I thought I’d dig a little deeper, so I took a look at Dell’s 2010 analyst meeting presentation.  It’s a solidly put together presentation, but it bears the clear signs of a big company that has little insight into how to change markets.  Dell’s big strategy is to execute a “growth strategy built on delivering enterprise solutions and growing operating income and cash flow.”  In a nutshell, to grow and make more money, or in other words to be successful.  The problem is that a strong strategy should explain how you’re going to achieve your goals, not just what they are.  The “…by doing X, Y, and Z” portion of the strategy is largely missing or perfunctory.

Dell does make a few motions at discussing product strategy, but stating that you’re going to provide “integrated, best-of-breed solutions,” for example, is unenlightening if not a contradiction in terms.  Likewise, aiming to be make products both “capable and affordable” seems like a strategy to get stuck in the middle, neither truly differentiated nor a cost leader.  Perhaps Dell is keeping the good parts of its product strategy to itself, but at least taken at face value, it’s not very convincing.

The same theme continues as you go further into the presentation, with Dell listing goals like the following:

• Improve profitability
• Get our fair share of IT spend
• Deliver strong cash flow + ROIC
• Disciplined capital structure

Similar bullets appear in the investor presentations of most Fortune 500 conglomerates.  While those goals aren’t bad from an execution perspective, they signal a focus on running the existing business more or less as is rather than changing the market.  I haven’t had a chance to look at the investor presentations of HP or IBM recently, but I have a feeling that Dell could boil its slides down to, “Do what our competitors are doing, but slightly better.”

What do you think?  Is Dell as strategically aimless as they seem from their investor communications, or is there something I’m missing?

In general, I find that management consulting projects benefit from a moderate amount of project management overhead.  The same is not true of many information technology projects, where teams and scope are often much larger and the end deliverable may be much more complex.

What do I mean by a moderate level of overhead?  There are really only three main guidelines that I use for managing project effectively:

Decompose the tricky parts

Any complex task should be broken down into smaller steps so you have more visibility into what really needs to get done.  Even something straightforward like conducting customer interviews involves deciding on a list of contacts, getting introductions, scheduling calls, and summarizing results afterwards.  While that’s an obvious example, it’s far too easy for even basic tasks to slip between the cracks if no one has thought about them explicitly.

Track dependencies

While breaking things down, also think about dependencies.  A certain task could require management or client sign-off, access to certain data or people, or other tasks to be completed first.  During one of my pricing projects for a paper company, one of the big delays was getting IT to run pricing reports before we could even start with most of the work.  Getting data in general can be a big unexpected component of the schedule.  Don’t allow yourself to get too comfortable about the schedule until you’ve identified all of the important dependencies because short tasks that need to be done in a certain sequence can quickly become bottlenecks and wreck the schedule.

Maintain accountability

Assign all tasks to people explicitly, and make sure that you’re communicating with them clearly.  Otherwise, you run the risk that everyone will assume it was someone else’s job, which increases the risk of problems.  Each team member should be fully aware of their assignments, the timing for them, and all of the relevant dependencies.

In general, you should have a plan of attack for the entire project and know how far along you should be at a given time.  If you end up flying too much by the seat of the pants, symptoms include last-minute crunches, more stress for the team, and a higher risk that the project will fail.

On the other hand, if you feel like you spend a day every week updating the project plan, you may have too much overhead.  If your project planning spreadsheet has hundreds of lines, you either have an extremely complex project, or perhaps you’re being too detail-oriented and need think about some tasks at a higher level of abstraction.  Constantly adjusting the start and end times for different tasks and updating information that will have little effect on how work is accomplished can be a big time sink.  It can also be very frustrating for everyone on the team because of the inefficiency involved.

The 80/20 rule

Most people have heard about the 80/20 rule (otherwise known as the Pareto rule), but it’s often ignored in practice.  Consultants in particular, myself included, often have a hard time not throwing every analysis and every recommendation against the wall.  Throughout your work, always ask yourself what will truly make the biggest difference and focus on that.  Do your best to ignore other issues, or at least put them in an appendix (literally and figuratively) where they won’t distract people from the top priorities.

