MDM recently spoke with Tony Pericle, author of Transforming Data into Action: Using Analytics for Better Distributor Sales Decisions, published by the National Association of Wholesaler-Distributors. Pericle has worked in the distribution industry since the early 1990s.
In Part 1 of this interview, Pericle talks about why distributors are interested in doing more with analytics and how tapping someone to oversee the effort can pay big dividends. He also provides his perspective on the role the IT department should play in enabling the better use of data.
MDM: Distributors are increasingly interested in using the data they have in their systems better. What do you think is driving the growing demand for business analytics?
Tony Pericle: Today’s $2,000 desktop is 200 times more powerful than the $20 million mainframe of 20 years ago. That’s significant because what can be done with one person in three minutes could not have been done with a $20 million mainframe in two days 20 years ago. You could not do it. However, most companies don’t know what to do with this power.
I draw the parallel to our brains: We’re told we only use a fraction of our brains. And so it is with computers – we only use a fraction of the computing power that’s available to us.
The Facing the Forces of Change book published by the NAW a couple of years ago said analytics is the No. 1 force that can change your business – and will change your business, even if you just sit on the sidelines. If that happens, it’s going to change it for the negative. If you don’t sit on the sidelines and get in the game, then it can change it for the positive.
Another force that was mentioned is something similar, and that is an understanding of how to use information technology. And finally, getting the right people was also included in the top forces of change. Of the four things this study identified, three of them fit squarely into what my book addresses. We were told the “what” in that book. My book addresses the how.
I argue that a majority of businesses think they understand how to position the right people and the right technology to develop the right analytics. But they don’t. They simply don’t know what they don’t know. There’s a lot of good, positive energy around the topic of analytics, but companies have a difficult time creating a strategy to begin effectively analyzing and creating actionable events from their data.
There are definitely exceptions, and that’s changing as we speak. Some companies have made significant investments. Some of these investments produce a return. Unfortunately, most do not. Hence the aversion to make additional investments. The purpose of my book was to give a roadmap to achieve significant results through analytics, starting with the type of person you should hire to specific ideas on how you can transform data into high value.
MDM: What are the key takeaways you want distributors to get from your book?
Pericle: If somebody were to read this book, my hope is that they will find two to three “gold nuggets” and be able to say: “I can do this right now. This is within my grasp. I don’t have to make a significant investment in personnel or technology. I can change a process, I could tweak this, I could tweak that, and I could make a significant impact to my bottom line.”
The second takeaway is the importance of understanding that it’s not just technology, it’s not just software that’s going to make the difference. It is a person who I call an analyst. An analyst is worth their weight in gold. I know a company that recently hired an analyst, paid them a little less than $100,000, and made that $100,000 back within three months. In other words, if you get the right person and give them some basic tools such as Microsoft Access or Microsoft Excel, they can identify significant opportunity across the entire company, whether it be finance or operations or sales – things that were invisible to others within the company. The person with the right skills will identify where things are bleeding and where things are going well so that you can replicate them.
I recently went to a mummy exhibit. The mummy was around 3,000-years-old. You know how mummies are: You typically have the wrapping around the mummy, and then there’s this inner casing, and there’s this outer casing. During the first part of the exhibit, we watched a 3D movie about the mummy. The narrator took us through the forensic analysis where they unwrapped the mummy and showed us everything including the skin, the bones and everything that was buried with the mummy.
When the movie ended, we had an opportunity to see the mummy. I looked and saw the outer casing and the inner casing. I could not find the mummy. I asked the curator: “Where’s the mummy?” He replied: “Oh, he’s right in there,” pointing to the inner casing. I responded: “I can’t see any evidence of that box ever being opened. Did they even open the inner box?” His reply was: “Oh, no. It was done all through sophisticated use of computer scanning technology.” I said: “When did they do this?” He said: “2010.” I said: “So for 3,000 years nobody’s actually seen inside? And now we’re using technology to actually say, ‘These are all the little trinkets that were buried with him. You can understand if he had arthritis and if he had a toothache. You can derive what type of diet he had and how he lived.’”
Similar to how technology enables us to see what we were not able to see before, so it is with the right analyst.
Today people look at their business through a series of reports, balance statements, or a P&L statement, and it is extremely difficult to see the opportunities or pressure points from 50,000 feet. What they need is someone that can surgically dive into the business and be this X-ray tool and say: “Here’s the reason why our margin is declining. It’s in this one little area right here.” That’s the value of the analyst: the individual that crunches data finding the answers as to why something occurred, how to correct it, and monitor the situation moving forward.
Additionally, the analyst creates processes that will allow efficient and effective use of data. That’s important, because you can’t just throw reports out to somebody and say: “Figure it out.” You have to make those reports actionable, and it’s critical that information be worked back into the day-to-day processes of those who must act upon this information.
MDM: Finding someone who can create actionable intelligence is obviously a very important part of your book. Why do you think some companies are resistant to spending money to bring someone on specifically for this task?
Pericle: It doesn’t fit the typical corporate structure of a Finance, Marketing, Operations or HR position. It requires forward-thinking leadership willing to provide the necessary support and cover for the recommendations that are generated.
Also, many companies don’t believe it. Companies are averse to making any significant investment into an area that they don’t have confidence that they’re going to get a return in.
