Radical Recovery Tools

StrategyDriven Evaluation and Control ArticleHow to survive and thrive in a down economy

You can’t turn on a television, open a paper or read a news feed today without hearing more depressing news about the economy. The crisis that started in the housing markets has unearthed a series of cascading consequences that few companies were prepared to handle.

How will this economic crisis play out? One possibility – every economist’s nightmare – is that we enter a depression. Another is that we wake up to reality, challenge the short-term profit demands of Wall Street, get strategic and build our businesses for sustainable growth.

Survive and thrive
In harsh economic times, the gut reaction of many companies is one of prudence and cost control: to take short-term actions that reassure shareholders and citizens. The biggest casualty of this type of reaction is often job loss.

Is cutting jobs the right thing to do? We do it because it’s quick and easy. Yet, the more jobs we cut, the more consumers fear for their future and stop spending. It’s a self-fulfilling prophecy: lack of spending leads to job cuts, leads to less spending – and so on.

Martha Rogers, co-founder of Peppers & Rogers Group, says, “This isn’t a financial crisis, but a crisis of trust.” She makes a good point.

Our actions don’t need to be all doom and gloom. While there’s no silver bullet, performance management philosophies suggest there are positive options before us. We already have the resources to survive and thrive. We just need to understand how to best deploy, grow or manage them.

If every organization has room to improve – perhaps even more than most realize – the first question we should ask is:

How do we get more out of what we already have without laying off? Start by focusing on three areas:

  • Cost reduction.
  • Productivity increases.
  • Innovation on a budget.

Cost reduction
Everyone is already reducing costs, right? Perhaps, but the better question is: Are we making smart reductions or further aggravating the problem?

In reality, most organizations are blind when it comes to cost. Peter Turney, President and CEO of Cost Technology, warns that many traditional cost-cutting exercises that companies are implementing right now could force their organizations into what he calls a “death spiral.”

Turney gives the example of outsourcing product assembly work. On a balance sheet, it may be clear that sending that work overseas is cheaper than doing it in-house, but when you look at the activity costs associated with returning products to the plant – including receiving, inventory and quality control costs – it may be more cost-effective to keep doing the assembly on-site. As this type of scenario plays out, it’s not uncommon to see further profit loss causing even more outsourcing in a continued effort to “reduce” costs – creating the spiral.

The same is true of customer profitability. All too often, those we think are our best customers – based on revenue – turn out to be our worst in terms of profit. If we decide to market our way out of the recession by attracting more of the same type of customers, we could be eroding profits further.

Turney’s point is that we tend to think about the cost of inputs and outputs and forget about the activities that support those outputs. Companies that can understand how individual processes are adding or destroying value can turn red balance sheets back into black.

What chunks of your revenue are profitable to your organization, and which are not? If you’re not applying activity-based management to your cost processes, you probably don’t know. To start reducing costs today, do an ongoing reassessment of which customers and products are building value in each quarter. The answers will point the way toward smart improvements and investments.

Productivity increases
Another obvious way to reduce costs is to increase productivity. Tor Dahl, economist and productivity expert, has been studying and helping organizations improve productivity for more than 30 years. He concentrates on removing what he calls “log jams”: things that sap energy, introduce inefficiency and create tension. Remove them, and it’s not unheard of to achieve 300 percent improvement in productivity.

“The only thing that creates new wealth in the economy is everyone being more productive than they were before,” says Dahl. “There is no other way.”

It’s ironic that so many leaders talk about employees being an organization’s best asset, yet the work force is the first thing that comes under attack when times are tough. Unfortunately, the employees who get laid off are often the same employees who know how to fix the organization’s problems. They’re simply stuck behind so much structure and politics that few feel empowered to make changes themselves.

Most employees don’t want to be unproductive. In fact, Dahl predicts that two-thirds of all stress and dissatisfaction at work comes from engaging in unproductive behavior. What can corporate leaders do to help everyone become more productive? Dahl suggests asking some simple questions:

  • What are you doing that no one in this company should be doing? Eliminate it.
  • What are you doing that should be done by somebody else? Delegate it.

The list goes on. With every answer and every solution, more time gets freed up. That extra time, along with the cost savings identified by Turney, can be used to focus on the third area: innovation.

Innovation on a budget
Carl Schramm, CEO of the Kauffman Foundation, says, “The question of innovation is central to getting out of this recession.” When most of us think about innovation, however, we think of new products that take years and years to research and develop.

