Breakaway Now with Business Analytics and Optimization

Transcription

1 Breakaway Now with Business Analytics and Optimization Tage Domela Nieuwenhuis Business Analytics and Optimization Leader, SW IOT May 2010 Smarter Decisions for Optimized Performance

2 Agenda Why now for Business Analytics and Optimization (BAO)? How are industry top-performers able to breakaway? Where will organizations invest in the near term? What are the breakaway projects with clients?

3 Why now for Business Analytics and Optimization (BAO)?

4 Business Analytics & Optimization $105B Market Opportunity next big business investment area - similar to ERP or CRM in the past Transactional Automation Resource Planning Business Process Management Business Analytics & Optimization Task / Process Automation Recording & Reporting Business Efficiency Aggregation and Data Warehousing Cross-functional Integration Performance Measurement Enterprise Integration Detection, Direction & Prediction $566B Market Opportunity 3% CGR* $105B 8% CGR* Source: IBM Analysis on addressable market opportunity based on GMV 1H09 data; includes addressable Hardware, Software and Services opportunity. CGRs

5 Business Leaders see the need to adopt new ways of working to improve speed to insight and speed to impact 4 in 5 see information as a competitive advantage 1 in 2 can t access information needed do their jobs 1 in 3 make critical decisions without information they need Traditional Approach Sense and respond Instinct and intuition Skilled analytics experts Back office Decision Support Efficient New Approach Predict and act Real-time, fact-driven Everyone Point of impact Action Support Optimized Source: Business Analytics and Optimization for the Intelligent Enterprise, April ibm.com/services/us/gbs/bus/html/gbs-business-analytics-optimization.html

6 Intelligent Enterprises integrate information into business decisions and insight into operations Business Operations How information is applied to achieve goals Policies Biz Processes Organization Command and control Ad hoc Business Analytics and Optimization Maturity Task Integration (eg, ERP) Process Automation and Workflow Foundational Spreadsheets Extracts Business Process Integration (eg CRM) Competitive Differentiating Data Warehouses Data Governance Production reporting Information and Analytics Breakaway Pattern-based strategy Real-time analytics Integration of external collective Contextual rules Pattern-recognition Master Data Management Dashboards How the business manages information and learns from it

7 Intelligent Enterprises integrate information into business decisions and insight into operations Business Operations How information is applied to achieve goals Policies Biz Processes Organization Command and control Ad hoc Business Analytics and Optimization Maturity Task Integration (eg, ERP) Process Automation and Workflow Foundational Spreadsheets Extracts Business Process Integration (eg CRM) Competitive Differentiating Data Warehouses Data Governance Production reporting Information and Analytics Breakaway Pattern-based strategy Real-time analytics Integration of external collective Contextual rules Pattern-recognition Master Data Management Dashboards How the business manages information and learns from it

8 How are industry top-performers able to breakaway?

9 Table stakes: Key BAO skills required for value Analytical Business Processes Industry Value Analytics Customer Analytics Financial Analytics Supply chain Analytics Human Resource Analytics Business Analytics and Optimization Strategy Business Intelligence & Performance Management Functional Competencies Advanced Analytics and Optimization Enterprise Information Management Enterprise Content Management

10 Culture Top-performers demonstrate the highest levels of BAO behaviors 2X Top-performers are 2X more likely to be above average on key intelligent enterprise characteristics 1. Aware 2. Linked 3. Precise 4. Questioning 5. Empowering 6. Anticipating Achieved Exception al Levels Questioning Expertise 22X Anticipating 15X 3X Top-performers are 3X more likely to have sophisticated BAO and data governance Source: Breakaway Survey (prerelease), August Questions 8, 10 and 11. Challenge the status quo to improve the business and create new opportunities Industry Top-performers Industry Under-performers Predict and prepare for the future by evaluating trade-offs proactively