Be skeptical

I’ve come to realize that whenever I come up with an amazing conclusion while working on a project, there’s about a 50% chance that it’s an error.  It could be due to bad data, a spreadsheet goof, or just not fully understanding the context of the situation.  So, the more astounding your conclusion is, the more you should treat it with skepticism.  Double-check your work and try to poke holes in your logic.  There’s nothing worse than showing off your idea to your boss or client as a crowning achievement only to realize that it’s just a mistake.

The same is true when talking to people.  Everyone in an organization has an agenda (shocking, I know), and many of them will try to feed you biased information to support their cause.  The more you want to believe it because it’s “interesting,” the most you should take it with a grain of salt and try to confirm it.

Correlation does not imply causation

When I show a number based on customer interviews to clients, one of the questions they like to ask is whether it’s statistically significant.  It’s not a bad question to ask, but if often misses the bigger point.  The biggest risk isn’t that you don’t have enough data points, it’s that there’s some confounding factor that’s the true cause rather than the data you’re analyzing.  Like epidemiology, business analysis is messy, and it’s very tough to be sure you know the real cause of something based on statistics.  Look at the data, but don’t forget to rely on judgment as well.

Unintended consequences

Always ask yourself how recommendations may play out in real life differently from how you have planned.  People will always try to game the system, and any change will almost certainly have unintended consequences.  If salespeople get quarterly bonuses, you can be sure that some of them will knock it out of the park for three quarters, make enough money to be happy, and then mail it in the fourth quarter.  If you offer customers a service for free, they will often use it even if they don’t really need it.  Anticipating these consequences is by definition difficult.  Rather than trying to eliminate them, try to make sure you can live with the ones that seem most likely.

The initial reaction to unintended consequences is to try to make processes more complicated to keep people from gaming the system.  Unfortunately, that often does not work, confuses people, and results in a more bureaucratic organization.  Which leads me to my next point.

Complexity cost

For every bright idea you come up with, consider the level of effort people will need to go through to comply with it, not just the financial cost.  The ultimate example of ignoring the cost of complexity is the IRS tax code, which single-handedly keeps millions of people employed dealing with its more byzantine aspects.  Don’t create industries within your company or your clients’ companies devoted to adhering to your processes unless it’s truly worth the cost.  If your recommendations do add a significant amount of complexity, perhaps you need to figure out a way to simplify other processes in order to keep things in balance.

Of course, this isn’t intended to be an exhaustive list.  What other rules of thumb do you keep in mind when thinking about business problems?

I was hoping for an insightful analysis, but I was disappointed overall.  The authors spend a great deal of effort on describing the data they gathered (when you have a hammer…), and not enough on coming to a strong conclusion.  The book suffers from some of the same challenges as business school in general, with too much analysis and not enough innovation in terms of solutions.  Perhaps part of my problem with the book is due to the over-reaching title.  A better title might have been “refining the MBA.”

In a nutshell, the book focuses on eight areas where b-schools need to provide students with better preparation.

• Global perspective
• Leadership skills
• Integration skills (i.e., integrating different types of thinking to solve complex, multi-functional problems)
• Organizational execution (i.e., how to get things done in a real company)
• Creativity and innovation
• Communicating clearly
• The roles, responsibilities, and purpose of business (i.e., business ethics and social responsibility)
• Limits of models and markets (i.e., an appreciation for risk and the imperfection of business school models)

B-school incrementalism

These points don’t really constitute rethinking the MBA.  They’re valid incremental steps towards addressing criticisms, but on the whole they betray a lack of focus.  Good strategy requires defining what you won’t do, not just what you will do.  Any organization that tries to be all things to all people ends up being mediocre in most respects.  Burdening a two-year MBA stint with even more requirements and expectations runs the risk of making it more of a broad survey that does not provide people with enough depth in their areas of focus.

