Making the Business Case for Analytics

Strategies for Empowering your Leadership’s Learning

INTRODUCTION

In today’s highly regulated and fast paced Perishable Food business, analytics help decision makers understand and improve their business. Nevertheless, it can be hard to make the case for investing in analytics solutions. If you are looking for a BI tool, you are already a power user and understand the need for advanced analytics, however, getting others to see your foresight can be tough to navigate.

The following pages lay out the best practices for assembling your business case to your leadership.

I. BUSINESS BENEFITS BEST PRACTICE #1 – FIND A HIGH-VALUE INITIATIVE

From the perspective of IT, a team of people performing manual analysis to assemble reports is a significant annoyance. From a funding perspective, this annoyance doesn’t justify investment.

Your goal is to start by identifying the FIRST key area that will benefit from direct analytic oversight. Focus on the changes that analytic reporting can produce, whether return %, sales category changes, production through put or Scan Based Trading reconciliations. Put focus on the impact these reports make to the business. Ask yourself, can I quantify the value of getting accurate and timely information in the hands of decision makers?

If you don’t know, follow the information flow: Identify the key people that consume the data.

Who is reviewing the data? What decisions do they make? How do those decisions impact the business? How is that impact measured?

In general, the most Business Groups are as follows. Find an executive sponsor in one of these groups with a pain point, and articulate how analytics will resolve this pain point and pay for the project.

SALES & MARKETING

SUPPLY CHAIN

PROCUREMENT

SERVICES

II. BUSINESS BENEFITS BEST PRACTICE #2 – PICK A COMPELLING METRIC

Some business improvements are hard to attribute to an analytics solutions or an one cause at all. Your goal is to demonstrate that you can navigate the shifting nature of perishable food business. With the large number of data points, picking a topic that is easy to understand and can quickly engage change is essential. For example, if you put analytics in the hands of the production team, and throughput indeed improves, will they attribute that improvement to analytics? No. Production Managers will forever cite a mix of talent, process improvement, and product mix as the main reason you see improvement. And perhaps macroeconomic conditions that are at play for your industry.

Improvement potential depends somewhat on the power of the solution, but also on how much room exists to improve. Therefore, you need to take great care in identifying the relevant problem and preparing the managing metrics and determining your baseline value. From there, you can then determine how much improvement analytics can drive. Be sure to setup up a quantifiable measurement that ties specifically to our business. Don’t create a metric that isn’t achievable or isn’t relative to the specific improvement you are trying to achieve.

IDENTIFYING BUSINESS BENEFITS

Problem Statement: “We are currently unable to achieve [business objective] because we don’t have access to accurate information in a timely manner and can’t easily visualize trends.”

Baseline Value ($): “This limitation costs us $X in ______ [lost sales, extra costs, overstock, expedited shipping, factory overtime, etc.]”

Addressable Scope (%): “Some of that value is the nature of our business. But Y% could be addressed.”

Solution Enabler: “With an analytics solution, we will be able to see the data in one place, identify trends, forecast more accurately, and make better decisions.”

Improvement Range (%): “We predict a Z% improvement attributable to a business analytics solution.”

Business Benefit = Baseline Value ($X) * Addressable Scope (Y%) * Improvement Range (Z%)

I. BUSINESS BENEFITS BEST PRACTICE # 3 – BREAKDOWN THE VALUE

As per Best Practice #2, you need to set your case on a credible metric. To do that, you must understand meaningful value metrics by line of business. We’ve laid out some Do’s and Don’ts for breaking it down, organized by line of business.

SALES & MARKETING

SUPPLY CHAIN

PROCUREMENT

SERVICES

I. BUSINESS BENEFITS SALES & MARKETING

DON’T: Claim that you’ll improve “revenue” or all of sales by any amount.

DO: Identify a specific product category or set of opportunities and isolate that improvement.

If you want to make the case for sales and marketing analytics, find a very specific sales pain point. For example, perhaps your sales executives don’t have a clear understanding of the different product category is increasing demand. Maybe one product has better traction in display vs on the shelf.

What sounds more believable?:

“We can increase sales 5% by giving dashboards to the sales team.”

(not a historically analytic population.)

Or:

“We believe that customers who have bought product A have better demand when placed near the other items it can be paired with. However, our data sits in so many places that we can’t gain a line of sight on the appropriate accounts. Once we can see the retailers who have placed product A, we can enable the sales team to position it to relevant items based on buying history. Within a specific set of accounts, we expect to increase up-sell by 5% without increasing the sales force. The VP of Sales agrees.”

The storyline above is scoped around an addressable set of accounts based on buying behavior and sets a credible improvement possibility, validated by the line of business owner. Know your business pain point and frame the achievable value in a logical way.

I. BUSINESS BENEFITS S UPPLY CHAIN

The supply chain is a complex network that needs analytics to connect end-to-end. It is also a high-value part of the business garnering increasing focus in recent years. From a business case perspective, supply chain value ties to every major financial metric. Having the right products in the right place prevents lost sales. Shipping, storing, and producing the product across the supply chain contribute to cost of goods. Inventory is an asset on the Balance Sheet.

DON’T: Overcomplicate things. As mentioned, this part of the business is complex, so focus on a specific pain point where value can be easily observed. Don’t focus on reducing the inventory balance. That could take four quarters.

DO: Tightly scope and frame your problem statement. For example:

Inventory Management – Find a set of inventory that had to be written-off because the product was out-of-season or no longer in demand, and show how much value can be gained by reducing that write-off with better forecasting through analytics.

