Defining the value of business analytics is often a challenge for organizations. But doing so can provide a business case for evolving organizational structure and processes and offer a baseline to decide which activities to tackle first. The following excerpt from The Value of Business Analytics: Identifying the Path to Profitability, by SAS’ Evan Stubbs, details an example of how a team carried out its management charge to innovate.
A great example I was once involved with had to do with a team tasked with “doing things differently.” The organization in question had quite a conservative culture but recognized the need to be more competitive. Unlike many teams, this one was explicitly established to identify potential sources of competitive advantage, find ways of doing things smarter, and assist the organization in making the necessary changes. Although the scope of its remit was extremely large, business analytics formed a key competency in its toolkit.
The team launched with great internal fanfare, high morale, and a great deal of enthusiasm. Unfortunately, despite a great start, it had not managed to progress much in the months following its creation. Making the situation even more confusing, the team had all the right prerequisites:
- A cross-functional group of extremely skilled people.
- A supporting set of tools and technologies.
- Explicit management sanction to “do things differently.”
My involvement came through trying to help the team members clarify why they were not achieving the progress they had expected and to come up with a solution.
Detailed investigation drew out a number of unexpected challenges stemming from their approach. First, their broad set of competencies was actively working against them. Given the team members’ broad focus, their high intelligence, and the number of internal sources of opportunity many organizations have, their potential list of problems to solve was enormous. When tallied, there were over 200 unique initiatives a team of roughly 10 people was working on! In short, the team was trying to do too much.
Second, the team had no understanding of which of these initiatives was most valuable to either the organization or individuals within the organization. While every single initiative was solving a legitimate business problem, there had not been any research into either the objective or subjective value delivered by each initiative. This lack of visibility of the potential value its initiatives were creating meant that the team had no way of prioritizing its activities.
Finally, because they had not explicitly considered the value being created by each of their initiatives, the team members also had not identified where this value would flow. Instead, they had jumped straight from problem to solution without communicating the benefits of their new approach, putting a variety of internal stakeholders offsides in the process. By not mapping where the value would flow, they struggled to build internal support for their proposed changes.
Once this was understood, the solution was fairly straightforward. It involved:
- Estimating the tangible and intangible value being delivered by each initiative.
- Ranking the initiatives based on their potential tangible value.
- Adjusting the ranking based on the degree to which intangible value would increase internal support.
- Limiting their focus to their top-ranked activities based on available resourcing.
- Establishing a communication strategy to promote the value they had identified.
Going through this process was fairly straightforward and only took a matter of days. However, by understanding the value they were creating, the team members managed to break free of their inertia, start delivering, and increase support provided by internal stakeholders. Without understanding the value they were creating for the business, it had been impossible for them to:
- Prioritize their own activities.
- Communicate their value.
- Persuade stakeholders to support their initiatives.
In a Nutshell: What You Need at a Minimum and How to Do It
Defining the value of business analytics comes down to understanding the benefits delivered and costs required by a given business analytics initiative. Doing this effectively helps:
- Build internal support and gain access to funding.
- Eliminate bias and minimize counterarguments.
- Increase focus and the probability of successful delivery.
Much of this is reliant on clearly identifying the tangible and intangible benefits the initiative will deliver. It also requires identifying who will receive these benefits, either at an organizational or personal level.
Counterbalancing this is an understanding of the investment required by the initiative. By combining the two, the organization can consider the net value of the initiative, often a key requirement for financial release.
The three measures of most interest are normally the financial return, the rate of return, and the time to return. Most organizations use a variety of standardized measures to simplify this value definition process. Some of the most common measures include:
- Total cost of ownership (TCO).
- Return on investment (ROI).
- Net present value (NPV).
- Internal rate of return (IRR).
By understanding and applying these, it is possible to translate the relative complexity of business analytics into an outcomes-based language that the rest of the organization can relate to. Additionally, by applying advanced techniques such as scenario analysis and simulation, it is also possible to provide insight into not only what the most likely outcome is but also the range of possible outcomes.
Successfully defining the value comes from:
- Incorporating this information into a comprehensive business case.
- Socializing this information with stakeholders and decision makers to solicit agreement that the data is correct and the outcomes realistic.
Check out The Value of Business Analytics: Identifying the Path to Profitability for more ways to deliver on business analytics.