This issue stems partly from the organizational structure of the typical business school.  The consensus-based academic model results in lots of stakeholders for every activity the school performs – different groups of faculty, students, and alumni will all support the aspect they like the best.  It can be very difficult to solve one problem extremely well because everyone has a different set of priorities, and there’s often no good tie-breaker unless the dean is quite politically skilled.  As a result, most established business schools have a hard time being really innovative.  The best schools rely on continuing to improve what they already do, and lower-ranked schools often play follow the leader.

Doing versus knowing

The book does cover what I consider the biggest challenge for business schools, preparing students for the actual practice of business management rather than just understanding it conceptually.  Interestingly, this problem comes from business schools’ attempts to address an earlier wave of criticism.  Reports from the Ford Foundation and Carnegie Corporation in the 50’s indicted schools for not being academically rigorous enough and curricula for being too anecdotal.  The resulting move to a more research-based approach has led to the material becoming more theoretical and perhaps less relevant to the practice of management, and faculty are most often recruited based on research than on management experience.

Disruptive approaches

Because of the organizational challenges of existing schools, I’d expect more innovation in business education to come from up-starts or for-profit schools.

What would disruptive approaches look like?  I don’t necessarily know, but here are a couple of ideas:

• Creating a true on-the-job MBA with company-specific content, job-specific coaching, and potentially internal job rotations tailored to candidates who want to excel within a company, not necessarily change jobs
• Offering specialist MBA programs that prepare you to be a specialist, not just to use their work (this is one area where many schools are actually innovating, providing more targeted degrees)
• Going beyond the 1-2 year time frame with coaching and mentoring to address management challenges that evolve as your career progresses

Of course, brand recognition, alumni networks, and access to capital present big barriers to entry, so perhaps we’ll have to wait until established schools address some of these challenges after all.

The value chain

The drivers of uniqueness for differentiation, at a high level, are the same as the drivers Porter introduces in cost analysis:

• Policy choices
• Linkages (internally/with suppliers/with channels)
• Timing
• Location
• Interrelationships
• Learning and spillovers
• Integration
• Scale
• Institutional factors

For a closer look at these factors, refer back to the discussion of cost analysis.

Developing a strategy

There’s a broader perspective to think about than just the value chain.  Porter describes a strategy process aimed at differentiation as follows:

Understanding who the key buyer is

Better insight into who makes decisions at customers, or better yet being able to target a different, previously overlooked buyer.  In B2B situations, many companies work very hard to develop a strategy targeting the end user of a product as the buyer rather than purchasing, which is often more focused on cost.

Gaining insight into buying criteria

Porter divides them into two kinds, use criteria and signaling criteria.  The use criteria are the ones that actually create value for customers when they use the product or service.  A more specific understanding of use criteria is a huge help in differentiating effectively.  For instance, many companies cite delivery as one of their customers’ requirements.  But that can mean ability to deliver rush orders quickly, consistency in arrival of regular orders, or keeping items in stock to avoid back orders.  The relative importance of these scenarios to customers is what truly counts.

Use criteria are important to customers in two ways, either reducing their costs or improving their performance.  For consumers in particular, costs include time and inconvenience, and often minimizing these can lead to strong differentiation.  P&G’s Swiffer is so successful because it minimizes the inconvenience of cleaning floors.  Consumer performance includes things like satisfaction, prestige, and other non-monetary needs.  And while business customers try to make more carefully considered decisions, these factors also play a role in business markets.

Signaling criteria address communicating the value of the product.  They can include advertising, the customer list, the brand name, guarantees, or other factors.  Although they don’t create value for the customer directly, they are as crucial as use criteria.  Customers will not pay a premium or develop a preference for a product unless they understand why it’s differentiated and why they should care.

Understanding buying criteria typically requires primary research of some kind.  Relying on second-hand facts results in me-too products.

Identify your impact on the customer

Very broadly, you can either lower customer costs or improve performance.  Neither of these is as straightforward as it sounds.  Costs can include many ancillary activities such as keeping inventory, inspecting finished products, dealing with customer complaints, or managing production.  Helping companies reduce or eliminate any of these costs can be an excellent basis for differentiation, which is why considering the “whole product” is important in thinking about differentiation.  Even services as seemingly basic as financing can set a company apart.

