To identify threats and opportunities, analysts may look through thousands of data records manually, or define KPIs and make a discovery literally in a few clicks. Which approach will your business choose?
According to Richard Branson, a business magnate and investor, “business opportunities are like buses, there is always another one coming.” The idea seems convincing: however, there is hardly a person who did not feel disappointed when they missed their bus. Likewise, companies prefer not to miss their opportunities. But how to recognize them well in advance?
In fact, a company can identify threats and opportunities with the help of business intelligence. Here, we will not focus on the simplest, but highly inefficient approach of scrolling through thousands of data records. Instead, we will dwell on the approach of defining relevant KPIs, which BI consulting practitioners advise.
As the challenge described is not industry-specific, let’s consider a large product portfolio (100+) – an example relevant to several industries (for example, retail and manufacturing). Now, let’s take a closer look at how business intelligence and data analysis can help in defining KPI metrics and in finding opportunities and threats related to a particular product.
Prepare BI infrastructure
As a business has to deal with a big volume of data, usually taken from numerous sources, in order to reach the data, a company needs to implement BI infrastructure. This requires using a tool that is capable of connecting to multiple data sources from which data is combined to create OLAP data models for slicing and dicing. At this stage, to build a required BI infrastructure and ensure data quality, companies may reach out to business intelligence consulting experts.
Start with the right approach to developing KPIs
The next step is to define KPIs. At this stage, it’s crucial to have a clearly defined strategy and know how to translate it into right KPIs to create a hierarchy where lower levels support higher ones. Thanks to historical data analysis and forecasting, business intelligence allows companies to define metrics and set KPI targets, both long-term and short-term.
Track the dynamics
In a constantly changing environment, it is important to keep track of the dynamics. The following KPIs may be useful for this purpose.
1. Absolute figures
With absolute values, it’s possible to look quickly at best (or worst) results in a few clicks. A simple filtering will put the required information to the top. Having right dimensions and measures, a company will easily learn, for example, what product brought highest (or lowest) sales and margin.
2. Relative figures
Let’s imagine that one of the products from the portfolio shows -2% of sales. Undoubtedly, a decline in sales is not what a company is happy to see. But is this decline alarming? To understand that, you need to look at the portfolio in general:
Product 1: -2%
Product 2: -2.5%
Product 3: -3.2%
Product 4: -5.4%, etc.
When compared with others, Product 1 looks the best, while Product 4 looks problematic, as its sales decrease faster. Besides, there is an overall decline. Correspondingly, a company will focus on improving its overall performance.
3. Right time frame
Choosing the wrong period to measure performance may lead to distorted results. For instance, a company takes the period of last 2 weeks when the sales are growing. But if we look at last 10 weeks, we’ll see a decline followed by a slow recovery.
To avoid serious fluctuations that seasonality brings, it’s necessary to define a seasonal coefficient for each month (for example, Jan: 1.0, Feb: 0.98, Mar: 1.0, …, Jun: 2.5, Jul: 3.2, …) and apply it to the values (for instance, sales). This simple measure will help to get season-neutral values.
Compare Target vs. Fact
How can a company know if a 5-percent growth is enough? It depends on what they defined as good. For that, a company should set a target for each product, as some products cannot (or should not) grow while others are expected to do it. A larger company may need to set more sophisticated targets for every product and region combination. For example, Product 1 should grow fast in TX and CA, while product 34 in NY and PA.
To sum it up
To cope with the challenge of identifying threats and opportunities, a company needs KPIs oriented towards finding these valuable insights. Business intelligence can be a helpful tool for defining these KPIs, and an implemented BI solution will allow filtering, grouping or sorting in a few clicks, instead of scrolling through thousands of lines.