Transportation Management – Perhaps a set of deliveries are consistently expedited because of poor demand planning. Improved forecasting can be difficult to measure, but value is easily quantified in the downstream impact to reduced expedited shipping costs (fees and labor).

I. BUSINESS BENEFITS PROCUREMENT

Procurement has 1-2 primary KPIs that can be improved with analytics, the value of which will easily pay for the entire project. Demonstrable results are evident relatively quickly, because the sourcing team can consolidate redundant purchase orders, gain visibility across spend, and negotiate better discounts as soon as the analytics solution has been stood up. However, procurement people are good negotiators and may not provide buy-in for the benefits expected from an analytics solution they have to fund. Know your political landscape.

DON’T: Claim to reduce Cost of Goods by a large number. Cost of Goods is one of the major KPIs used to measure the entire company. It reflects commodity prices, supply variability, and factory capacity. It’s a very high- level KPI with external dependencies, and you can’t credibly make a claim on it.

DO: Identify a specific set of sub-optimized spend and focus on improving that. Similar to sales analytics, you need to break the problem down. You could say:

“Spend at this plant is sub-optimized because we lack visibility into lead times for orders, and the buyers are negotiating contracts for materials at the last minute. By sharing information between demand planning and suppliers, the sourcing team will be able to lock-in discounts two quarters in advance, which can lead to a 5% reduction in spend on these materials.”

I. TOTAL COST OF OWNERSHIP BEST PRACTICE #4 –

ANALYZE TECHNOLOGY BY TOTAL COST

Rent or buy? If you're thinking about buying new software, this is one of the big questions you'll have to answer—and, like any of the factors that go into the decision process, the choice between a perpetual license vs. SaaS will impact your bottom line.

There are two main options when it comes to how you’ll pay for your new membership management software: perpetual modeling and SaaS (software as a service) pricing. Both pricing structures are based on a per license basis, where you’ll pay X amount of dollars per user. A perpetual model is where you buy the software outright and then own it in perpetuity. With SaaS pricing, you’ll pay X amount of dollars per user, per month.

SaaS Pricing with a Twist

HarvestBI SaaS offering works slightly different than other vendors because even though you don’t own the software, you have the right to make any changes within the platform—just as you would if you bought it outright. You are free to configure the system to fit your unique needs—and the HarvestBI team will support your efforts behind the scene, making sure the changes you make don’t impair the upgrade path or overall performance of the system.

With the SaaS model, the HarvestBI team hosts the software for you. With the perpetual model, you’ll have the choice as to whether or not you want to host the software yourself. What you decide depends on how large your internal IT team is, the amount of time to which you want your IT department devoted to hosting, and, of course, what your budget is for such services.

The Difference Is in the Dollars

As with the car analogy, the choice between a perpetual license vs. SaaS largely depends on whether you would like to pay more upfront, or pay to spread payments out over the lifecycle of the system. Your accounting department or board may also have a preference based on cash flow constraints and how your organization depreciates capital expenditures.

II. TIME TO VALUE BEST PRACTICE #5 – PLAN FOR SCENARIOS

Implementation Scenarios: Plan for an implementation period in which you keep your current environment running in parallel with the cost to stand up the new environment. Keep in mind that during this time, you will see no business benefits. Be conservative in anticipating extra costs and delays, and attempt to anticipate all scenarios. Make it clear you aren’t expecting additional costs and delays, but that the financial justification persists, even when the unexpected inevitably arises.

Benefits Realization Timeline: For business benefits, plan a delay in realizing value. The IT environment may be stood up, but the business needs time to learn new behavior. Also, the implication of improved decision-making with analytics won’t be immediate. For example, if your use case is sales analytics, and the typical sales cycle is three months, then expect to see improved sales performance reflected one quarter after implementation, at the earliest. Similarly, if your use case is in purchasing, and contracts are committed a quarter in advance, you won’t see financial impact for one quarter after implementation.

Build all these assumptions into your case. What you don’t want is for the entire business case to be dismissed for an assumption that isn’t credible.

SUMMARY & FINAL GUIDELINES

1 Find a High-Value Business Use Case

• Secure executive sponsorship from a line of business.

• As you build the business case, review your framework, assumptions, and improvement ranges with your sponsors, so that you are securing buy-in along the way. By the time the business case is final, nobody should be seeing it for the first time.

2 Set ROI on a Credible Metric

• Focus as much on the qualitative story as on the numbers. If you can’t credibly explain the current problem statement, how improvement will be made, and why these numbers are reasonable, no one will care about your quantitative analysis.

• Instead of making aspirational claims you may be held to, focus on the minimum requirement to break even and show how achievable it is.

3 Breakdown the Value

• Tightly frame and scope what you are planning to measure – it may be that sales and inventory will improve across the board. But for an analysis to be trackable, you have to tightly define what will improve, quantify the current state baseline, isolate an addressable portion, and forecast an improvement range specific to that scope.

4 Analyze Technology by Total Cost

• Consider all drivers of cost – not just spend to the solution vendor, but additional internal headcount required and services in outbound years.

• Show scalability – Will this investment grow with your business goals, or will you incur additional costs in the outer years?

• Be sure to factor in savings for technology costs that can be retired.

5 Plan for Scenarios

• Be conservative in both directions:

- TCO Analysis – Factor in unanticipated expenses and delays.

- Business Benefit Analysis – Consider learning curve and real-world business process dependencies before accounting for benefits.