Business Analytics for Value Creation

Welcome to the new internet location for my “Value Alley” blog (same Bat Title, different Bat Channel – remember to bookmark this new site if you are a regular reader. This new WordPress platform should make everything about "The Value Alley" easier for both of us; easier to post and easier to comment. I look forward to your continued readership, and do please forward this new link on to anyone you think should know about this change in internet location.).  I want to revisit one of the core principles of the Value Alley – Leo’s Three Gear Model of business organization – and remind you of the importance of middle management / process management in the scheme of stakeholder value creation.

The next gear up is middle management, and as illustrated, their focus is PROCESS, PROCESS, PROCESS, because for all but the most recent of startups, creating stakeholder value is not something that is left to chance.  Repeatable value creation is institutionalized in the processes that convert resource inputs into customer deliverables, and then into a positive return on investment to the shareholders. 

The key phrase here is “repeatable”.  Anyone can luck out and create value a time or two on the fly, but if you intend on being a going concern with perhaps hundreds of products with thousands of variants being sold to millions of customers, consistent value creation depends on repeatable processes. Without process, value creation becomes ad-hoc, uncertain, likely to deviate from the strategic direction of the firm, and pretty much guaranteed to degrade from value creation into value destruction.  Without process in place to take advantage of critical mass, economies of scale, and organizational learning and communication, value creation, if it occurs at all, becomes merely a craft, dependent upon individual skill and initiative.

Here's the way I like to put this.  I want my Customer Facing team to deliver $300,000 (or $30 or $3 million) of value to my customer, for which the customer will pay me $200,000, and which will cost me $100,000 to deliver. All I want to hold the Customer Facing team accountable for is delighting the customer by delivering something which the customer will value at $300K, and follow the approved processes in doing so.  If the product or service ends up costing more than $100k, or worse, more than $200K, it is middle management that I will hold accountable for the profitability of the deliverable.  If all goes according to plan, Customer Value equates to Organizational Value.

Middle Management – where the weight of the expectation for results rests.  It is at this level where the resources of the company meet the needs of the customer.  It is at this level where resources are allocated for consumption, process are developed and deployed, the potential for value creation is shaped, and problems are solved.  And it is here where organizational value creation, or value destruction, will be determined.

 With those high expectations in mind, tell me, what are we doing at the level of Executive Management to support middle management, besides giving them annual objectives and stretch targets?  What appropriate and effective tools are we arming them with in order to give them a realistic chance of meeting those objectives?  We generally do not skimp on our investment in the tools, materials and equipment needed on the front lines; after all, this is what the customer sees of the organization and we usually want to put our best foot forward.  But when it comes to process management, the process owners are often left on their own, with only out-of-date, backwards looking financial reporting, that becomes more a game of gotcha than a sensible way to run a business.

To get even more specific, what tools are we giving them so that they can:

• Better analyze and understand business drivers,
• Develop better processes,
• Model or simulate processes before they get deployed into production,
• Predict or forecast future requirement or results,
• Monitor the performance of those processes and provide feedback, and
• Identify problems and root causes so that the problems can be promptly resolved?

As should come as no surprise to you at this point, having read the title already, Business Analytics is one of the most valuable tool sets available for process development and management.  A few examples should highlight the key role business analytics can play in support of middle management process objectives:

• Marketing Campaign Management:   Knowing which customers or customer segments to target with which specific products, services, bundles, discounts or offers.
• Fraud and Financial Crimes:  Detecting value destruction before it can take root.
• Warranty and Service Optimization:  Offering a predictive, forward-looking view of maintenance requirements.
• Risk Management:   Making sure that the risk side of the “risk/return” equation is equally supported.
• Activity-Based Management:  Offering a window into accurate process costs and efficiencies.
• R&D:  Getting to market faster with more offerings, more often.

You already have most of the data at the operational level needed to take advantage of business analytics, but it tends to stay just that, data, and never gets the chance to rise to the level of information.  What business analytics does is take that data and extract the patterns that provides intelligence about customer, employee and supplier behaviors, activities and their associated risks, such that it becomes actionable decision support material for your business processes.  Applied Business Analytics is your key to tilting the playing field away from value destruction and towards repeatable value creation.