To make innovation more affordable and bring products to market more quickly, Joel Barker, “the paradigm man,” futurist and author, suggests “innovation at the verge,” which he defines as bringing two or more elements of difference together in such a way that they create something new. Examples include:

  • Time-share condos, which combined the ideas of renting hotels and owning a condo.
  • The combined forklift/scale, which makes package delivery companies more efficient.

What two (or more) elements could you bring together to solve problems where you work? The answers could involve combining two systems, processes or job descriptions – not necessarily two products or physical objects.

A positive view of the future
Everyone needs to do more with less, yet everyone complains they have insufficient resources – people, money and technology – to be effective. At the same time, profit warnings are forcing organizations to compound the issue by reducing staff, freezing budgets and delaying purchases of any kind.

A more positive view explores ways to cut costs and improve productivity without laying off or reducing budgets. We have given you three areas to focus on in this article. Watch the Webcast series below for more insights.

Our hope is that readers realize there are positive options. If we act on them and help reduce the ranks of the unemployed, confidence will return, consumers will begin to spend, and we may see a return to the growth and stability of markets and economies.

This article was republished with the permission of sascom Magazine.

About the Author

Jonathan Hornby, a Senior Marketing Manager at SAS, is a visionary and thought leader in the field of performance management. His experience comes from a hands-on background within the banking sector of the United Kingdom, followed by extensive travel, dialogue, and collaboration with customers, management consultants, and respected thought leaders around the world. To read Jonathan’s complete biography, click here.

Lost in Translation

Increase the impact of customer insights and analytics. How to break down the barriers between the analytics community and the business.

Data is omnipresent and within our grasp yet business truths are still elusive. Finding meaning in that data requires sifting through droves of extraneous information for business insight. It means distilling raw information into a “story” about our customers, our business growth levers, and the business challenges we face – all with a view of moving the business forward.

To extract this information, businesses have found growing within their midst an “analytics community” – groups of data crunchers clustered in back rooms, mining information warehouses and marketing databases for – what exactly? The answer is not always clear, because the value of the information is not yet fully realized or leveraged.

Over the past two decades, data-rich companies have found their analytics teams playing the role of internal service providers. They are tasked with mining through data to find answers to particular business problems. These people – the statisticians, database marketers, modelers, programmers, market researchers and analysts of all stripes – are the people who sit between an organization’s mushrooming information sources (databases, market research studies, marketing campaign analytics, predictive modeling results … the list grows infinitely) and a business output.

But it’s no longer enough for analysts to stay within their silos of expertise and crank out analysis. The analyst community cannot measure its worth by how quickly reports are delivered, or how happy those insights make the people who ask for them. The analytics community must emerge from the service provider mindset and into one of driving business success. Analysts have the privilege and the obligation to ensure that their organizations fully leverage the power of their corporate data banks to propel the business forward.

The translation layer
For large organizations with many lines of business and deep, rich databases, making sense of information has become a business itself. What is needed now is a “translation layer” to ground businesses in fact-based decision making.

The analytics community is ideally positioned to become the translation layer. They have the skills to see the whole picture where everyone else sees only parts of the puzzle. They can provide clarity on strategic issues. But first, they need to move out from the back room and connect the dots across the business to ensure the puzzle makes sense, and how, within the context of the organization’s strategy, its data could be put to maximum use. This is when analysis evolves into insight and when businesses are able to compete on analytics.

From service provider to business driver
As data becomes increasingly central to organizations – and a key business enabler – the analytics community needs to evolve from service providers to business drivers. It is no longer enough to hand over answers to small, narrowly defined business problems. Analysts must work to become the essential “translation layer” between the wealth of an organization’s insights and profitable business applications.

Here are some ways to make that happen:

Better business knowledge
The analytics community must step outside of their silos of expertise to better understand the business overall. They need broader exposure to business strategy and priorities, business and financial performance, and market context. This means investing the time to help them better understand how the business makes money so that they are in a better position to support greater business growth and move the business forward. Investing the time to train and develop this knowledge base will change the kind of insights that are generated – and increase the value the analytics community can bring to the table.

Better return on insights
Analytics teams must align requests to the strategic priorities of the organization. They need to look both at how the business will benefit from where time is spent, and at the opportunity cost of NOT spending time in places where it will yield greater returns. Treating analytical resources like marketing dollars will help ensure wise investment.

