Distributors: It’s Time to Get Your Data Act Together, Part II

In this 3-part series, tED magazine explores some of the biggest challenges that electrical distributors are facing when it comes to justifying investments in data management and usage in today’s information-rich business world.

Find part I of this series here, and part III here.

4 Ways to Maximize Your Data Analytics ROI

When it comes to data, every business is different. And to complicate matters even further, those preferences and needs can change quickly depending on current business cycles, economic conditions, and customer demands. “Depending on where they are at in their own life cycles, different distribution businesses want visibility into different types of data,” says Gary Owen, president at Seattle-based MITS, which specializes in distributor and manufacturer analytics.

Thinking back to the mid-2000s, when business was good and the recession had yet to hit full strength, Owen says most firms was asking for better sales analysis. Put simply, they wanted to know if sales were up or down, and why. Then, when the economy tanked, that need shifted from wanting to know that sales were down or flat, to being able to figure out where distributors have the highest levels of inventory exposure.

“These are just some of the examples of how macroeconomic cycles can change what’s important in data and analytics,” says Owen. “And that’s a fluid problem; not just a technology problem.” Equally as fluid are the ways in which companies measure the return on investment (ROI) that they get out of their data analytics projects. Here are four ways distributors can maximize those returns in the current economic climate:

1. 1. Kick off your implementation with a top-down approach. “The best implementation of analytics is going to be from the top-down,” says Owen, “and oriented in such a way that the whole company understands how the analytics contribute to the distributorship’s overall success.” For example, he cautions against rolling out a data analytics initiative based on an outside sales rep’s need for customer scorecards (i.e., to use before going out and meeting with those customers in person). And while this single need may be the seed for a more expansive data analytics project, Owen says having the company CEO define—based on the sales information and customer data—a set of goals based on key performance indicators, will help improve the project’s ROI. “Then, roll out that initiative and buy-in down to the branch managers, sales managers, and individual sales reps,” Owen advises. “When everyone understands the dashboards and KPIs, then the whole company becomes accountable.”
   2. Don’t make it a one-and-done initiative. In Part I of this article series, Owen said that too many companies take a “We don’t do anything unless we can do everything” approach to data analytics. This isn’t the only mistake they make, he says. “The other side of that is, ‘We did one thing, so now we’re done,'” says Owen. Distributors can avoid this mistake by actually using the generated analytics, data, and numbers to create strategic plans, develop even more effective KPIs, deliver higher levels of customer service, and approach new markets. “When you define and work with KPIs across the entire company,” says Owen, “then you can leverage your analytic solution to build alignments around your strategic initiatives; that’s where you really can get to that 13:1 ROI.” (As mentioned in Part I of this article series, a recent Nucleus Research study found that the average returns from analytics have been increasing, reaching $13.01 for every dollar spent in 2014 from just $10.66 in 2011.)
   3. Start asking the right questions…now. The precise question your organization should ask depends on your best-informed priorities, according to McKinsey Quarterly’s Making data analytics work for you—instead of the other way around.Clarity is essential. Examples of good questions include “How can we reduce costs?” or “How can we increase revenues?” Even better are questions that drill further down: How can we improve the productivity of each member of our team? How can we improve the quality of outcomes for customers? How can we radically speed our time to market for product development? “Think about how you can align important functions and domains with your most important use cases,” McKinsey advises. “Iterate through to actual business examples, and probe to where the value lies. In the real world of hard constraints on funds and time, analytic exercises rarely pay off for vaguer questions such as, what patterns do the data points show?”
   4. Foster a sense of curiosity across your organization. It doesn’t matter if your company has been in business for 60 years or six months, it won’t grow and thrive in today’s environment if there’s no internal sense of curiosity and questioning. By creating a corporate culture that continually asks “why” something is done a certain way, for example, and then using good data analytics to answer that question and develop better solutions, distributors can work toward that 13:1 analytics ROI. “Start asking some fundamental questions like, ‘We always presumed that this customer was keeping us in business, but what if that’s not true? What if they’ve become a bad customer?” Owen advises. Or, consider the products that you’re stocking and whether they are truly keeping your firm in the black…or if they are eroding your bottom line. “Analytic tools help to speed up that process of understanding,” says Owen, “and allow your company to respond faster to the world’s changing conditions.”

Here’s the Bottom Line:  You’re Not Entitled to Your Business Model
We’re all operating in an age of disruption right now, with everything from technology to ecommerce to self-driving cars having profound (or, promised) impacts on the way we work and live.

“There’s no guarantee that your company, just because it’s been doing something the way it has and for as long as it has,” says Owen, “will be able to do that successfully in the future.” To ensure longevity, he says distributors must stay “in the know” about higher-level trends within the industries that they serve, including the growing use of data analytics to make smarter and better decisions.

Even the smallest, niche-oriented distributor should pay attention to this point, says Owen, knowing that if you aren’t measuring, then you don’t even really know if you’re improving (or not). “At this point, your option may be that you have to figure out how to integrate this stuff,” says Owen, “or you may risk getting squeezed out of the marketplace.”

And remember, says Owen, that the world is a changing place, and the things that we know to be true may no longer be true. “When distributors come to an understanding of their customers, products, businesses, and marketplaces—and if they don’t maintain a sense of curiosity and questioning—they run the risk of operating as though everything is exactly the same as it used to be,” says Owen, “and we all know that’s not how the world works.”