And distributors often require 100 percent confidence in a return before they make an investment. There’s good reason for those fears because it’s a roll of the dice right now as to what type of person is going to fit in that role. Most companies have never seen this type of person before.
For some companies, a person has risen through the ranks and there’s an innate ability to become that analyst. But it’s something you can’t necessarily teach. You can’t just send a person to a Microsoft Excel or Access database class or a conference. These types of events (training, conferences) may enhance somebody’s likelihood of at some point becoming an analyst. But it goes far beyond that. It’s hard to describe, and that’s why companies are resistant to make that investment.
I make an attempt to describe the characteristics that make a good analyst in the book. Here’s the best idea I have when trying to select an analyst candidate: When you’re interviewing potential candidates, don’t just talk. Give the candidates data and say: “Here’s a challenge for you.” Give them one hour, a computer and a quiet room, and then see what they come back with. Now you have a comparison of the three different candidates. And you get a better idea of how that individual is going to work with you and the tangible work they are able to produce.
MDM: On a related note, you talk about the role of IT in the book. Do you have some tips for distributors to work with IT or business systems departments in the area of analytics, and how they can do this more effectively? In the book, you mention as an example an IT person shadowing the sales force to get a better understanding of how the data can be used.
Pericle: There are so many different roles in IT. My niche is transforming data into value, and building tools (I call these tools “utilities”) to allow business decision makers to take action. That’s what I do. The advice that I would give is, first of all, you have to identify whether your IT person gets it. So let’s use an example, with what I call the brown M&M metric, the idea of which came from Van Halen.
On tour, they would have a huge contract.They had to have everything set up so that they would know everything would work at the venue. To ensure the entire contract was read and that everything was set up properly, they would bury a clause in the middle of the contract that said there needed to be M&Ms backstage, but there could be no brown M&Ms in the dish. If there were brown M&Ms when they arrived, they thought: “It’s going to be a rough night.” The brown M&Ms were a red flag.
You can use the same kind of thing when you’re talking to your IT department. Do you want your IT people to make decisions that are business-related? Give them a business-related decision. I’ll use a pricing example. Let’s say you’re trying to make improvements with your pricing, and all you have is your IT person and your salespeople, and your salespeople say: “I want to be able to sell, but don’t tell me the price I should have.” Corporate says: “You must raise margin.” So begins the swirl of meaningless movement.
If you want your IT person to have anything to do with pricing – and this could go for anybody, unless you hire a pricing person – ask them one question: Is it good that we have pricing that’s overridden at the time of order entry? Let’s say we present a price to the customer and 30 percent of the time, customers attempt to negotiate a better price – that is to say, they do not accept the system default price. Is that good? It’s a trick question because the natural instinct of the IT person is that everything should be system-generated – that nothing should be overridden.
You now know that you need to be very cautious with this person if pricing is touched. Why? On the surface you want your pricing to be accepted by the marketplace, but – and this is where the punchline is – if you have 100 percent acceptance of your pricing, what’s that telling you? It’s telling you your prices are too low. I’ve actually had people brag about how good it is that their pricing is accepted 95 percent of the time, and they only have to manage 5 percent of the exceptions. I cringe when I hear this. I’m thinking: “You’re leaving all kinds of money on the table if that’s the case.”
Just like David Lee Roth knew that it was going to be a rough night and they could not depend on the required technical setup for their concert with just a simple test (brown M&Ms: Yes or No), so it is with understanding whether or not you have the right IT person in place.
How do you work with your IT professionals? Ask them their advice on preferred tools to work with the data. Again, this is kind of a brown M&M question. If they come back and say, “Well, you can go to the system and you can run that report. You see that? That’s right in the system.” In other words, if he directs every possible solution to work with data from the ERP system, there will be limitations as to what you can do.
Sadly to say, most companies accept this level of constricted information. If you ask your IT person:“What if we were to get our data out of the system?” And they respond: “Oh, no. We can’t do that. We want all our data in the system. We don’t want anyone to touch that data outside the system.” That’s another potential red flag. You have an environment where internal control and data “hoarding” may severely limit options to work with your data.
If your IT person doesn’t feel comfortable and doesn’t allow you a way to get data out of the system to work with it, then you’re limiting yourselves, and you will be at a competitive disadvantage because there is absolutely no ERP system that will allow you to work with the data in the way that you need to work with it. And if there were, it would be so extraordinarily complex that you wouldn’t want to invest in the ERP system solution anyway.
You want the IT person that is open to allowing people to work with data outside of the system or within a data warehouse situation, the IT person that comes to the executive and says: “Hey, look, here’s an idea of how we can better work with the data. Here’s a way that would make your lives easier.”
If you have somebody that’s coming to you with ideas, that’s the right IT person.
If IT becomes too controlling, innovation will be stymied. If the IT department is not enabling people within the organization to do things better, faster, at a lower cost and at higher profit, then companies are leaving 200-400 basis points of margin on the table. You need to get the right person in there that will allow people to be enabled to do what they do best.
Tony Pericles book, Transforming Data into Action: Using Analytics for Better Sales Decisions can be ordered at www.naw.org/transformingdata or by calling (202) 872-0885. Pericle, the founder and principal analyst for ProfitOptics, can be reached at firstname.lastname@example.org.