Recent research that I have read suggests that there is still a lot of confusion and questions about Integrated Business Planning (IBP) analytics. Questions like “what does predictive analytics really mean and what is its actual business value?” This is completely understandable given the amount of attention this subject is getting in the media. Let’s demystify the industry buzz using an analogy, your health!
There are multiple forms of IBP analytics: Descriptive, Diagnostic, Predictive and Prescriptive. Here are two situations that are offered to help explain the purpose and value of each one:
- Doctor – you go to your Doctor because you have had a sharp pain in your left arm several times this month. We will label this situation with the abbreviation (DR).
- Business – you have a problem with the profits being generated by a business unit. Sales (top line) growth is up but profits are down. We will label this situation (BU) for Business User.
The following compares how each form of analytics can be sequentially used to support your personal health as well as the profitability of your business:
Descriptive Analytics (what is the problem)
- (DR) – Analysis of the test results shows that you have a 50% blockage in part of your left coronary artery
- (BU) – Analytics show that for the last 4 quarters over 22% of your customers have consistently been unprofitable
Diagnostic Analytics (what caused the problem)
- (DR) – The reason for this extensive blockage is a buildup of plaque in the circumflex artery that is a result of a lack of exercise and a poor diet
- (BU) – These customers have been consistently unprofitable because of the discounts they receive and the cost to service their orders
Predictive Analytics (what impact will continue if the problem is not addressed)
- (DR) – If you don’t exercise and change your diet, then there is a 90% chance you will have a heart attack in the next two years
- (BU) – If a changes are not made to these customers’ discount structures and how we handle their expedited orders, profits will continue to plunge next quarter
Prescriptive Analytics (what solution steps need to be taken to address the problem)
- (DR) – Based on current research of different scenario results, your best option is to do aerobic exercises for one hour, 3 times a week and to reduce the amount of fat in your diet by one half
- (BU) – Looking at different options considering the various order mix patterns for these and other similar customers, the best strategy is to implement a revised discount structure and different guaranteed service commitments to make these customers profitable
Monitoring Analytics (what were the results of implementing these solution steps)
- (DR) – The new test results indicate that your artery blockage is almost completely gone!
- (BU) – This quarter’s performance shows a reduction of total unprofitable customers to a level under 7% and a quarterly earnings increase of over 9%!
Most companies do some form of analytics today and I hope that the analogies offered above bring clarity as to how you might expand your current and/or future applications to help drive performance improvements. Regardless of where your company is in the “analytics journey”, three things are very certain:
- There will be an ever increasing amount of data that can be used to add value if you learn how to master that data to create “One Version of the Truth”
- The sequence of how you apply your IBP Analytics is critical and will determine how you build knowledge and reduce “analysis paralysis” to drive meaningful results as quickly as possible
- Your IBP analytics should be designed for cross-functional business use to maximize the value you gain from those insights
Integrating these considerations in your analytical plans will minimize the possibility of having an organizational heart attack. Your business will be stronger and healthier and your shareholders will be continually pleased with a positive growth in quarterly earnings!
I would love to hear your thoughts.
All the best,
Richard Sharpe is CEO of Competitive Insights, LLC (CI), a founding officer of the American Logistics Aid Network(ALAN) and designated by DC Velocityas a Rainmaker in the industry. For the last 25 years, Richard has been passionate about driving business value through the adoption of process and technology innovations. His current focus is to support CI’s mission to enable companies to gain maximum value through specific, precise and actionable insights across the organization for smarter growth. CI delivers Enterprise Profit Insights (EPI) solutions that enable cross-functional users to increase and protect profitability. Prior to his current role, Richard was President of CAPS Logistics, the forerunner of supply chain optimization. Richard is a frequent speaker at national conferences and leading academic institutions. His current focus is to challenge executives to improve their company’s competitive position by turning enterprise wide data from a liability to an asset through the use of applied business analytics.