The Value of Business Insight
Perhaps the biggest paradox of business insight (BI) is how much value it can
deliver and how hard it can be to quantify that value. But there is no doubt that
timely, accurate information in the hands of decision-makers creates a competitive
advantage that allows organizations to outperform their rivals and create sustainable
shareholder value.
Consider these three findings from a recent IDC study investigating 43 companies that recently completed a business insight project:
- Return on investment: BI projects yielded an average five-year return on investment (ROI) of 431 percent and a median five-year ROI of 112 percent.1
- Payback period: Nearly one-half (49 percent) of those studied had a payback period of less than one year.
- Analytics: The best results are achieved when analytics accompany business
process change. Each case had a strong business process focus in one of three
areas:
- Operational and production analytics (related to the production or delivery of a product or service) showed the highest return, with a median five-year ROI of 277 percent;
- Financial and business performance management analytics had a median five-year ROI of 139 percent; and
- Customer relationship management analytics had a median five-year ROI of 55 percent.
Laying the Foundation
Despite the significant financial impact of business insight programs, many companies struggle to express the benefits through an explicit, tangible business case. Frequently, executives elect to forego developing a business case at all, leading to ill-defined benefits and difficulty in holding stakeholders accountable for results. Worse, senior management loses visibility for high- priority initiatives.
In addition to a robust business case, companies also need a rigorous process to realize the benefits of business insight to avoid delaying or missing them altogether. Though only 31 percent of organizations recently studied by the Accenture Institute for Strategic Change actively track the expected benefits for large initiatives, these organizations achieved benefits significantly earlier than those that did not actively measure or capture them.2 Likewise, 65 percent of the organizations studied held a dedicated individual responsible for realizing benefits.
It is also important to consider benefits as broadly as possible and to commit to specific revenue enhancements or cost reductions resulting from better information. While gaining this commitment can be challenging, quantifying the value drivers through a business case equips leaders to strategically allocate resources and prioritize change programs. Specific value drivers also highlight key benefits that are often not formally quantified.
Granted, some areas are simply harder to quantify than others. One example is the difficulty of measuring the effectiveness of marketing expenditures. Building a case that supports the idea that better marketing information can increase sales is challenging. In a similar vein, qualitative benefits can be as important as financial impacts.
Pinpointing Value
With these challenges in mind, Accenture created a structured approach to business case development to help ensure that BI initiatives realize their potential benefits. The framework is based on our inventory of more than 40 distinct drivers that represent potential sources of value resulting from enhanced BI capabilities. Some of these drivers are qualitative, but most can be quantitatively measured. We then segmented the value drivers into four groups: revenue and cost of goods sold (COGS); sales, general, and administrative expenses (SG&A); capital; and qualitative enablers (see Figure 1).
Figure 1: Value Drivers Framework
Revenue and COGS
These drivers can help increase top-line growth as well as improve gross margins in a variety of target areas.
Typical revenue value drivers include: optimized price; optimized volume and mix; enhanced revenue assurance; better allocation of sales and marketing resources across product and market segments; identification of attractive market segments and product opportunities; increased ability to cross-sell to target customers through improved customer segmentation; channel partner optimization; enhanced post-sales support; and increased customer retention rates.
Similarly, the impact of a business insight capability on COGS also yields quantifiable benefits. These include: reduced material net landed cost; improved raw material yield; accurate sales forecasting; improved logistics management; and optimized customer service costs.
Accenture teamed with Unilever to implement a BI solution targeting these areas and helped the company achieve substantial benefits. Goals of the program included:
- Using the supply chain to generate €2.1 billion in annual savings;
- Acting as one company in dealing with its most strategic global customers; and
- Focusing the brand portfolio by managing brands globally and more effectively and by concentrating on fewer global and premium brands.
Working closely with Unilever, Accenture designed a global data warehouse that integrates disparate data sources and provides a single, uniform tool for growth. The system now gives all of Unilever's managers worldwide access to a single, consistent source of information to drive more informed decisions throughout the company.
SG&A
Business insight capabilities drive bottom-line benefits through more efficient and effective SG&A spending. Some common SG&A drivers include: reduced maintenance, repair, and operating (MRO) costs; increased finance function efficiency; enhanced salesforce effectiveness; robust cost control programs; improved IT effectiveness; reduced effective tax rate; reduced tax interest and penalties; reduced foreign exchange exposure; and improved cash management and treasury management.