Clear explanation of results
Analysts need to make connections across the insights team to fully understand problems and opportunities within a broad, full-picture context. They must reach out to analytical teammates (in modeling, database marketing, research, finance) to connect the unconnected. Insights must be thoroughly rendered and clear, making them easier to understand and act upon. Time must be invested for analysts to become better communicators (both written and verbal) to improve information clarity.

Moving forward
Business analytics teams love digging through data to discover statistical patterns that inform a problem. Executives are hungry for fact-based solutions to their business challenges. Follow the suggestions in this article to pair these two groups successfully – and improve your organization.

This article was republished with the permission of sascom Magazine.

About the Author

Lori Bieda is the Executive Lead for Customer Intelligence Solutions across the Americas for SAS. Prior to SAS, she was Vice President, Client Insights and DB Marketing at Canadian Imperial Bank of Commerce (CIBC) and was responsible for the creation of marketing and analytics strategy for the bank.

11 Ideas for Economic Recovery

Finding opportunity in the down economy

Pick any sector right now, and what do you see? People and businesses are looking for opportunities. What kinds of opportunities? Real estate investments, undervalued stocks, strategic partnerships, you name it. The one pervading message we’re hearing lately is that organizations are watching for the economic recovery to start soon and looking for ways to come out of this down cycle stronger than before.

One retail CTO summed it up well at a recent SAS event when he said, “We don’t want to just struggle through and be hanging by our fingertips when the economy recovers. We want to come out strong.” Thinking long-term has led this retailer’s CEO to investigate real estate purchases at lower rates and to buy up high-end equipment now while the prices are low.

Where can you find long-term strategies for your business? Consider these 11 ideas from the Radical Times Webcast series by SAS Marketing Director Jonathan Hornby:

1. Remember, recessions make us stronger. According to economist Carl Schramm, recessions are part of the normal cycle. They make us stronger and force us to concentrate on strengths. It may be survival of the fittest, but it is never too late to put your house in order.

2. Beware cascading consequences. Joel Barker, futurist and author, warns about unintended consequences. The moment a plan or initiative is executed, you get a ripple of cascading consequences – some good, others bad. Unfortunately, few organizations consider the ripple effects up front. A decision that delivers positive first-order consequences could very well lead to negative second- or third-order events.

3. Understand what creates value. Alarmingly, recession or not, many organizations destroy 400 percent of the previous year’s profit without even realizing it. Peter Turney, CEO of Cost Technology, suggests using activity-based management techniques to recognize which business activities and which customers are causing a drain on your bottom line. Once you know, rebalance or change your strategy to deliver optimum returns.

4. Improve productivity. According to productivity expert Tor Dahl, only 8 percent of what we do at work is deemed perfect from a productivity point of view. As Dahl puts it, there are various “logs” that stand between us and our objectives. Remove them and you will find more time to focus on innovation. Start by asking a simple question: What am I doing that no one in this organization should be doing?

5. Get strategic. Gabor George Burt encourages organizations to defy conventional wisdom, and then simultaneously pursue a differentiated strategy with lower costs. When done correctly, you move from a bloody red ocean of competition to a calm blue ocean of opportunity. As an example, look to the Nintendo Wii, a gaming platform that sought to attract 90 percent of the population instead of the 5 percent targeted by the traditional gaming community – all at a lower cost.

6. Innovate quickly. Joel Barker says you can innovate faster, cheaper and with less risk by developing innovations at the verge. To do this, combine two separate things to create a totally new offer that addresses an unmet need. The gift bag, which combines brown bags and gift wrap, is a great example. There are probably millions of other combinations waiting to be discovered.

7. Innovate constantly. No innovation lasts forever, says author and business advisor Geoffrey Moore. You have to understand the innovation life cycle. It starts by defining your company’s core and context – core being what truly differentiates you. With that understanding, focus on how you will continuously recycle resources from invention to deployment, management, offloading and back.

8. Be extraordinary. Kevin Freiberg has discovered that ordinary people can achieve extraordinary results. It starts by creating a culture that encourages employees to do what’s right for the customer. For one employee at Wegmans, it was about challenging what was on offer in his deli. For Southwest Airlines, it was about how they could maintain the current schedule with fewer planes.

9. Keep it simple. Author Mark Thompson would encourage you to go back to basics and give customers just what they want: simple offers that exceed expectations. For example, one-click access to thousands of mutual funds, or exceptional service for the price paid. When setting expectations, always under-commit and over-deliver.

