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Data Science Monetization: Focus on Innovation, Not Effectiveness | @BigDataExpo #BigData #Analytics

How does an organization avoid the 'Cost Cutting Death Spiral'?

Data Science Monetization: Focus on Innovation, Not Effectiveness

“I have over 1,200 Data Analysts, so we have it nailed.”

When I heard this being uttered by the head of their “analytics” group, I knew the meeting was over. I knew that I could safely close my laptop, put away my notebook, and gracefully thank them for their time.

It didn’t matter that others in the room didn’t agree with that assessment.  It didn’t matter that others could see the benefit of a “think differently” collaborative engagement with key business stakeholders in envisioning how to broaden the organization’s thinking with respect to the how to leverage data and analytics to power the business.  Nope, their analytics leader made the statement with such authority and confidence that any further conversation was just going to frustrate both him and me.  He already had all the answers, even to problems that had yet to be discovered.  Yep, time to head to the nearest Starbucks!

However, as a customer of this company I know that the real story is quite different.  As a customer, there are many things that frustrate me when I engage with them:

  • The in-store experience is underwhelming: frumpy stores with cluttered merchandising and inconsistent pricing and promotions in a difficult to navigate store format. It’s not exactly the Apple Store.
  • Their website and mobile experience forces the customer to go through multiple steps to use a digital coupon (consequently, it is still easier to use the Point-of-sale printed coupons that were generated from my previous store visit).
  • Their mailings and newspaper circulars are as cluttered and underwhelming as their stores.

But probably my biggest issue is the uninspired loyalty card experience.  They have 15 years of my product purchase details:  what products I bought, how many I bought, what prices I paid, with what other products, using what coupons or discounts, at which stores, on what times and days of the week, etc.  But my customer experience is anything but highly personalized. I am constantly being offered coupons on products that I would never buy (stop with the canned vegetable coupons already!); there is zero creative use of the information that they have AND that they could have about my buying preferences, tendencies, inclinations, behaviors, interests, passions, associations and affiliations…ZERO!

And my experience with this company is confirmed by their stock performance the past year (see Figure 1).

Figure 1: [Omega] Stock Price Performance (company in blue)

From Figure 1, one can see that while the market (both the Dow Jones and the S&P 500) have grown at an over 20% rate the past year, this company’s stock value is down over 16%.

So here’s my question to this executive with the over 1,200 data analysts:

What the heck are you doing with all those data analysts?  With that much data analytics capabilities, how are you measuring your impact on the business?

As you could suspect, I have an opinion…

You Can’t Grow by Shrinking…
We see this story all the time, and it is happening today with a large technology company in my backyard.

A company misses their revenue numbers (again) and senior management does the only thing it knows how to do:  focuses on reducing costs.  So senior management does the following:  lays people off, offers early retirement, off-shores and/or out-sources select operations, delays vendor payments, negotiate onerous terms with its suppliers, sells off parts of the business, cuts the marketing budget, etc.

Unfortunately, this only acerbates the revenue generation problem by sending companies into the “Cost Cutting Death Spiral” because this is what really happens:

  • You offer early retirement to your most expensive yet most knowledgeable and productive workers. You are persuading your corporate intellectual property and tribal knowledge to literally walk out the door (and in many cases, walk into the doors of your competitors).
  • You sell parts of the business, but the only parts that other companies want are the ones that are either most profitable or have the most upside potential. You are left with the dregs of the business.
  • You off-shore and/or out-source operations, but you not only lose control of those processes (you are now dependent upon the abilities of the lowest-cost bidder). You also lose access to all of the valuable product, supplier and operational data and resulting insights that might help to increase organizational effectiveness and grow revenues.
  • You negotiate onerous terms with your suppliers and vendors, and in response these suppliers and vendors limit their investment in your company: you don’t get suppliers best and brightest to work with your company and you lose the valuable cross-industry insights that those best and brightest could bring to your revenue growth problems.

