Data and Analytics: Not Just For Big Businesses
Often, SMEs owners, operators and managers must wear many hats and are often working with limited resources and focused priorities. One thing that often gets overlooked is their digital, data and analytics initiatives.
There is a common perception that advanced data and analytics technologies and techniques are only affordable and beneficial to large corporations. According to Eric Huang, CEO of Advanced Analytics and Research Lab, "Not only are investments in analytics very cost effective for smaller companies, but in many cases, they reap a very high ROI." He further explains that "smaller companies are typically not burdened by entrenched processes or legacy systems and can often leapfrog directly to the most creative and cost-effective approaches. With open-source technologies and cost-effective analytics, all you need is an open mind and a willingness to start.” In the age of digital disruption, not having a data and analytics strategy is simply not acceptable.
Where do you lie on this spectrum?
High Level Data and Analytics Strategy for SMEs
Industry experts often categorize two general approaches to getting started with analytics. First is the “low hanging fruit approach” and second is “the holistic approach”.
In the first approach, the team would assess existing processes and brainstorm opportunities for data and analytics. They figure out the value and the cost for each potential initiative. This step usually requires a clear understanding of the value of data and analytics, and it is highly recommended for a company starting out to look for an external partner or hire a director in data or analytics who is experienced to help guide you through this complicated process.
In the holistic approach, you identify both short term and long-term strategic goals and align your data and analytics initiatives accordingly.
Beyond the high-level strategic considerations, analytics can be broadly applied in two ways within an organization. To support core business functions and decision making or to be part of an actual value add to your client.
A real life example.
As an example of data analytics that supports business functions, let’s look at a sushi restaurant with 9 stores. On a day-to-day basis, the CEO wanted to better understand their revenue, staffing costs, and scrap. An analytics project was executed with an external vendor where the data from multiple systems (point of sales, HR, scrap, digital ads, website, and social media traffic) were brought together into a single report, and benchmarks were made on a weekly, quarterly, and monthly basis. This gave the CEO real time opportunities to make micro-adjustments on marketing spend to increase revenue, staffing adjustments on costs, as well as understand overall operational effectiveness.
Beyond that, a product bundling and pricing study was completed. This helped the organization understand opportunities to bundle products together as well as raising or decreasing prices on specific days of the week to balance demand to the store and achieve an overall increase in revenue. Oftentimes, these activities lead to a 3-25% increase in revenue and a 5-40% decrease in marketing costs.
As demonstrated in this example, analytics can help organizations find significant cost savings and revenue opportunities just from being able to fine tune operations through a more granular understanding of data from operations.
Benefits of Analytics
The benefits of analytics can be narrow to solve specific issues or broad and far reaching. Analytics can help the team remove decision making blind spots and resolve problems proactively instead of reactively. It can also find key levers that would not be obvious without deep pattern recognition to drive bottom line improvements, and saves time via automation. Most importantly, analytics help you ask more questions and discover patterns that can’t be recognized using surface numbers.
As stated by a board member of a family-run business who had established their firm’s analytics strategy with an external partner, “Our analytics partner has helped the management and operations team uncover new insights and provide in depth data and analysis that we wouldn’t have otherwise considered when making critical decisions. Furthermore, we custom built a revenue analytics engine that ultimately increased our revenue by 5-10%. The project and investment paid itself back within months and has continued to contribute to the company’s overall efficiency and effectiveness. I’m happy to say we’ll continue to invest into this field going forward”.
You want to get into analytics, now what?
The first thing that a management team or owner should recognize is that data and analytics is a complicated ocean that requires skill sets from multiple disciplines to navigate. It often combines the understanding of technologies, business, organizational (and change management), domain expertise, mathematics, and statistical skills. As such, it is often difficult for an organization to know where to start.
Most SMEs to find a partner or an advisor who can walk them through the intricacies of the journey and help them get started.
These are the general guidelines and questions you should ask to get started:
1) What are my biggest challenges? How might better data and analytics help with that?
2) How am I currently tracking my most important activities and goals? How often am I reviewing those goals?
3) Do I need to be more defensive or offensive with my data? Defensive suggests you want to keep your data safe and comply with regulatory requirements. Offensive implies you want to actively leverage analytics to find opportunities.
4) Do I have good quality data? Is it well organized? Am I leveraging my systems to their fullest potential?
5) Do I have a continuous improvement process?
Overcoming fear and doubts:
People are often fearful of change. The promises of analytics often sound lofty, confusing, and sometimes magical. It’s not magical. It’s driven by the idea that to achieve excellence and be the best, an organization needs to have a relentless drive to understand and improve, day in and day out.
Analytics is simply problem solving but with the best and most information available. It is about creating a feedback loop within your organization that will drive intelligent conversations and answers. As with any strategy and culture change, it often involves the five pillars of organizational (or analytical) excellence.
The world is changing faster than ever, and the cost of inaction is greater than ever before. The longer you wait, the further you will be behind.
Industry leaders are investing and working on it. It is affordable to get started. Not only will data and analytics help you be more profitable, but it will also help you stay competitive in the long run. What are you waiting for?