened. However, it does not change the fact that you failed to achieve your business goal.

+ 4 weeks
You now must conduct further analysis and develop a recommendation on how you plan to address this going forward.

+ 5 weeks
You present the recommendation to your senior management

+ 6 weeks
Your recommendation is approved and is implemented

+ 10 weeks
The distribution gap is closed and you are now at your project revenue run rate.

Total time elapsed: 10 weeks

The largest concern with this scenario is that you achieved the revenue run rate 10 weeks after the projected goal. That means you will still miss your annual revenue goal unless you increase beyond the projected run rate, which would require more analysis.

Scenario 2 – Highly tuned information ecosystem

Leveraging the tools in the ecosystem you setup a smart alert (3 months into the distribution). The system is analyzing shipments, sales, consumer penetration, and distribution build in comparison to like introductions. Based on that information a forecast is generated for predicted distribution in month six.

9:00 AM
Alert Received (via Dashboard)

9:00 - 9:30 AM
Investigate Issue

You click on the alert, which brings up a set of reports and smart text illustrating that the advertising plan is the key driver for the slow build. It has not produced the anticipated number of GRP (Gross Rating Points).

9:30 - 10:00 AM
Intensive Analysis

One additional click tells you that the competition’s GRP are up 150%. This lets you know that the competition responded to the product introduction by increasing their advertising.

10:00 - 11:00 AM
Explore all options

Run three scenarios

• Temporary price reduction
• Introduce a coupon incentive
• Increase advertising

Each scenario provides projected volume, cost, and ROI.

Choose the best scenario based on the projections.

11:00 AM - 12:00 PM
Capture findings

Produce a presentation and e-mail it to senior management for approval

12:00 Noon
Lunch

Total time elapsed: Less than 4 hours

In less than twenty-four hours, the plan is approved and implemented. Since the system took into account the lost revenue due to the slow build, the recommend plan slightly exceeds the original volume run rate. This ensures that the goal will be met by month six.

To illustrate the value of utilizing an early warning system and changing course in month three versus month six we will use NPV and IRR. Although the use of the information ecosystem has a higher initial investment, the Smart Alert System produces a significantly higher IRR and a positive NPV in comparison with the negative NPV produced by utilizing the simple alert in the “business as usual” information system.

The Industry’s Most Overlooked Gap: Can You Close It?

Between total data managed and total data utilized, a sizable information gap looms. Will you turn that gap into a business opportunity, or a liability?

With the increasing amounts of data and acceleration of change in our environment from channels to consumers, the value of a credible insight is higher than ever. The ability to make faster choices that are more informed will separate good and great organizations. To achieve that competitive advantage, decision-makers need to sort through ever-increasing sets of complex data.

Because the amount of data is increasing faster than our ability to manage, a gap forms. The gap between the amount of data we manage and the amount of data we utilize to make informed business decisions is the information ecosystem competitive advantage zone. This zone encompasses cost of data storage, harmonization, mining, and maintenance. If a company is spending resources on any of the above and not utilizing the information, it has a negative effect on investment ROI.

The companies that close the gap most efficiently and effectively will win in the marketplace and the success of that endeavor hinges on a vibrant information ecosystem. So the question becomes, how healthy is your ecosystem, and how healthy is your competitor’s?

To see best practices in action and learn how Nielsen can take you beyond data, visit www.NielsenAnswers.com.

[1-2] “Taming Information Chaos”, An IDC White Paper sponsored by Teradata, November 2007.