The growth of business analytics

In our Pricing work we help client companies to use data in new ways in order to boost turnover and profitability. The following article from the BBC News website explains this approach rather well, and we were so impressed with it that we have reproduced it in full.

In today’s volatile business environment, organisations must be ready to reconfigure their strategic priorities at speed, and with certainty.

Crucially, instead of basing major business decisions on intuition, they need to mine the data and information at their disposal to drive rapid decision making.

This is why analytics – the use of data, statistical and quantitative analysis, explanatory and predictive models – has moved centre-stage.

According to market research firm IDC, the market for business analytics software grew 14 percent in 2011 and will hit US$50.7bn by 2016.

Of course, analytics itself is nothing new.

Organisations such as Google, Tesco and Caesars Entertainment are well recognised for their ability to predict market trends, customer behaviours and workforce staffing requirements and turn these into top-line growth and/or bottom line savings.

But for the many other businesses now seeking to take advantage of analytics, there continues to be a lack of clarity around certain fundamental questions.

What is analytics? How can it propel and improve an organisation’s competitive positioning or effectiveness?

What does it mean to truly become an analytical organisation? And how does an organisation set out on this critical journey?

Although the development of analytical capabilities and capacity is obviously important, a focus on data, methods and technology alone will not magically deliver the insights needed for competitive edge.

“A company’s leaders need to be able to create, champion and sustain an analytics vision”

Meaningful actions

The first step is to identify the information that must be harnessed, before establishing where it resides within the business, and under whose responsibility.

Equally important is understanding how this information can be captured effectively, and what needs to happen to turn insights into meaningful actions for the business.

Also essential, businesses must recognise that technological tools, sophisticated models and differentiating data count for little unless the organisation has the enterprise-wide capability and commitment to capitalise on them.

At a fundamental level, this means ensuring that analytics is not a siloed function. Only when it becomes truly integral to the business can it begin to support the broader strategic agenda.

How can this be achieved? Analytical leaders know that they must pull and align a number of levers to ensure the success of any analytics implementation.

Throughout the business, processes, talent, leadership, metrics and accountability all play a vital role and influence the outcome.

Clearly, companies making a foray into business analytics face a steep learning curve. Moving to fact-based decision-making requires a cultural transformation involving both top-down leadership and grassroots adoption of new behavioural norms.

It should be planned, addressed and measured just like any other change to the business. In other words, understand what needs to change, take a sequence of implementation actions and follow through to make the changes sustainable.

Stacy Blanchard believes analytics helps businesses make informed decisions quicker than ever before.

The market is already flooded with training on how to use the various applications required to carry out analytics work.

The result? Although many analysts are well equipped to use the software, higher level capabilities related to model development, impactful data interpretation and how best to take advantage of analytics are left to on-the-job training and, worse, to chance.

A closer look at the analytics talent gap, based on Accenture’s practical experience and research, indicates that all levels of the organisation must move to develop certain core skills.

A company’s leaders need to be able to create, champion and sustain an analytics vision. Managers need to be able to lead an analytics agenda and create a lasting impact for their team.

And front-line practitioners need to combine their technology abilities with problem solving and data analysis skills to increase their effectiveness and deliver bottom-line business benefits.

At an enterprise-wide level, businesses build analytical orientations by demonstrating a profound respect for data and fact-based decision-making.

Fundamentally curious

Crucially, however, their executives do not study things to death or delay decisions. They are willing to make tough calls based on the information available.

Analytical organisations are fundamentally curious. They find out what their peers are doing, they scrutinise performance patterns. And they identify new and better ways of working. If metrics suggest that a practice or process is no longer effective, the analytical organisation is not afraid to change them.

“Individuals should be recognised and rewarded for their analytical capability”

Analytical cultures are marked by collaboration and information sharing across organisational boundaries. If people hoard information and distributed groups of analysts cannot work together, the business cannot capitalise on the big opportunities for analytics.

