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The Value FactorHow Global Leaders Use Information For Growth And Competitive Advantages
By Mark Hurd Lars Nyberg
Bloomberg PressCopyright © 2004 NCR Corporation
All right reserved.
Capitalize on Your Information
Have you realized the full value of the most important resource in your company?
We operate in a fast-changing global business environment. As Mark Sievewright, President and CEO of TowerGroup says, we're all short on time now and the time deprivation means companies need to adapt to new and different ways of interacting. Staying ahead of the competition is only getting harder. The tipping point between success and failure is a razor's edge, the thinnest margin between winning and losing. Build a better widget. Our competitors can copy and improve on the widget before we even begin to capitalize on our edge.
We need to extract more value from what we have. How do we do this? Cutting costs is a double-edged sword. We need to be lean to succeed. But we need to invest to innovate, to evolve, to compete and to lead.
Klaus Schwab, President of the Davos World Economic Forum, observed recently, "We have moved from a world where the big eat the small to a world where the fast eat the slow."
So, we need to change the rules. What is the only thing Ihave that my competitors do not have? What can I invest in that my competitors cannot replicate? The answer-information.
Build a quieter washing machine, a smoother running car, a more comfortable plane or a faster package delivery service. A quality product is the table stakes. Our competitors can copy us. Virtually every industry is commoditizing. As much as we'd like to believe that our product is superior and unique, the reality is that the differences between one product and a competitor's is a nuance a customer may not even discern. But if we use the information we have that our competitors don't have to enhance the value proposition for our customers, then we have something competitive for the long term.
Turn the tables for a minute. As a customer, is it worth something to us that a company knows us? Of course it is. If an airline remembers we like window seats and are vegetarian, it is of value. If our bank's ATM knows how much we habitually withdraw from which account, bypasses the standard string of questions and instead asks immediately if we would like the "usual," it is of value. We don't go to the corner diner for the best food. We go because they know us and we don't even have to look at the menu. And "customer" does not just mean the end consumer; it is every partner or supplier a company deals with up and down the supply chain. If a company knows how many tubes of its toothpaste are selling at the stores it supplies and it can avoid stock-outs, that information is of value. If a company understands the maintenance cycle on its planes and their parts suppliers can coordinate more tightly with its needs, it is of value. The value of knowing our customers rolls up from the corner diner to the largest corporations.
We can already own and easily store the information we need. All the data is there for our collection. If we're not collecting and analyzing all the information we can, the competitive gap will only widen. In many industries data volume is doubling every eight to twelve months. The accretion of data increases exponentially every year. We are in an information age. Not only because of the Internet and the proliferation of media sources, but because every company is an information company now. The single fastest growing resource in every business is data. The wealth of information at our disposal grows every day. We can, in fact we have to, take advantage of its extraordinary value.
Five major forces drive this phenomenon:
Increased granularity in customer and transaction detail
Cumulative volume of historical data
Access to a broader range of demographic data
Addition of new clickstream data
Mergers and acquisitions
Growth and Value
The sheer volume of data at our disposal can either bury us or propel us. It's our choice. To ignore our data resources is fatal. Truly sustainable growth is only possible if we are able to leverage resources more efficiently in order to make better decisions faster and less expensively. Productivity, return on investment, operating efficiency, or whatever name we choose to call it, needs to increase by orders of magnitude. To maintain a competitive edge requires constant, geometric productivity increases. Increases only achievable by unlocking the value of our information capital. Information-clean, correct, complete, up-to-date data-needs to be immediately and readily accessible to those who need it most, when they need it. Only then is the competitive productivity gain assured.
Bank of America
As early as 1989 Bank of America envisioned the day it would operate based on a single version of the truth. Instead of wasting time sorting through multiple sources of data, Bank of America envisioned using information as a new engine of growth. As the company moved from an acquisition orientation to a growth orientation, the focus shifted to finally realizing that vision of a single source for data. The task of cleaning and consolidating the disparate information sources in the company has just begun, but conservative estimates are that a 20 percent increase in productivity has been achieved already. That number is only going to look better as Bank of America continues to unlock the value of its information resources.
The growth trend is already there-human productivity has increased dramatically over the past decade. Economists at the Federal Reserve have identified a direct relationship between increased labor productivity and rising share prices since the early 1990s. The bottom line is that we all want higher share prices. We want our success to be reflected in the market.
One Wall Street expert has argued that a company's share price is a brand unto itself, reflecting the value-creating ability of the CEO and the enterprise. Brand building is tough. We want to protect what we've built.
Why is productivity increased when we begin to mine the value of our information capital? We gain control of decisions and outcomes. The result is increased efficiency and the kind of reliability the market recognizes. Boards and investors don't like surprises. Surprises disrupt the momentum of a company and can destroy value. The market rewards companies who deliver what they say they will. But change is a fact of life in today's complex business environment.
To rise to the challenge and the opportunity of change, we need to have a complete view of our company, a single view of the business. How? Have all our information in one place, in one understandable form, accessible to those who need it, when they need it to make the right decisions now. The technology already exists to make this possible. It is no more than the tool. The more important question is whether we have the vision to commit to using our information to drive growth. If we want to stay competitive, it isn't a choice.