11 Priorities Industry out-performers recognize and pursue BAO much more than under-performers 50% Roughly half of companies are pursuing BAO in their business processes (e.g., Finance, Sales, Marketing) 17% Not interested in BAO at any level 8X Industry out-performers are 8X more likely to BAO at an enterprise level than industry under-performers Source: Business Analytics and Optimization for the Intelligent Enterprise, April Under-performers 2% Over-performers

12 Investments Industry top-performers have invested in BAO tools, bottom-performers have some catch-up to do Above average BAO platforms and toolsets Business Direction Trusted Information Process Integration 4.4x 2.5x 2.4x 2.7x 2.4x 2.0x 2.3x 1.6x Dashboards & Visualization Analytical & Predictive Tools Biz Rules Management Content Management Data Integration Tools Master Data Management Key: Industry top-performers (i.e., 1st quintile); Industry bottom-performers (i.e., 4th and 5th quintile) Source: Breakaway Survey (prerelease), August Questions 5 and 11. Workflow & Process Modeling Employee Collaboration Tools

13 Approach Top performers have stronger focus on target business results than on project mechanics BAO project focal points predicting top performance Culture / People Change Management Data Governance 17% 19% Business Process Change 16% Program Governance 14% Project Objectives Organizational Alignment 9% 9% Difference in focus between Top and Bottom performers Multi-phased execution roadmap Building Sponsorship Capability Assessments Funding and Budget Process Management 1% 2% 5% 7% Project Business Focus Project Mechanics Project Justification Canonical Correlation: 62% Source: Breakaway Survey (prerelease), August Questions 9 and 11.

14 Where will organizations invest in the near term?

15 Top-line focus is back and it s a global phenomena Main Business Objectives Over Next Two Years Revenue protection and growth Competitive differentiation such as innovation and deeper insight Cost takeout and efficiency Improved risk management and regulatory compliance 12% Operating enablement 10% 33% 41% 71% Source: Breakaway Survey (prerelease), August Question 2 What are the main business objectives of your enterprise over the next two years? Please select up to two. Chart shows percent of organizations selecting the objective

16 Many projects currently underway do not directly align to top-line focus Top 10 Current Projects Customer segmentation and profitability Demand forecasting and management Enterprise goal setting and alignment Budgeting and resource allocation Key Objectives Top-line focus Revenue protection and growth Competitive Differentiation Reporting & performance measurement Cost/expense management Career path and succession management Fraud and financial risk management Leadership development Channel performance Inward focus Risk management Operational Enablement Cost take-out Source: Breakaway Survey, August Questions 2, 7 and 11.

17 We predict projects will shift to better reflect near term priorities Top 10 Priorities Start Continue Reduce Focus Projects Pricing and offer strategies Branding and reputation management Product/services market selection Lead generation and pipeline management Promotion and offer management Logistics and distribution management Customer segmentation and profitability Demand forecasting and management Enterprise goal setting and alignment Budgeting and resource allocation Reporting and performance measurement Cost/expense management Career path and succession management Fraud and financial risk management Leadership development Current 2010/11 Prediction Source: Breakaway Survey, August Questions 2, 7 and 11.

18 What are the breakaway project with clients

19 Solutions for Strategic Resource/Budget Allocation Strategy Resource/Budget Allocation Customer Segment Allocation Media Allocation Geographic / Store Allocation Execution Next Best Action for each Customer Event Based Marketing Brand & Reputation Management Pricing Discount Optimization Campaign Management

20 Situation at major global electronics and appliance retailer Situation Mandated to reduce SG&A costs Commanded several hundred million dollars in advertising budget Had to cut ad dollars to match sales Challenges Didn t know which ad dollars to cut Advertising buys often had up to 18 month lead time The wrong cuts could lead to loss of marketshare or even disaster Leaving marketing decisions to experience and guestimation was too risky

21 Motivations: Preserve the brand during the recession RMI = N Investment i Demands i = 1. Saturation C Revenue Return Vector A Too few advertising dollars Optimal Region B Too many advertising dollars Advertising Cost Vector

