Editor’s note: Yan Jiang (Bayer), Dr. Daniel Jonas (SVP of Campana & Schott US), Carolin Diercks (Consultant at Campana & Schott).
Data analytics is disrupting business across all industries. For most businesses, understanding consumer behaviors and needs through data is the pivotal focus to become a customer centric organization. To generate these data insights from customer behavior, companies have invested heavily into collecting combinations of data… about products, markets, demographics, and more recently real time information such as weather, time of day, personal emotions, or ‘voice of customer’ from primary research.
Just an example… Imagine sitting on a plane, flying overseas with your best friend or colleague. Now, imagine the exact same flight together with your spouse – what’s different? According to data from millions of flights, passengers are much more willing to pay for extras on board – such as better food, better seats, or better service –when flying with friends or colleagues. However, when traveling with their spouse, it is less likely that they will treat themselves to a little bit of extra comfort. As you see, willingness to spend when traveling on the same flight differs based on who one is flying with. Airlines use this knowledge for more personalized services. It’s the power of customer insight, that should be leveraged into incremental revenues or enhanced customer experience.
We have seen that data and analytics are – by far – the fastest growing functions across all industries that companies invest into. Considerable proportions of effort go into introducing and implementing new technologies, as well as building large-scaled departments of data scientists. Yet, many Insights and Analytics (I&A) departments are still struggling to demonstrate their work’s value to their business and senior leadership. Thus, driving organizations to question the actual return on investment of their I&A departments. As a result, many of them remain to be perceived as expensive cost centers, which continue to be dependent on other business units’ budget and considered merely a back-office function.
Insights & Analytics as a value generating hub
While there lie many challenges in becoming a data-driven organization, we strongly believe that only with I&A departments as a central hub of this change, organizations will truly make data-driven decisions. Insights and Analytics departments are often the units that are truly capable of understanding customer demand and needs as they are sitting at the source: data. They need to be the main contributor to drive innovation and product development through leveraging these data insights.
So why is it so difficult for organizations to recognize I&A as value generating that sets the base for customer centric decision-making and innovation? Out of our experience, a combination of three factors leads to the lack of understanding the true potential.
First, firms often employ an inefficient way of working. I&A departments lack a transparent and systematic approach to generate and drive their insights. Often, hundreds of data scientists work in myriad ways within the same department, which is why clear accountability and standardized processes are needed to accelerate data insights into impact.
Second, business units often work in silos. I&A departments struggle to show the value of growing their insights into business to brands and senior leadership. As soon as brands or business units become part of generating and validating insights across silos, more ideas will be collected, and repetitive effort is prevented. Through the collaboration with I&A teams, the revenue of the pursued insights is tracked more easily and be allocated back to the I&A unit.
Third, firms, often too easily, try to quickly link investments to short-term profitability. I&A requires strong investments, which is why it is hard for decision-makers to commit if they can’t link incremental revenues to the investment.
Think about the airline example... You now know that the average spending of a passenger is different depending on who the person is flying with. But this knowledge alone doesn’t increase revenues yet. One must evolve ideas based on these data insights and develop these to formulate and implement actions and service adjustments.
A systematic and transparent approach to validate and eventually implement these ideas is needed to prove that the investment will be profitable. From our experience so far less than 30% of potential insights are pursued further, mostly due to lacking awareness of the potential long-term impact.
A new Operating Model that is driven by Customer Insight
To shift from operating like a cost center towards operating like a business unit, the operating model must shift from ‘research-based insights generation’ to ‘customer centric value-creation’. This transformation takes time – sometimes even years, but we believe that the biggest enhancement of I&A can only be achieved by changing the mindset and the way companies operate.
What do we mean by that? Currently, the very simplified data value chain of most organizations looks something like this: