BI or bust?
No business can escape this economic turmoil unscathed, but such a climate will bring fresh opportunities to some. What does it take to be a winner in the current economic climate? Recent research conducted by the Aberdeen Group attempted to answer that very question.
Aberdeen surveyed users of business intelligence (BI) software to understand what relationships—if any—there were between business performance since the start of the economic recession and their use of BI. To do that, Aberdeen collected data from more than 250 different organizations. Based on the performance of organizations against three key metrics, Aberdeen split all survey respondents into three groups, called "best-in-class" (top 20 percent), "laggards" (bottom 30 percent) and "industry average" (the remaining 50 percent). We refer to that as the "maturity class framework." After the breakdown is complete, it’s possible to gain deep insights into which technologies top-performing companies (best-in-class) use, and how they apply them differently than the other enterprises (industry average and laggards).
So what were the three metrics we used to gauge business performance? The first was the change in operating profits since the start of the recession (which we fixed at September 2008). That provides an insight into a firm’s immediate health; a big drop in profitability in a short space of time is something every company would find a challenge to survive.
The second factor we used as a performance characteristic that is often more deeply ingrained in an organization’s DNA: customer retention. That provides a better indicator of a company’s long-term ability to survive if the immediate storm can be weathered.
The final metric measures the degree of penetration of business intelligence into the work force. Figure 1 at http://www.kmworld.com/downloads/57555/BICharts.pdf) shows shows how the performance of survey respondents compared, based on those three metrics.
Aberdeen’s survey showed that companies that are doing well during the recession are dealing with different problems than the companies that are struggling (Figure 2, http://www.kmworld.com/downloads/57555/BICharts.pdf). Best-in-class organizations are challenged to raise output, while simultaneously managing pricing pressure from their customers. At the other end of the spectrum, laggards and industry average companies (shown collectively as "all others") are dealing with falling sales revenues and the cost cutting that almost invariably results. For example, laggards have seen their sales revenue fall by 10 percent, while industry average companies have seen their sales drop by 4 percent.
With the economic downturn, most companies have two critical problems they need to manage if they are to survive. They need to maximize the revenue they get from a declining number of sales opportunities, and they need to simultaneously cut costs. They must wring every possible dollar, from every possible sales opportunity. They need to ensure that the money they spend on marketing is actually an investment and not wasted on activities that don’t drive sales. What’s clear is that best-in-class companies are already much better at doing that than other companies are.
First of all, best-in-class have a deeper understanding of their sales and marketing performance and their sales pipeline (Figure 3-download chart at: http://www.kmworld.com/downloads/57555/BICharts.pdf). The sales pipeline (or sales funnel) is simply the set of sales opportunities that the firm is actively working on at any given time to generate income. As sales are won or lost or as new opportunities are discovered, the exact contents of the pipeline are constantly in flux.
Best-in-class companies indicate that they are almost a third more likely to track their pipeline rigorously than laggards are (79 percent vs. 60 percent). Even basic monitoring would enable executives and managers to gain insight into several key characteristics of the sales pipeline that would help them maintain company performance. Those include forecast revenue by month, the number of opportunities at each stage of the pipeline as they flow through the organization, and the average length of the sales cycle.
More advanced capabilities would include the ability to assess the quality of leads entering the pipeline, changes in the average duration of each stage of the pipeline so that roadblocks can be identified and removed, and the ability to be alerted to any sales opportunity that had not progressed or been updated for a specific period of time. A powerful BI solution provides compelling insights into the pipeline. Deep analysis with just a few mouse clicks ("slice-and-dice") is possible, so that managers can see forecasted revenue by product, sales region and individual sales executive. With insights like those, management can quickly identify if a particular product is no longer competitive at its current price, or if sales opportunities evaporate because the quality of product demonstrations delivered by sales staff doesn’t cut the mustard—for example.
Is marketing an investment or just a cost?
Related to analysis of the sales pipeline, linking sales revenue to "marketing spend" is another capability where there is a big disparity between the most successful and the least successful enterprises. Best-in-class companies are 42 percent more likely to be doing that compared to laggards. With few sales opportunities around, the need to ensure marketing spend is as productive as possible has never been greater. Productive marketing expenditure needs to lead to—or influence—a sales opportunity in some way.
It’s impossible to know if marketing spend is productive unless sales revenue can be connected with marketing expenditure—or at the very least, to marketing touches. (A marketing touch is any time that a possible buyer meets with someone from the selling company or is exposed to some kind of advertising message.) Most of us are exposed to hundreds of marketing touches every day—such as a TV advertisement for an iPhone. We aren’t even aware of most of those marketing touches, and most of them don’t influence our behavior as buyers in any way. As John Wanamaker famously said, "Half the money I spend on advertising is wasted; the trouble is, I don’t know which half."
In many firms, marketing is frequently seen as an easy target when cost cutting is required—precisely because the value of much marketing spend cannot be quantified. Yet, being able to link marketing expenditure to sales enables judicious cost cutting without hurting the close rate of sales opportunities already in the pipeline—or inhibiting the organization’s ability to create high-quality sales leads in the future. Marketing expenditure is definitely necessary for most companies—it would just be nice to know which half is wasted so that management can do something about it.
With insights into which products reap the most revenues, which market segments experience the shortest sales cycle and which markets have the fiercest competition, enterprises are able to focus on core markets, and cut or delay investment in less lucrative areas. Those are all key factors to help maintain profitability when faced with increased pricing pressure. Lacking such information, organizations are unable to target their marketing spend effectively and focus their sales teams.
It’s true—cash is still king
It’s an old cliché: Cash is king. But during the current economic downturn, many of the other key disciplines demonstrated by best-in-class organizations are focused on managing cash. That is, how quickly and reliably they can receive payment from their customers, and how well they can control spending with their own suppliers. Best-in-class companies prevail in their ability to monitor receivables—money owed to them for products and services already delivered. Keeping a tight rein on receivables can ensure that tardy payers do not starve the organization of precious cash. Eighty-two percent (82 percent) of best-in-class companies do that, compared to 75 percent of industry average firms, and only 68 percent of laggards.