You hear comments like “we’re trying to buy time while we right the ship,” but unfortunately these actions ultimately decimate the revenue growth capabilities of the organization.  It is equivalent to having the flu, and selling your brains, heart and lungs to “buy you time while you get healthier.” That’s the “Cost Cutting Death Spiral”

Focus on Innovation, Not Paving the Cow Path
How does an organization avoid this “Cost Cutting Death Spiral”? Is there a better option?

Which brings me to the below quote from Bertrand Russell.

“In all affairs it’s a healthy thing now and then to hang a question mark on the things you have long taken for granted.”

I take the “Bertrand Russell Principle” (I just came up with that principle) to mean that instead of just accepting long held beliefs about the way that things operate (like massively cutting costs when revenues and/or profits dip), in its place question or challenge these beliefs.

For example, instead of focusing on taking costs out of marketing at a time when your company probably needs marketing the most, in its place focus on driving more revenue from your marketing capabilities. This might lead to some creative use of your marketing capabilities, such as

  • Identify, score and target your highest-potential prospects (e.g., with high potential business value and a high feasibility of success over the next 9 to 12 months) upon which sales and marketing can focus its time and investments, or
  • Mine existing customer transactional data in order to make next best offer recommendations for each customer that the sales teams can execute, or
  • In-source your marketing capabilities to smaller companies that lack your marketing scale and reach (and gain more customer, product, operational and market insights in the process).

Yea, we could go on for hours brainstorming new ideas when the focus is on driving revenue and not simply on removing costs.

Data Science Monetization Summary
A recent article from the Sloan Review titled “What to Expect From Artificial Intelligence” stated the following:

“The best way to assess the impact of radical technological change is to ask a fundamental question: How does the technology reduce costs?”

Sorry, but again that’s the wrong question. Focusing on reducing cost just leads organizations to focus on “paving the cow path” – to take costs out of processes that may have been developed decades ago when data and analytic capabilities were limited.  Instead, I’d recommend a different question:

“How effective is your organization at leveraging data and analytics to optimize key business processes, create new monetization opportunities and drive a more compelling customer experience?”

An IDC white paper titled “IoT and Digital Transformation: A Tale of Four Industries” states that by 2018, “33% of all industry leaders will be disrupted by digitally enabled competitors

Figure 2: Digital Business Model Disruption

How do you avoid being one of the 33%? Focus on innovation, not on “Paving the Cow Path.” Instead of focusing on trying to take costs out of your processes, instead focus on increasing the effectiveness of those processes to drive new revenue opportunities. Focus on leveraging data and analytics to create new revenue opportunities and new business models. Look how a company like GE Aviation is leveraging their data science capabilities to create new monetization opportunities, such as services around engine maintenance, fuel efficiency, flight disruption management, and plane and crew utilization.

Focusing on cost savings only leads you to the “Cost Cutting Death Spiral.”  You can’t grow by shrinking.

The post Data Science Monetization: Focus on Innovation, Not Effectiveness appeared first on InFocus Blog | Dell EMC Services.

More Stories By William Schmarzo

Bill Schmarzo, author of “Big Data: Understanding How Data Powers Big Business”, is responsible for setting the strategy and defining the Big Data service line offerings and capabilities for the EMC Global Services organization. As part of Bill’s CTO charter, he is responsible for working with organizations to help them identify where and how to start their big data journeys. He’s written several white papers, avid blogger and is a frequent speaker on the use of Big Data and advanced analytics to power organization’s key business initiatives. He also teaches the “Big Data MBA” at the University of San Francisco School of Management.

Bill has nearly three decades of experience in data warehousing, BI and analytics. Bill authored EMC’s Vision Workshop methodology that links an organization’s strategic business initiatives with their supporting data and analytic requirements, and co-authored with Ralph Kimball a series of articles on analytic applications. Bill has served on The Data Warehouse Institute’s faculty as the head of the analytic applications curriculum.

Previously, Bill was the Vice President of Advertiser Analytics at Yahoo and the Vice President of Analytic Applications at Business Objects.