Last but not least, individuals should be recognised and rewarded for their analytical capability – not just the quality of analyses and insights, but also the breakthrough business results achieved by putting them into action.

Realistically, at least in the early stages of an analytics implementation, many of these changes will take place in back-office functions.

Provided they keep abreast of these developments and work out how to complement them throughout the rest of the business, HR departments that have a strategic seat at the table will be key to advancing and supporting analytics implementations at scale across the business.

Equally important, CEOs and senior leadership, along with HR, will move to ensure that analytical talent – an increasingly precious resource – is engaged, retained and working on the most important growth opportunities and problems facing their organisations.

Article reproduced in full from BBC News website August 2012.

 

 

The 28p upgrade – article published in Asset Finance International

The following article by Colin Tourick was published in Asset Finance International on 11 June 2012. The full text is reproduced below.


I have just returned from a most enjoyable holiday on the Greek island of Skiathos. I wouldn’t normally write about my holidays but there’s an interesting story to tell which will be of interest to anyone interested in pricing.

We booked the holiday through a major tour operator’s website. Having selected the holiday and started to book we were asked if would like to upgrade to a larger room or a sea-facing room or half board or a room with a cot, with each additional option costing between £80 and £300. And then, to our amazement, we saw that one option was to upgrade to a larger sea-facing room, half board, for just 28p in total. That’s 1p per person per day.

We were offered the upgrade after we had starting the booking process, so there was no reason to offer it to us at all. It would cost the hotel much more than 1p per person per night just to provide dinner.

In fact, looking at the prices of the other upgrade options it is clear that the 28p offer was a simple mistake.

We booked, carefully checked the confirmation and there it was: a massive upgrade for 28p. On arrival we were allocated a nice big room, with a great sea view. And I have to say the half board was excellent.

So, where’s the lesson here for asset financiers? I think the lesson comes from the fact that this was a clear mistake by the tour operator, and that we see similar mistakes through the work we do with lessors every day.

Tour operators’ price lists are so complex, and there are so many options and possibilities that mistakes can easily creep in and go unnoticed.

This happens with all businesses that have complex price lists. For example, I have a copy of an advert on Amazon for a $23m book. It was just an ordinary book, nothing special, but there was an error in the pricing algorithm and the price just kept on going up and up. It peaked at $23,698,655.93 before someone noticed.

Lessor price lists are complex too. You want your price list to be totally accurate and every quote to be pitched at the optimum level that maximises the probability that you will win the deal, at the highest possible price. So your pricing system needs to consider how acceptable your quotes are likely to be to the client as well as to you.

If you are quoting contract hire on specific assets – cars, for example – your quoting system has to be able to deliver literally millions of different optimised rentals that take account of all possible permutations of manufacturer, model, period, mileage and options.

Even if you are simply calculating an interest rate to quote on an HP or finance lease deal there are lots of issues to consider. No leasing company would charge the same interest rate for deals of £20k, £70k, £120k, £250k and £1m. Deals with monthly, quarterly and annual payments will usually have different interest rates. A 3 year deal will be priced differently to a 4 or 5 year deal. HP, finance lease and other financial products will have different tax treatments, so they need to be priced differently. A deal with a 20% balloon needs to be priced differently to a deal with a 30%, 40% or 50% balloon, or indeed no balloon at all. A deal with a big deposit or manufacturer subsidy will be priced differently to one with no deposit or subsidy. And a deal with an A grade credit needs to be priced differently to one with a B, C, D or E grade credit.

If you agree with the statements in the last paragraph you agree that there are at least 5 different price points relating to deal size, 3 relating to payment period, 3 relating to term, at least two relating to financial product, 5 relating to balloon size, at least 4 relating to deposit and subsidy size and 5 relating to credit quality. And that’s before you start considering seasonal and geographical issues. Multiply out all those permutations and you find that you need to calculate 9,000 price points, at the very minimum, with great accuracy. In some cases you may be given some time to think about the optimum rate to quote but often you will need to quote instantly at the point of sale, when the client presses Enter on your online quoting system.