Experts Say There's been a paradigm shift in the way companies view their information resources. We've moved from a view of dependence and utility to one of criticality.
Ed Glotzbach CIO SBC
At FedEx the information about the package is as important as the package itself.
Fred Smith Founder FedEx Corp.
Customers are the only reason a firm exists. And the best way to grow the company is to increase the value of each customer to the company.
Don Peppers and Martha Rogers Founders Peppers and Rogers Group
We were thinking about data before "data warehouse" became part of the vernacular. We resolved to look at information as a competitive weapon.
Martin Lippert CIO and Vice Chair RBC
Why base our decision-making on assumptions? We can know, not guess. And we can act now on the knowledge and information we have. Travelocity is already doing it.
When Travelocity heard that TWA had established a special low fare from L.A. to San Juan, Puerto Rico, it quickly identified all of its L.A. region customers who had inquired about Puerto Rico fares and e-mailed them the information the next morning. 25 percent of those e-mailed purchased the TWA ticket, or another ticket to the Caribbean, an astonishingly high direct-marketing response. Travelocity's information is earning high returns.
The speed and complexity of competitive decision-making requires us to have deep and immediate access to our information capital. Increasingly businesses are asking "impossible" questions: questions that draw on information from across a company-market basket analysis combined with weather patterns; the most profitable locations for planes on any day given advance bookings, anticipated same-day passengers and the overbooking allowance; the profitability implications of delivering Package A late vs. Package B. Think of how many times we've asked those kinds of questions and been told there was no answer, or if there was an answer we could have it soon ... next month, not now, when we need it.
The productivity breakthroughs are not going to come from running faster computers. The right technology is an essential tool, but it is never sufficient. The true breakthroughs come from more creative brains using our company's information capital.
Our information allows us to get closer to the customers, suppliers, partners, employees, various divisions in our company and ultimately the market. Information is our corporate "sight." In a fast-changing world like ours it is critical to eliminate blind spots. The economy is changing. So is the way we do business, our competitors' businesses and the geopolitical landscape. The market rewards agility. The best CEOs are managing the future.
Harnessing the horsepower of a company's information, or business intelligence, should be a closed loop system. The goal is to create a system that replicates the process by which individuals make decisions every day.
Wayne Eckerson, Director of Education and Research at The Data Warehousing Industry, TDWI, describes it this way. A business intelligence strategy consists of a five-step cycle: gather, analyze, plan, act and review. This is the same process that human beings employ to make decisions.
The job of business analysis, Eckerson says, used to be the specialized responsibility of an elite group of analysts. Increasingly it is becoming a job for everyone. That means the information needs to be at everyone's fingertips. Feeding and managing the continuous cycle of gathering, analyzing, planning, acting and reviewing enables a company constantly to fine-tune the business intelligence process.
Every decision a person makes is based on the accumulation of all the experiences they have ever had. As experiences accumulate, a person subconsciously, or consciously, builds inner rules for dealing with a variety of situations. Each subsequent experience, decision and outcome feeds back into the process, enabling a person to reassess, refine or rebuild their inner decision-making rules, Eckerson says.
A human being's ability to act spontaneously, flexibly and yet wisely in new situations is simply the result of well-honed rules that have been refined through a lifetime of experiences. The ideal business intelligence system should operate the same way, Eckerson says.
Optimizing decision-making requires companies to make information available to those who need it now. Protracted historical analysis is only a start and is largely ineffective in this economic environment where speed and precision are valued.
Invest in Your Information Capital
Information is the most important untapped resource in your company. Invest in it. You probably already have the innovative, analytical thinkers, the knowledge workers who can mine the information for new profit opportunities and be the engine of higher productivity.
Many companies suffer because information is hoarded in scattered silos, fragmented by division, department, region and a host of other organizational categories. Siloed information breeds inconsistency, which in turn leads to fatal inaccuracy and hinders the execution of any strategy. Some companies hemorrhage profits every year as a result. Needless to say, this approach to information is bad for productivity. Not only that, inconsistency leads to a slow, but steady, erosion of a company's credibility among its customers, suppliers and eventually the market.
Fragmented information sources means inferior information, an insurmountable obstacle even for the best minds. When the same information is available to everyone who needs it, it represents a trusted single version of the truth. The information is usable and valuable.
Consider these three key areas of business and the strategic opportunities of effectively used information: the customer relationship, the logistics of supply chain and price management, and financial and management reporting.
Leveraging our information capital enables us to achieve a holistic view of our customers. A bank customer with a mortgage, credit card, checking account and money market account should be treated as one customer, not four. It's a win-win outcome. The customer, consciously or not, assigns a value to being known and understood. And the company realizes higher returns because it is better able to serve its customers. Understanding the total profitability picture of each customer enables us to set effective strategies to increase that profitability.
Excerpted from The Value Factor by Mark Hurd Lars Nyberg Copyright © 2004 by NCR Corporation. Excerpted by permission.
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