10. Focus on return on customer. Your customers are a finite resource, says Martha Rogers, Founding Partner of Peppers & Rogers Group. If you budget and reward employees based on the long-term value of customers, you will protect your organization today and well into the future. One Canadian bank applied this thinking to bounced checks. Instead of charging “good” customers to meet fee income targets, they sent notes asking them to deposit additional funds. The propensity for that customer to do business with them in the future went through the roof.

11. Lead to breed success. According to entrepreneur Gary Hoover, there are eight keys to building success, starting with a leader’s curiosity. Study history; few ideas are truly new. Look to the founding era of your industry and identify best practices that became too expensive to maintain during the ‘60s and ‘70s. Technology can probably breathe new life into them.

This article was republished with the permission of sascom Magazine.

About the Author

Jonathan Hornby, a Senior Marketing Manager at SAS, is a visionary and thought leader in the field of performance management. His experience comes from a hands-on background within the banking sector of the United Kingdom, followed by extensive travel, dialogue, and collaboration with customers, management consultants, and respected thought leaders around the world. To read Jonathan’s complete biography, click here.

Five Steps to Resource Optimization: Any process can be improved, but it takes alignment to get it optimized

A catalog retailer wants to better manage its call centers, direct mail and e-mail channels. The millions of customers in its database represent the gamut of buying histories, buying propensities, profitability, demographics and cost to serve. Given capacity and costs for each channel, which customers should receive which offers through which channels? What will happen if you add a channel, trim budget for another or initiate a new contact policy?

A financial institution is completing an acquisition and needs to reallocate personnel across its existing branches. Given the skills, location and mobility of this work force, how should these resources be allocated most effectively?

In each case the answer is it depends. The best way to allocate resources depends on the nature of the resources, the constraints at hand and the organization’s mission.

Optimization involves designing a system or process to be as good as possible in some defined sense. Of course, it’s the “defined sense” that makes things murky. What’s optimal for you – with your goals and values – could very well be suboptimal for the next person. Every performance management paradigm, every mission statement, could point to a different definition of success – and therefore to a different way to “optimally” allocate resources.

How do you optimize resources in poorly defined decision-making environments – or in cases where scenarios are well-defined or ineffective? Effective resource optimization requires a certain rigor, consistency and agreement on processes. Whether you are developing a mathematical optimization or just trying to drive more effective and efficient use of resources across the organization, the resource optimization model should be based on the objective, decision variables and constraints.

Within this framework the purpose is to maximize or minimize, as appropriate, the performance metric in the objective by assigning values to the decision variables that satisfy the constraints. The following five steps can help you make the most of this optimization framework.

Five Steps to Resource Optimization

Step 1: Define the objective to reflect organizational mission and strategy
The resource optimization model must reflect not only the well-defined, often narrow departmental objectives but also the objectives that are most important to the organization as a whole. There also needs to be an understanding of how activities will support these objectives, and how success or failure will be measured.

Step 2. Get executive buy-in and foster accountability
It’s not enough for executives to agree on the goals, business rules and constraints, and decisions that will be made. Putting the “best” choice for each decision variable into action requires accountability and commitment from implementers and executives.

Step 3: Define the conceptual resource optimization model
To define the model, you first need to determine what input data is available. The cleaner and more accurate the data, the better. The more historical depth and relevance, the better. Next, identify variables that can actually be changed and decisions that can realistically be made in this organization within the given time frame.

Step 4. Formulate the resource optimization model
This step is the translation of your conceptual model into an analytic model with more rigor and detail, represented in mathematical terms. In this step you begin to formally code the key elements of the optimization model – objective, constraints and decision variables. There is no single “right” way to use mathematical expressions to represent the elements of a decision problem. Every formulation represents a compromise because no mathematical representation can reflect every detail of a real-world scenario. Good modeling balances realism and workability.

Step 5. Implement and update the model
Using analytical software such as SAS, build and implement the model. Its output can provide recommendations as to the best values of the decision variables to support the objective, given the constraints and data available.

Test the optimization model for suitability. Training and experience will help you to choose the best model. It’s important to understand how well the model works in the real world and to incorporate the knowledge from previous versions of the model into future ones.

Analytical models must be validated and continually updated. Best practices for resource optimization are tied to
performance management by answering questions such as: “Were recommended decisions put into action?” and “Were those decisions effective in driving improved alignment with organizational goals?” If the results were not what you would expect, revisit the model to determine whether objectives, decisions, constraints, resources and other elements are properly identified to reflect your current reality.

