We have conducted thorough research and helped hundreds of distributors implement best practices in analytics. Along the way, we’ve observed a recurring theme: Many distributors feel inhibited when it comes to implementing analytics for profitable growth. The four most common reasons they cite are:
However, as we begin to face the forces of change sure to come in the 2020s, resisting analytics will become a handicap for businesses. Adapting mindsets can allow distributor to remain competitive. If any of the following questions sound familiar to you, reconsider how analytics would fit into your business model.
1. What if we don’t have complete data?
If you’re worried that you don’t have enough data — or good enough data — to implement analytics, don’t let that stand in your way. The truth is, no one does. In our two decades of working with distributors, we haven’t come across a single one with all of the right and most complete data. There will always be discrepancies, but even the most basic transaction information can be incredibly useful.
However, despite this usefulness, our analytics optimization research revealed that many distributors haven’t tapped the potential of basic transaction data — let alone the potential from CRMs, Big Data, or e-commerce.
So, what does it look like to pull analytics from what you currently have? If you have an ERP, no matter the complexity or extent of it, then you have transaction data. You can use this information to discover a great deal about your customers and make profitable changes right away.
For example, in a recent webinar for the International Sealing Distribution Association, we spoke about four quick wins in pricing management. One of these quick wins involves looking at the transaction data for customers whose annual purchase is $12,000 or less and comparing their margins with your top 50 customers. We discovered a difference of 800 basis points between these two groups, with the top 50 paying the higher margin.
Thanks to efficient analytics tools, quick wins like these are possible within days or weeks, not after an expensive months-long consulting project or ERP upgrade. In other words, you can make profitable adjustments with the data you already have — complete or not.
2. What if we haven’t factored analytics into our budget?
When it comes to analytics, budget is a very common obstacle for distributors — but it doesn’t have to be. Much of the hesitation revolves around a mis-categorization of the expense. If you’re following a pre-digital-era process, you likely approach all projects as capital expenditures that must be vigorously discussed, carefully reviewed and sent through a series of approvals. However, with an analytics project, in the time it takes to check every box, you’ve missed opportunities and conditions that may have changed. You may even find that you now need a different system or product altogether.
In the world of changing customer behavior and digital competition, the new process mis-categorization or mindset mis-categorization is to “test and learn.” You could do a subscription service, for instance, and pay a monthly rate to test the analytics in small increments. This way, rather than paying six figures and tying yourself to a product or contract, you can try out the service and stop any time because you’re not locked in.
Such an expense shouldn’t have to go through the same multi-tier decision ringer that would otherwise stall progress. Using analytics is all about upping your game in the field by optimizing salesforce effort, sales manager time, customer profitability, pricing or inventory decisions and more. It isn’t a capital expenditure, rather an investment to keep your business relevant and competitive into the future.
How do you create a “test and learn” environment for using analytics in your business?
- Develop a growth mindset to encourage an action-oriented culture in your organization.
- Identify the difference between CAPEX and other projects.
- Create a decision process or mechanism that makes it easy for your middle managers and upcoming leaders to test and learn from quick wins and small mistakes.
3. What if we’re already successful, seeing great growth in sales and profitability?
Many successful distributors don’t see a need for analytics because they’re already growing without them. This is another classic “yesteryear” mindset: Fix it when it’s broken. However, the fact that you’re reading this shows that you’re one of the forward-thinking distributors.
In the digital era, it’s all about being relevant. Why and how should you do that when your financial numbers are already great?
Financial KPIs are lagging indicators. They reflect the quality of your past actions. Future KPIs will be based on the quality of your present actions. If you want to maintain or exceed your current performance in 2023, what should you be doing now? Also, keep in mind that few firms get the luxury of answering that question.
Great analytics capabilities aren’t built overnight. If you’re in a time of prosperity, you’re in perfect shape for implementing and training on analytics. It takes time to change people’s decision-making processes, customize your experience, adapt your systems and technology to suit analytics, and ultimately influence your business culture. These four things, people, process, technology and culture, ought to be brought in line to have a holistic, sustainable analytics capability in the long run. All of this takes time, so if you can get a head start when your finances are strong, you’ll set yourself up for greater success down the road.
Also see: “4 Reasons to Adopt a Data-Driven Mindset.”
You must plan for your future workforce. Though your current salespeople are getting great results for your business right now, your future workforce will work differently. They will be more familiar with using data and analytics to make decisions and it will be difficult to recruit new talent if you don’t adopt these tools now.
4. What if we don’t have the bandwidth?
The bandwidth blind spot stems from one critical assumption: Analytics is a good-to-have capability but it’s not a core function of the business. Instead, more traditional core functions like sales and operations take up 90% of our resources and no one has time to take up extra work.
When you put every resource toward these traditional core functions, you’re only working in the business and you’re limiting your potential to grow and improve profitability. You’re stuck in the trenches maintaining the status quo.
What about those functions that allow you to work on the business? Those functions that give you a high-level perspective from which you can spot opportunities to make productive changes? When you spend time in these areas, you enable other core functions to work more effectively. An analytics component is one of those tools that helps you work on your business and make high-impact changes.
For instance, if you leave a salesperson to do what they’ve been doing for years, they will get the same results. They will decide which customers to call and where to allocate their efforts based on traditional best practices. If you were to implement customer profitability analytics, however, that salesperson could make a decision informed by data and invest their time more wisely. This, in turn, enhances sales force effectiveness in terms of pricing decisions, the cost to serve the customer, and market share growth.
Also see: “Transform Your Sales Function.”
If you truly don’t have any resources to spare, don’t let that hold you back. It’s worthwhile to allocate part of your budget to external resources that can manage analytics for you now in order to thrive in the future.
Have any of these obstacles struck a chord for you? If so, the time to act is now. With the advent of non-traditional competition, technological development and changing workforce dynamics, analytics capability has become an essential ingredient in the distribution industry. Whether your concern is data integrity, upfront cost, necessity or resources, there are ways — and reasons — to overcome each and secure your success in the digital era.
Senthil Gunasekaran is co-founder of ActVantage, which helps distributors drive profitable growth through analytics and talent development. He has more than 18 years of experience helping hundreds of distributors and manufacturers, while co-authoring seven books for the NAW. He also delivers executive education and speaks at industry forums. Prior to ActVantage, Senthil led research and industry projects at Texas A&M’s ID program. Reach him at firstname.lastname@example.org or visit actvantage.com.