September 14, 2010 | By Rey Villar
What does “good” look like?
There are many stories and examples in literally hundreds of books where analytics has played a crucial role in a company’s success. Whether the analytics were around operational insight, market insight, or customer insight—or all of the combined, it seems that everyone has an analytics magic sprinkle that seems to work wonders. But does just having the magic pixie dust produce stellar returns by itself?
The answer is no. I believe there are three elements that must accompany analytics to produce meaningful insights:
- A well-defined strategy
- An analytics culture: the desire to use quantitative data and experiment
- A balanced analytical style
I’ll cover “a well-defined strategy” in this blog. Subsequent blogs will cover the last two items.
#1: A well-defined strategy
A strategy is a vision, a set of targets, a way of measuring progress towards the targets and and a plan. An operating model is not really a strategy. A tactical plan is not a strategy. Hope is not a strategy. When most business people talk about a strategy, they really describe a vision. When business people talk about changing their strategy, they are usually talking about changing the plan to reach the targets. When I talk about strategy, I mean a vision linked to a set of measurable objectives or targets and grounded in a plan that spells out how targets will be reached and through what actions.
The vision is where you want to go. It may be described in high-level terms or it may be very specific. It may be about helping the environment, making money or delivering a specific kind of benefit to a customer segment. It’s what you dream about at night, think about during the day, and the core message in your “elevator pitch.”
A set of targets are the numbers you want to hit. A target may be financial, operational, market-oriented, or only revealed through customer satisfaction surveys. Targets represent the Key Performance Indicators (KPIs) or the destination of your strategy. You do not need 50 KPIs, or even 30. You only need a few indicators. Targets can be set at multiple levels: industry, market or customer segment. They change over time.
One thing that never changes: targets must be measured to know whether they are being achieved. Measuring progress towards targets may require a substantial amount of analytical support. Yes, a high-level target of Earnings Per Share (EPS) or Cash Flow may seem easy to measure, regardless of accounting methods, but when you have to measure progress towards the goal and diagnose progress, you will need operational numbers and the ability to look into the details. If the EPS forecast is off by $0.01, you want to know why. Is sales off for the quarter? Did renewals slow in the quarter? Measurement systems and supporting measures can answer a growing cascade of analytical questions.
The plan is how you hit the targets to realize the vision. Here’s what most companies do: they devise a strategy that leads to a set of initiatives, which leads to a set of programs, which leads to a set of projects. On the flip side, a well-managed company will start with the business objective (the target) and work backwards to the set of projects needed to achieve the goal.
When I was a consultant for a Big-4 accounting firm, I often discussed targets for a strategy. It was my job to link those targets to specific initiatives. Each initiative had to contribute to and support the main strategy. Targets give high-level guidance on the types of initiatives, programs and projects that a company should consider. To be relevant to business leaders, I had to understand what the targets meant: raising revenue by 1% may or may not mean much in the context of a specific business or it could mean billions. Clients relied on me to co-develop the strategy and create a fully linked program with a sequence of pragmatic projects.
But it’s never easy. The portfolio of activities can be difficult to manage. The ability to rapidly deploy, start and stop programs, change and realign different activities, balance Keep-The-Light-On (KTLO) versus developing new capabilities are all management capabilities that allow you to flexibly change when you need to. The world changes. Your strategy should not change; it should be durable. How you get there and the tactics you pursue (the plan) should.
The strategy is the starting point. It defines how much agility you really need and where.
In my next blogs, I’ll talk about an “analytics culture” and two key attributes: the desire to use quantitative data and the willingness to experiment.