Tuesday, January 26, 2016

Can Small Companies Justify Investing in Business Analytics?

By Bill CabirĂ³

Even in the case of very small businesses, a strategically deployed Business Intelligence solution can have a major impact on the growth and profitability of the company.

Having a clear view of the profitable customers, products, regions and market segments is fundamental to understand the causes and expand upon the successes.

Equally important is to find those customers, brands, markets, segments and competitors responsible for draining cash to quickly stop the bleeding.

Should we treat all customers equally? 

If you say yes, I’d suggest reading “Angel Customers & Demon Customers” by Larry Selden & Geoffrey Colvin.

This is because in a company that has more than thirty customers, the Pareto Principle will be evident.  Looking inside the Pareto’s famous 80/20 rule not only one can find that the top 20% of products contributes 80% of total sales.  

We can also find that the top five percent of the customers generates close to 50% of the profits while the bottom 50% of the customers generates only 5% of the total profit.  Even worse, the bottom 40% usually does not generate any profit at all!

Many companies have a hard time identifying which customers belong to each group.  The good news is that the strategic use of Business Analytics provides these seemingly difficult answers instantly.

Regardless of the business situation management should be able to ask critical performance questions and find -first hand- clear answers at the speed of thought without interruptions or the involvement of analysts:

  • Is revenue growing profitably? Where? How and Why?
  • Are we paying sales reps commissions for bringing in unprofitable tonnage?
  • Can we quickly tell whether the growth trend is just over last month, last quarter, same quarter last year or this year to date?
  • How about the profit growth of the last 52 weeks compared to the previous 52 weeks?  Is it really growing?
  • Is our growth accelerating or decelerating?  How much?
  • How is our profit growth versus budget or business plan? Where are we failing to meet our objectives?  Why?
  • Which competitors are threatening our business?
  • In what regions and market segments can we maximize our growth?

A modern Business Intelligence solution is fundamental to find answers to the seven layers of WHY's in order to get to the root cause of issues.  Being able to understand and correct these issues faster than the competition provides the company a competitive advantage regardless of how small the business is.

In the past deploying a Business Intelligence solution was not affordable by small companies, not only due to the high licensing cost of the software but also because of both the internal and external resources necessary to set it-up and provide maintenance.

This is no longer the case.  Today, there are many choices of analytic applications, either on premise or in the cloud, that are powerful, user friendly and very inexpensive.  

Designed for business users, they include interactive data discovery and self-serve visual analytics that require minimal IT involvement, making them ideal to bring small companies to the forefront of the 21st century technology to become true analytic competitors.


1)    Angel Customer & Demon Customers by Larry Selden & Geoffrey Colvin
2)    The 80/20 Principle by Richard Koch
3)    Competing on Analytics y by Thomas H. Davenport, Jeanne G. Harris
Strategic Knowledge IQ Test
Image: GraphicStock

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