Analytics Unlock The Secrets To ROI

Jay Slade is up to his ears in data. As RBC Investments’ manager of customer intelligence and analytics, he has at his disposal millions of data items about the brokerage’s clients, from their portfolio size to the length of time they have dealt with the company.

Each item, on its own, is interesting.

Together, massaged by analytic tools, they paint a picture of RBC’s clients that allows it to accurately segment and serve diverse groups more profitably.

“”This is what happens when you get segmentation, customer profitability, the ability to slice and dice at a detailed level right down to granular transactions, in a common environment,”” he says. “”If you can put all that into one analytical environment, it gives you a lot of flexibility to target who you want to target for whatever purposes, whether that be a predictive model for one particular product or some sort of value-based segmentation for some sort of pricing or fee arrangement.””

The analytical environment from the SAS Institute that RBC uses cost comparatively little, Slade notes, yet in conjunction with marketing, its impact has been significant.

That’s something that more and more companies are discovering. Analytics are hot. In fact, the worldwide analytics software market, according to IDC, will reach over US$4.8 billion in 2007, with compound annual growth rates in its three sub-sectors (customer relationship management analytics, financial analytics/business performance management, and operations analytics) of between 7.4 and 12.9 per cent. CRM analytics are leading the charge.

“”Analytic applications are the best means of navigating from data to decision-making and action,”” says Bob Blumstein, research director for IDC’s CRM analytics and marketing applications research. “”As companies adopt these applications to enhance the effect of finance, customer relationship management (CRM), and operations, they will gain a distinct competitive advantage over those companies that tolerate traditional inefficiencies.””

Almost 40 per cent of North American companies surveyed by IDC have already installed business intelligence (BI) analytic tools, and another 11 per cent are planning to do so within the next year. Nearly two-thirds of large enterprises have, or are planning, these solutions.

“”End-user organizations are implementing BI solutions to consolidate and analyze raw data and transform it into conclusive, actionable information,”” says Lucie Draper, IDC program manager for enterprise technology trends. “”BI implementations allow companies to spot trends, enhance relationships, and create new sales opportunities for their business.””

Slade’s use of analytics reaches right into RBC’s operations, helping investment advisors set fees for services and develop new marketing campaigns. But is the return on investment quantifiable? It is, according to Slade, who says “”I have an exact number, but I can’t tell you.””

Forty-three other companies in a 2002 IDC study, The Financial Impact of Business Analytics, could and would quantify their ROI. Ranging from under 20 per cent to more than 2,000 per cent, their average ROI from analytics was a whopping 431 per cent. And one of Slade’s competitors, CIBC, achieved an estimated 300 per cent return on its analytic investment on one project alone.

Analyst Jasmine Noel, partner at Amherst, N.H.-based Ptak, Noel and Associates, approaches analytics’ contribution to achieving ROI from a different tack.

“”I’ve heard the phrase used in a lot of ways,”” she said. “”Business analytics can be used to talk about data warehousing types of tools, where you have a huge set of information about customers and you’re trolling through it to detect buying patterns: you know, whether the colour green is popular this year so we should make everything green.””

That’s probably the functionality most people associate with BI analytics, but Noel sees a wider scope.

“”Then there is business analytics in terms of, how do I measure what I’m doing internally? Are my processes working the way they should be working? Is my IT infrastructure aligned with my business goals? How do we measure that?””

How indeed. She says it’s something IT is still struggling with. “”That’s a really, really new area for IT and for IT vendors. People I talk to are trying to build tools from the bottom up, monitor everything in the universe and dump it into some sort of database, and try and do some reporting on how it’s being used and what their resources are, where they’re being used.””

It’s something of a sledgehammer approach, but important because, says Noel, “”It’s looking at IT as if it is a business. Getting at that kind of question, that’s how you get the ROI. If we can actually get the information on our IT resources at that kind of level, we would see costs go down dramatically. Analytics are getting people to the point where they can get that type of information so they can make better decisions at a corporate level.””

Yet surprisingly, despite huge IT investments, only four per cent of the total ROI for projects examined in IDC’s study came from technology savings. The big hits were from two areas: productivity benefits, at 42 per cent, and business process enhancements, at 54 per cent.

Those productivity benefits included actual increases in efficiency, plus any resulting staff reductions and redeployments, while the business process enhancements ran the gamut from management activities to core competencies and enabling processes – in other words, any savings attributable to changes in processes supported by the analytic application.

Spending big bucks is not necessarily the way to go, either. In IDC’s study, the companies that spent the most on their operations/production analytics systems achieved the lowest ROI, while those spending relatively little topped 1,000 per cent.

Analytics continue to make their way into a broad variety of companies. The Dow Chemical Company, for example, has implemented analytics to help it get a handle on its operational costs. This, says Mike Costa, the company’s senior director of information systems, lets the company streamline and manage its resources.

In a more concrete operational example, the United States Postal Service employed analytics to look at usage of its point-of-sale terminals. It discovered 1,500 terminals, with a cost of about US$9 million, had not been turned on, even during the busy holiday season. Instead of buying new terminals for other locations, it redeployed these units.

Even companies with IT–oriented products are benefiting from analytics in their operations. Deltek Systems, a provider of enterprise software and solutions for project-based businesses, turned to Cognos to help it pull together data from its many information systems, and even sent out alerts when operational events occur.

“”IT is the shoemaker’s child,”” Noel notes. “”It has spent a lot of time implementing analytics for business units, but no one has implemented them for IT.””

IDC says the concern for IT managers, therefore, is to ensure that the accountability for the 96 per cent of benefits that are out of their control is in the appropriate place.

Despite this, it concludes that “”analytic applications overall do promote more effective action, facilitate process improvement and increase productivity. Regardless of the type of analytic application being deployed, from manufacturing quality analysis to financial planning or marketing campaign management, a majority of organizations achieved rapid or reasonable payback.””

“”Analytics is the next evolution of IT,”” says Noel. “”Everyone will be getting into the game sooner or later.””

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Lynn Greiner
Lynn Greiner
Lynn Greiner has been interpreting tech for businesses for over 20 years and has worked in the industry as well as writing about it, giving her a unique perspective into the issues companies face. She has both IT credentials and a business degree.

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