To facilitate more strategic SG&A spending, a Fortune 500 energy products and services group partnered with Accenture to find new ways to transform its tax function. The program is expected to achieve annual global savings and risk mitigation totaling $200 million and strengthen the organization's overall tax position.
Capital
Some of the drivers that increase the effective and efficient deployment and use of capital across the enterprise include: improved capital allocation effectiveness; increased asset and labor utilization; stronger fixed asset management; and lower total cost of ownership for fixed assets.
In the area of working capital, value drivers for business insight include: stronger inventory management processes; better vendor payment terms; improved accounts receivable management; and enhanced credit management processes.
Accenture collaborated with Earthgrains, a $2.6 billion bakery products unit of Sara Lee, to develop and implement BI capabilities that built on the company's recent investment in SAP.3 The solution increased the availability, timeliness, and quality of information to enhance the organization's decision-making process. These changes transformed Earthgrains' transactional data into business knowledge and improved the company's overall financial performance.
More effective use of transactional data has meant fewer disputed invoices and fewer invoice deductions, resulting in a savings of more than $4 million annually.
Earthgrains also was able to take advantage of dimensional profitability analysis to identify low-margin customers and products. Based on increased visibility and understanding of Earthgrains' profitability, the company was able to increase operating profit by 50 percent in the first year through changes to its product portfolio and go-to-market strategy.
The knowledge gained from transactional data also has helped the company redesign fundamental business processes. For example, Earthgrains is now using data from grocery retailers' inventory control systems in combination with historical stock-out data to design a new vendor-managed inventory process that will dramatically change its relationship with retail grocers.
Finally, new insight has allowed Earthgrains to centralize and standardize its accounts payable process and achieve greater efficiencies. This move increased the company's working capital by more than $40 million almost immediately, partially funding the company's strategy to acquire additional bakeries.
Qualitative Enablers
Although many of the benefits that BI solutions bring to a company are quantitative in nature, qualitative drivers also deliver considerable value, such as:
- Stronger support for transformational programs;
- Improved planning and forecasting accuracy;
- Stronger internal controls;
- Timely and accurate financial reporting;
- Stronger linkage of strategies to performance management and rewards processes;
- Faster reaction time to competitive threats;
- Quicker response time to subpar performance;
- Increased investor relations effectiveness;
- Improved ability to handle greater business volume;
- More intuitive and easier-to-use systems; and
- More effective research and development.
Mapping a Strategy
Once the value drivers have been identified, the real work of building a business case begins with a methodology to analyze the benefits.
Identify Value Drivers
- Identify current pain points.
- Define the target audience for new capabilities.
- Formulate the end-state vision.
- Articulate features of new business insight capabilities.
- Define key value drivers for new capabilities.
Determine Data Requirements
- Identify the functional and organizational scope of the business case.
- Define the data elements required to define "as is" and "to be" comparisons.
- Identify sources of key information.
- Formulate a strategy to address key data sourcing issues.
Define Baseline and Assumptions
- Quantify "as is" full-time employee and process costs.
- Define and quantify historical trends of target key performance indicators.
- Evaluate current qualitative capabilities.
- Define key business case assumptions, such as weighted average cost of capital (WACC) and tax rate.
Identify Quick Wins
- Evaluate the sequence of capability rollout.
- Identify quick-win candidates.
- Prioritize quick wins based on probability, timing, and size of quick wins.
Quantify Benefits and Define Success Measures
- Formulate implementation scenarios.
- Define critical success factors.
- Define qualitative capability.
- Develop range estimates for quantitative benefits.
Conclusion
More timely and higher-quality information in the hands of all who need it translates into better, faster decisions and a markedly stronger competitive advantage. For one company alone, Accenture was able to show that business insight capabilities will conservatively generate $20.5 million by promoting growth, cutting costs, and enabling future strategic initiatives that rely on the availability of consistently defined information and data.
A well-planned BI initiative that is suited to your organization's goals and needs can contribute significant bottom-line value and sustained shareholder value. As with any new initiative, however, a robust business case is essential to understand what benefits you stand to gain and, most importantly, to successfully achieve them.
