Using Big Data to Earn the Agility Dividend

 

There are patterns in the data for those who can see them and there are signals for those who can hear them. There’s a term to describe what’s happening; it’s called “Big Data”. A flood of data is filling in formerly blank spaces where we had to navigate by intuition alone. Now there is the opportunity to test our intuitions against the facts and continuously improve our intuition and our profitability. 

 

[ I do lively presentations on this and related topics – www.MichaelHugos.com ]

 

Improving Our Intuition

 

For a lot of us we have to first admit that our intuitions are often wrong. We’ve been brought up to think that the most important thing in business is efficiency and low prices. It turns out that isn’t the case so much anymore. A relentless focus on efficiency alone will kill your company. Responsiveness is more profitable than efficiency. 

 

Efficiency requires predictability and long product life cycles. Both of these are now conspicuously absent. Consider the case of a fine company that once owned the mobile phone market at the turn of the century (Motorola). This company practically invented the mobile phone and they made the lowest cost and highest quality phone on the market, and over the last ten years while they focused relentlessly on efficiency, the market left them far behind. They failed to respond to changing customer needs and desires and their phones were made increasingly irrelevant by Nokia, then the Blackberry and finally the iPhone.

 

Nobody cares about their phones anymore, even if they are low priced, and what is left of their phone business is now going to be acquired by a new company that came out of nowhere in the last ten years. This new company (Google) understands big data and how to see the patterns it contains and how to listen to the signals that come from big data. And apparently Google is buying them more for their patent rights than for their actual ability to make mobile phones. 

 

All Products have Two Components – the Product Itself and the Product Data 

 

Last week I spoke at the O’Reilly Strata conference in New York City and I presented a case study of using big data to enhance the value of otherwise commodity products (YouTube video of my talk). Several years ago I was the CIO of the company that delivered all the paper cups to all the Starbucks stores in the country. I presented a case study of how we learned to surround our paper cups with a tailored blanket of data-based value added services that increased the price we could charge for those cups. 

 

Here was a company that could buy in bulk and that had many options for buying paper cups. Yet they bought cups from us and we were not the low priced provider. We found 20 different things we could do to make our cups easier to order, easier to use, easier to pay for and easier to plan and budget for. No one of these things all by themselves was a “gee-whiz gotta have” feature, but when we put all these things together into a tailored offering and kept enhancing this offering as Starbucks’ business needs changed, we provided a compelling reason to buy from us.

 

Earning the Agility Dividend

 

We were agile and responsive to the evolving needs of a high value customer and because of that we earned 2% more than the market price on paper cups. We delivered more value than what could be gotten from a plain low priced paper cup. And on some of the other products we sold them we were able to earn up to 4% more than the market price. I call this extra profit above market prices the “Agility Dividend”. 

 

The example of the evolving mobile phone and the value-added paper cup are analogies that you can apply to your own company and the products it sells. If you use big data to study the patterns and behaviors of your most important customers you will find 20 little things you can do to make your product more valuable to your high value customers. 

 

A high value customer is someone for whom your product is mission critical to their operations. It is a customer that spends a significant portion of their procurement budget on your products. They are interested in a tailored bundle of products and services and they are open to outsourcing certain functions so they can focus more attention on their own customers. 

 

Do you know who these customers are in your business? Do you know how to find more of these customers? These are the customers that will grow your business. Find them and be agile in enhancing your products to respond to their needs and earn the agility dividend of higher gross profits. 

 

When you leverage the data component of your products to continuously respond to your customers’ changing needs you are using data as a profit generator. You are using IT as a profit center, not a cost center. This is the formula for success now (not low prices). Learn to swim in the ocean of big data and see the patterns and hear the signals. Otherwise misguided intuitions from the last century will make your products irrelevant and your company will die.

 

[ Learn more about building supply chains for profit in the newest edition of my book Essentials of Supply Chain Management.]