Commit to resource optimization
Changing conditions will warrant corresponding changes in your resource optimization models. Periodically cycling through this five-step process will help organizations highlight areas to improve as they update their models to generate insights that continue to be relevant and valuable. A commitment to resource optimization will help to ensure that your organization remains focused and productive in an ever-changing competitive environment.

This article was republished with the permission of sascom Magazine.

About the Authors

Ed Hughes is a SAS Product Manager and frequently published SAS Institute author and conference presenter. He has co-authored numerous papers including: What’s New in Optimization with SAS/OR, Exploring System Performance with SAS Simulation Studio, and Five Steps to Resource Optimization. Ed holds a Master of Science degree in Operations Research and a Bachelors degree in Mathematics.
Becca Goren is the Worldwide Marketing Manager for Communications, Media and Entertainment at SAS; driving the go to market strategy and positioning for these industries. While at SAS, she has led research studies, authored white papers, articles, and blogs and spoken on leveraging business analytics to improve performance. Becca has also acted as the product marketing manager for a wide array of technology solutions.
Mary Grace Crissey is the Analytics Marketing Manager at SAS, where she follows her passion for applying mathematics and advanced analytics to real-world challenges. She holds an MS in Management Sciences from the University of Maryland. Mary Grace holds leadership appointments with several professional societies including Knowledge Discovery and Data Mining and the Institute for Operations Research and the Management Sciences.

Eight Levels of Analytics

Not all analytics are created equal. Like most software solutions, you’ll find a range of capabilities with analytics, from the simplest to the most advanced. In the spectrum shown here, your competitive advantage increases with the degree of intelligence.

Answer the questions: What happened? When did it happen?
Example: Monthly or quarterly financial reports.
We all know about these. They’re generated on a regular basis and describe just “what happened” in a particular area. They’re useful to some extent, but not for making long-term decisions.

Answer the questions: How many? How often? Where?
Example: Custom reports that describe the number of hospital patients for every diagnosis code for each day of the week.
At their best, ad hoc reports let you ask the questions and request a couple of custom reports to find the answers.

Answers the questions: Where exactly is the problem? How do I find the answers?
Example: Sort and explore data about different types of cell phone users and their calling behaviors.
Query drilldown allows for a little bit of discovery. OLAP lets you manipulate the data yourself to find out how many, what color and where.

Answer the questions: When should I react? What actions are needed now?
Example: Sales executives receive alerts when sales targets are falling behind.
With alerts, you can learn when you have a problem and be notified when something similar happens again in the future. Alerts can appear via e-mail, RSS feeds or as red dials on a scorecard or dashboard.

Answers the questions: Why is this happening? What opportunities am I missing?
Example: Banks can discover why an increasing number of customers are refinancing their homes.
Here we can begin to run some complex analytics, like frequency models and regression analysis. We can begin to look at why things are happening using the stored data and then begin to answer questions based on the data.

Answers the questions: What if these trends continue? How much is needed? When will it be needed?
Example: Retailers can predict how demand for individual products will vary from store to store.
Forecasting is one of the hottest markets – and hottest analytical applications – right now. It applies everywhere. In particular, forecasting demand helps supply just enough inventory, so you don’t run out or have too much.

Answers the questions: What will happen next? How will it affect my business?
Example: Hotels and casinos can predict which VIP customers will be more interested in particular vacation packages.
If you have 10 million customers and want to do a marketing campaign, who’s most likely to respond? How do you segment that group? And how do you determine who’s most likely to leave your organization? Predictive modeling provides the answers.

Answers the question: How do we do things better? What is the best decision for a complex problem?
Example: Given business priorities, resource constraints and available technology, determine the best way to optimize your IT platform to satisfy the needs of every user.
Optimization supports innovation. It takes your resources and needs into consideration and helps you find the best possible way to accomplish your goals.

The best analytics for your business problem
The majority of analytic offerings available today fall into one of the first four areas, which report historical data on what happened in the past but no insight about the future. For simple business problems, these analytic solutions will be all you need. But if you’re asking more complex questions or looking for predictive insight, you need to look at the second half of the spectrum. Even better, if you can learn to use these technologies together and identify what type of analytics to use for every individual situation, you’ll really be increasing your chances for true business intelligence.

This article was republished with the permission of sascom Magazine.

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