And of course each of these prices need to be optimised to reflect your best assessment of how acceptable each quote will be in the client’s eyes.

It’s quite easy to make a mistake when calculating and entering these rates into your system. And if you were to do so you could end up offering rates that look just as silly as our 28p upgrade.

Sardinia price optimisation system

We have developed a unique methodology designed to help any supplier quote the optimum price to each customer for each product. We call this methodology Sardinia.

All organisations want to sell more products at the highest price possible.

However if a business has a complex product list, with many product permutations, it can be impossible to keep track of competitors’ prices.

Take for example car leasing. Suppliers in this market can be asked to quote for any car make, model, engine size, body shape, fuel type or transmission. Incredibly, that amounts to around 6,500 vehicles, once you’ve multiplied up all the options. Let’s say there are 10 popular lease periods (18, 24, 30, 36 months, etc), 10 popular mileages (5,000 p.a, 6,000 p.a., etc) and that cars can be ordered with or without maintenance. Multiply that together and you find there are 1.3m possible prices to be quoted. No leasing company can track that number of competitors’ prices: the data isn’t available.

In most markets the customers usually have the option to shop around for the cheapest price. Suppliers then feel intimidated and believe they have to cut their prices in order to compete. Sometimes they are correct – they do need to cut their prices – but generally they don’t have to do this across the board for all products. There will be some products where it is essential to cut prices to compete, and generally there is another group of products where the right approach would be to increase prices.

The aim has to be to calculate the optimum price; the price that maximises the probability of winning the deal at the highest possible price.

This isn’t impossible to achieve. The trick is to identify the elasticity of demand for each product for each client – which is something that most companies don’t do.

And Sardinia does this.

It asks the question “If the supplier was given a week to deliver a quote, what information would they assemble and how would they use that information to arrive at the optimum price?”

Sardinia then answers that question, using its own rules engine to identify the key variables at play and then digging through its database to look for information that will help it arrive at the optimum price. If at all possible it will come up with the right answer and recommend this as the price to quote.

Rather than taking days to do this, Sardinia pulls off this trick instantaneously, delivering the results a few milliseconds after the end-user customer has pressed Enter on the supplier’s web-based quoting system.

We developed Sardinia to work for asset finance and leasing companies (any type of asset) but it can be deployed in any business that has a large number of products or clients, or issues a lot of quotes.

To continue the car leasing example above, if the supplier has 1,000 clients to whom it routinely issues quotes, it has to be able to produce any one of 1.3 billion quotes, with great accuracy, immediately. Sardinia does this.

Please contact us for more information about Sardinia.

Incidentally, if you’re asking the question, “Why is this called Sardinia?”, the answer is that Colin Tourick developed the core functionality over five days, whilst sitting under a palm tree in Sardinia.

What a year!

2011 proved quite eventful for us.

The highlights were that we:

  • Had 3 new books published
  • Worked on the development of a new pan-Asian leasing company
  • Worked on interesting projects in France and the Netherlands
  • Helped to run 4 Buckingham Forums
  • Worked on 9 small advisory projects, mainly for investors looking to buy into the UK fleet market
  • Helped 3 major groups go out to tender for their global fleet requirements
  • Developed our new price optimisation software
  • Ran training and coaching sessions in 7 of the largest organisations in the UK
  • Gave 11 public talks, mainly on fleet- and pricing- related topics
  • Had a monthly column published in Fleet Week on the Mathematics of Leasing
  • Had 12 other articles published
  • Had 20,000 visitors to our website
  • Sold nearly 3,000 books
  • Colin was appointed  non-exec director of Carbon Heroes

Our plans for 2012 include:

  • Building on the success of the Buckingham Forums
  • Running fleet conferences in Australia and the Far East
  • Implementing pricing software and solutions in a number of finance and leasing companies
  • Publication of two new leasing books

Happy New Year!