Your organization is not functioning in isolation. It functions within an economy, industry, and geographical area that influence the opportunities and challenges it faces. To be effective, it is essential to be able to diagnose accurately the cause behind the symptoms of any hardship. Thus, it requires a macro or “big picture” perspective of the market served, as well as a closer inspection of the microfactors unique to the business or niche within which it operates.
In-depth market knowledge provides value in three important ways:
1. Accuracy: Fact-based data analysis means you are able to make a well-informed decision. When speaking to business leaders, I ask how many of them have a template or standard for evaluating opportunities for their company or division. Usually one or two will raise his hand. The rest rely on gut instinct and guess work. There is always room for experience to serve as a guide and for anecdotal information to provide context about the business and market you serve. However, it is wise to lace decision making with a heavy dose of reality. You may be surprised how often perception and facts don’t align.
A game-changing business principle called quantum profit management is helping to do that in the important area of customer profitability. Most businesses manage by the numbers, but often at the macro level. It is in being able to break down the data into microanalysis that provides the insight to win the game of business. Statistics that showcase which products, customers, deals, and markets are profitable can help companies leverage strengths and manage weaknesses.
2. Objectivity: Using facts also removes some of the emotion from decision making. Rather than having a lively debate about what is or is not true, using data can make the picture much clearer in terms of defining historical trends, identifying issues or topics that are most important to focus on, and aligning the management team where they can make the most difference. Through data analysis as preparation for strategic decision making, executives can start on the same page, reading the same facts, and come into the process with a common understanding of the challenges that need to be addressed and the opportunities that need to be explored.
When I work with clients we always begin with discovery, pulling together all kinds of important company and market information. We slice and dice data in ways that many of them haven’t before, such as analyzing customer profitability, productive product bundles, shifts in product costs, and understanding competitors through the customers’ eyes. This accomplishes several things: it identifies what they need to know that they don’t; it allows everyone to see data they don’t normally see, and it ensures the data is top of mind in the discussion and decision-making process.
At the beginning some clients feel that they already know all they need to know by virtue of a lifetime in the industry. In reality, augmenting experience with facts often uncovers some important challenges and opportunities that heretofore had gone unrecognized. It is in the process of learning together about the business from a market perspective that establishes the range of opportunities available, and these are often things that might not have been considered without a fresh look. Rarely do leadership teams take the time to evaluate the business in detail as a group. Looking at the same data independently doesn’t accomplish the same benefit as the group seeing the information through each other’s eyes.
Using fact-based information shared through everyone’s perspective can discover millions of dollars of opportunity. For example, a major publisher gathered the leadership team around the table, which included the VP of Sales, as well as the lead account manager. In the course of conversation around key customers, including both individual customer profiles as well as across-customer similarities, the account manager shared the most profitable contract ever written. The Sales VP was astonished. He had no idea that this particular customer was the most profitable. The account manager went on to say that it was also the most preferred contract by most customers but it was one they didn’t use regularly. Sales did not know that these particular terms were the most profitable. In one afternoon of cross-functional discussions the organization discovered a significant gain in profitability easy to achieve by renegotiating existing contracts—easy to do because the customer preferred the new one. In short order, a million dollars was made as they corrected contracts for key customers that were a win-win for both parties.
3. Confidence: Hard data increases the confidence of decision makers, increasing the likelihood of making important game-changing investments, as well as staying the course on strategy and large growth projects. Basing decisions on factual information minimizes the second-guessing that so often accompanies a high-stakes business decision. When the path of implementation becomes difficult, and it most assuredly will from time to time, the group is much more likely to be committed to the journey if it was carefully researched and analyzed.