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The softer side of analytics

When you are considering bringing a more analytical approach to your organization, the first thing you’ll be asked for is an estimate of the return on investment. Any vendor will happily supply you with a list of case studies with enticing headlines: “Churn rate decreases 40 percent,” “Revenue increases 10 percent,” “Product costs drop 50 percent.’’

But what your organization needs analytics for now might not carry an easy-to-assess ROI. And frankly, much of the low-hanging fruit – the big, big cost savings achieved when simple analytic solutions first replaced seat-of-the-pants management – has been picked. After all, simple analytic solutions have been available for more than a decade.

As James Taylor, CEO of Decision Management Solutions, has noted, analytics is increasingly about incremental change, or what he terms “microdecisions.” It is not the aha! moment that saves the firm millions of dollars. It’s the changes you make to the supply chain as your forecasting sees a downturn in demand. It’s the increased efficiency of analysts whose boss is no longer begging for new positions every six months. And it is development of customers whose loyalties can be measured in dollars and cents over years – not one quarter.

Base your analytics case not only on how this will affect the company’s bottom line next quarter but how will those returns continue to multiply over the next year and the next decade.

I would suggest that as you build your case for an analytics solution you think about long-term and incremental ROI that comes from doing things better, smarter and faster. Base your case not only on how this will affect the company’s bottom line next quarter but how will those returns continue to multiply over the next year and the next decade. Use stories that don’t feature eye-popping ROI statements, but do point to the long-term gains of an analytical approach.

Stories like the Italian bank that can predict which staffers are most likely to leave and intervene before it incurs the expenses of hiring and training new employees.

Or the small dairy in the US heartland that is reviving old-fashioned home-delivery milk and found a manufacturing flaw – using analytics – that affected the quality of its product. Discovering the issue quickly allowed it to continue with aggressive growth plans.

An international vacation rental company now employs its analysts in gaining insights that make for ever-so-subtle – but important – contributions to the bottom line. Before, the analysts were just trying to keep up with the demand for reports.

 A lot of organizations use analytics to improve their distribution networks. Decreasing replenishment time by 20 percent might be difficult to translate to a specific increase in sales – especially given our rocky economic times. But how much worse off would you be if the product isn’t available when the customer wants it?

And if you are a major international producer of baked goods, will one batch of less-than-perfectly crunchy cookies destroy your reputation? No, but if you can use analytics to prevent costly refunds, shelf pulls and manufacturing detective work, then it is well worth it.

If your organization approaches analytics by asking, “What is this going to do for the bottom line next quarter?” the answer might disappoint. If your organization approaches analytics as a long-term solution that will bring a steady ROI over time, there won’t be any question of its value.

This article is an edited version of the blog post, “The softer side of analytics,” on SAS Voices that brings in examples from the Analytics 2011 conference in Orlando.

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One Comment

  1. Posted November 17, 2011 at 6:44 pm | Permalink

    Malene,

    I agree with you that low hanging fruit improvement opportunities for most organizations have already been pursued. I am in the same camp as James Taylor wih his view that despite major decisions by executives, there are hundreds, maybe thousands, of decisions made everyday by employees. For example, a slight pricing change may result in substantial incremental sales volume. Executives do not do that; pricing analysts do.

    I just returned from the annual http://www.informs.org conference. There were so many great presentations on how a better, abeit more analytical, technique or approach can improve tactical decisions. They all add up to the bottom line. What is better, is many are sustained longer term.

    Gary

    Gary Cokins, SAS

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