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Data Science Monetization: Focus on Innovation, Not Effectiveness | @BigDataExpo #BigData #Analytics
How does an organization avoid the 'Cost Cutting Death Spiral'?
By: William Schmarzo
Aug. 28, 2017 02:00 PM
Data Science Monetization: Focus on Innovation, Not Effectiveness
“I have over 1,200 Data Analysts, so we have it nailed.”
When I heard this being uttered by the head of their “analytics” group, I knew the meeting was over. I knew that I could safely close my laptop, put away my notebook, and gracefully thank them for their time.
It didn’t matter that others in the room didn’t agree with that assessment. It didn’t matter that others could see the benefit of a “think differently” collaborative engagement with key business stakeholders in envisioning how to broaden the organization’s thinking with respect to the how to leverage data and analytics to power the business. Nope, their analytics leader made the statement with such authority and confidence that any further conversation was just going to frustrate both him and me. He already had all the answers, even to problems that had yet to be discovered. Yep, time to head to the nearest Starbucks!
However, as a customer of this company I know that the real story is quite different. As a customer, there are many things that frustrate me when I engage with them:
But probably my biggest issue is the uninspired loyalty card experience. They have 15 years of my product purchase details: what products I bought, how many I bought, what prices I paid, with what other products, using what coupons or discounts, at which stores, on what times and days of the week, etc. But my customer experience is anything but highly personalized. I am constantly being offered coupons on products that I would never buy (stop with the canned vegetable coupons already!); there is zero creative use of the information that they have AND that they could have about my buying preferences, tendencies, inclinations, behaviors, interests, passions, associations and affiliations…ZERO!
And my experience with this company is confirmed by their stock performance the past year (see Figure 1).
Figure 1: [Omega] Stock Price Performance (company in blue)
From Figure 1, one can see that while the market (both the Dow Jones and the S&P 500) have grown at an over 20% rate the past year, this company’s stock value is down over 16%.
So here’s my question to this executive with the over 1,200 data analysts:
What the heck are you doing with all those data analysts? With that much data analytics capabilities, how are you measuring your impact on the business?
As you could suspect, I have an opinion…
You Can’t Grow by Shrinking…
A company misses their revenue numbers (again) and senior management does the only thing it knows how to do: focuses on reducing costs. So senior management does the following: lays people off, offers early retirement, off-shores and/or out-sources select operations, delays vendor payments, negotiate onerous terms with its suppliers, sells off parts of the business, cuts the marketing budget, etc.
Unfortunately, this only acerbates the revenue generation problem by sending companies into the “Cost Cutting Death Spiral” because this is what really happens:
You hear comments like “we’re trying to buy time while we right the ship,” but unfortunately these actions ultimately decimate the revenue growth capabilities of the organization. It is equivalent to having the flu, and selling your brains, heart and lungs to “buy you time while you get healthier.” That’s the “Cost Cutting Death Spiral”
Focus on Innovation, Not Paving the Cow Path
Which brings me to the below quote from Bertrand Russell.
“In all affairs it’s a healthy thing now and then to hang a question mark on the things you have long taken for granted.”
I take the “Bertrand Russell Principle” (I just came up with that principle) to mean that instead of just accepting long held beliefs about the way that things operate (like massively cutting costs when revenues and/or profits dip), in its place question or challenge these beliefs.
For example, instead of focusing on taking costs out of marketing at a time when your company probably needs marketing the most, in its place focus on driving more revenue from your marketing capabilities. This might lead to some creative use of your marketing capabilities, such as
Yea, we could go on for hours brainstorming new ideas when the focus is on driving revenue and not simply on removing costs.
Data Science Monetization Summary
“The best way to assess the impact of radical technological change is to ask a fundamental question: How does the technology reduce costs?”
Sorry, but again that’s the wrong question. Focusing on reducing cost just leads organizations to focus on “paving the cow path” – to take costs out of processes that may have been developed decades ago when data and analytic capabilities were limited. Instead, I’d recommend a different question:
“How effective is your organization at leveraging data and analytics to optimize key business processes, create new monetization opportunities and drive a more compelling customer experience?”
An IDC white paper titled “IoT and Digital Transformation: A Tale of Four Industries” states that by 2018, “33% of all industry leaders will be disrupted by digitally enabled competitors”
Figure 2: Digital Business Model Disruption
How do you avoid being one of the 33%? Focus on innovation, not on “Paving the Cow Path.” Instead of focusing on trying to take costs out of your processes, instead focus on increasing the effectiveness of those processes to drive new revenue opportunities. Focus on leveraging data and analytics to create new revenue opportunities and new business models. Look how a company like GE Aviation is leveraging their data science capabilities to create new monetization opportunities, such as services around engine maintenance, fuel efficiency, flight disruption management, and plane and crew utilization.
Focusing on cost savings only leads you to the “Cost Cutting Death Spiral.” You can’t grow by shrinking.
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