22 Portfolio optimization: Process flow and components Customer data Customer Analytics Create demand estimation using risk reward model Make decisions on marketing capital Customer allocation Media allocation Transactional (merchandise, store, and marketing) Contact data Demographic Unstructured Social Network Internet Data Feature vectors (descriptive and predictive) Micro-clustering Discover opportunities Index creation Systematic and unsystematic demand estimates Understand which marketing programs favor or discourage cluster growth Geography and store allocation Return on marketing investment Customer allocation Strategy allocation Media allocation Geography allocation

23 Customers are analyzed on 35 feature vectors Lifetime sales RFM Tenure Days to visit Opportunity Channel position Recency Frequency Value tier Mobile Purchase driver Monetary value Holiday Payment loyalty Weekend Merch Computing services Reward Prism Residency Gender Media response Discount shopper Auido Returns

24 When aggregated, customer analytics can create paradoxes and surprises Timeless customer Responsive to traditional media High value Predictable buyer Suddenly MIA Discovered customer Nothing like the timeless Hot on social networking New approach taken by retailer

25 Results: Smarter investments Outperformed: Surplus: Culture: Outperformed industry in most critical clusters within greatly reduced budget (identified over $1B in additional revenue opportunities previous undetected). Outperformed heuristic models created by the tenured experts who used history and experience. Created a $39 MM surplus above and beyond mandated reductions (saturation estimates which were imbedded in the stochastic optimization models). Created a cultural shift towards a fact-driven organization: Company is now examining analytics for other functions such as supply chain, contracts, and other customer initiatives (extreme interactive customization).

26 Takeaways Many don t even realize that getting the facts is possible, much less how to do it Customer analytics can create paradoxes that redefine reality Becoming fact-driven requires a culture and skills shift - not just a new program or system

27 Leading American Bank The Challenge Required $100M savings due to current economic situation Focus on Cost Simplification Better Quality The Solution Links all categories of data to a single of view of the customer Saving achieved by using standardized and re-useable components (less resources and machines) Business model was self-funding Why Smarter Then moved to driving Economic Value Approach: +1$BN EVA identified Rethinking on how to use data that is now streamlined and linked Able to drive strategic priorities to: Acquire New Customers Deepen Customer Relationships Reduce Fraud Loss Manage Costs with better insights The power of a single view of the customer with Analytics

28 Leading Electronics Retailer The Challenge Mandated to reduce SG&A Costs, Committed to reduce Advertising by at least $300M Advertising Conundrum Which advertising spend to cut with-out reducing revenues The Solution Required Portfolio Optimization Approach to better evaluate risk/reward for spend Customers Analyzed using 35 feature vectors Company Advertising spend benchmarked against Industry Performance Used Analytics to predict customer spend per channel Unearthed new customers and refocused spend to this segment Why Smarter Company now outperforms industry for most clusters, with reduced spend Identified +$1B in additional revenue opportunities & exceed budget reduction goals Looking to analytics for supply chain, contracts, extreme interactive customization The power of a redefining marketing with Analytics

29 Leading Italian Retailer The Challenge Company faced severe price competition Current management and approach was leading to price reduction spiral The Solution Manage prices in a dynamic way by focusing on consumer behaviour and demand versus product costs & margins Company can now compute right price for a product based on customer-related data and simulations Why Smarter Increased volumes and increased sales margins (over 2% per year) While remaining competitive - 2 point improvement on the Competitiveness Price Index (CPI) Able to forecast outcomes of future pricing decisions with predictive analysis linked to consumer behaviour The power of a redefining pricing with Analytics

30 Large Government Benefits Department The Challenge Reduce time to process 2M claims per year and reduce backlog of 750,000 claims Reduce current administration costs of $5B as well as from payouts $105B Improve consistency of decisions to reduce number of costly appeals The Solution Implemented new process quick claims process using predicative modelling to score those likely to be approved Created capability to analyse formatted and unformatted text for each application to increase speed and quality of decision Why Smarter $2B saved on administrations costs for new and renewal claims Decrease review process from 97 days to 20 days Reduced number of costly appeals due to consistence in decision making The power of redefining benefits management with Analytics