Define or assess the sources of uniqueness and configure the value chain to maximize differentiation

Porter just talks about assessing uniqueness in the context of an existing value chain, which illustrates his bias to large companies with existing product portfolios.  I would take another approach.  Differentiation is often easiest to achieve or perfect with a new company or product.  Existing competitors have assets, processes, and cultures which aren’t always suited to the best avenue of differentiation.  New entrants like JetBlue, the Apple iPhone, or Tata (with their $2,000 car) can re-imagine the value chain in a way that incumbents often find impossible.

Whether planning a value chain from scratch or configuring an existing one, the differentiation is often that which comes from multiple aspects of the value chain.  Chains like Chipotle and In-N-Out can provide a unique fast food experience because they source high-quality ingredients, design restaurant processes to emphasize taste and freshness, and keep menus simple to make the whole approach manageable.  Competitors would find it difficult to imitate all of those factors successfully.

Address sustainability

Competitors will try to copy any differentiation that customers value, so thinking about sustainability up-front is important.  Look for barriers to entry, cost advantages, and ways to create customer switching costs.  Something like database software clearly has significant switching costs because customers spend a great deal of effort and time setting them up and incorporating their data.  Switching to another vendor is unappealing unless there are big problems with the current solution.  Less obviously, airline loyalty programs create switching costs for customers by giving them status on their airline of choice.  Competitors can remove this switching cost by matching privileges and miles for good customers, but this tactic is costly.

Pitfalls

A successful differentiation strategy requires putting many elements together, and there are a few common challenges Porter mentions.

• Irrelevant uniqueness – Being unique in a way that customers do not value is a common pitfall, especially for products developed without enough customer input.
• Excessive differentiation – Over-delivering on customer needs sounds good, but in reality it may make you vulnerable by being undercut by competitors coming in at a lower price with just enough differentiation.
• Too big a price premium – Even a product that is differentiated may fail if customers do not see the price premium as justified by the differentiation.
• Not signaling value – Better mousetraps are not usually self-explanatory to customers, if they are even aware of them.  Make sure to pay enough attention to signaling.
• Not knowing the cost of differentiation – It is often easy to differentiate but to increase costs more than the premium customers will pay, reducing rather than increasing profits.
• Focusing on the product instead of the whole value chain – Distribution, ancillary services, and signaling may be as important or more so than the actual product depending on the business.
• Failure to recognize buyer segments – Different customers do not value particular kinds of differentiation equally.  It’s possible to create a great product that does not appeal to a large enough share of the market to be profitable.  A good segmentation of the market is important to avoid this problem.

What do you see as the most challenging aspect of achieving differentiation?

First, let’s be more precise in our definition.  Primary research technically refers to all research conducted by gathering information that is not already collected in a document, including interviews, customer surveys, focus groups, and analysis of raw information like construction projects started.  For our purposes, let’s call surveys and focus groups primary market research.  I’m referring only to individual interviews when I say primary research.  Interviews are typically conducted by phone, but in-person or email exchanges are also sometimes involved.

Why primary research?

Why am I so focused on individual interviews?  It’s because they’re one of the best ways to get a deeper and more nuanced understanding of a topic.  Primary research can be applied to analyzing customers, competitors, distribution channels, suppliers, and your overall industry.  It’s a useful tool for answering questions with a high degree of qualitative clarity.  You can get:

• Information from knowledgeable sources that’s impossible or impractical to get online or in research reports
  • In our landscaping example, is the local commercial landscaping market growing right now?  Are there particular plant categories that are “hot”?
• A degree of specificity unavailable in secondary sources
  • If the market is growing, is it primarily due to big projects?  Or are there also enough smaller projects going on to allow the nursery owner to start small and then invest in greater scale as the business grows?
• Qualitative information or context that’s too subtle to get from secondary sources
  • What are commercial landscapers’ top priorities for their suppliers?  What do current plant suppliers do well or poorly?  Are there innovative ways our nursery owner can run the business to create differentiation or cost advantage?

What it doesn’t accomplish

Primary research is a great qualitative tool, but it’s difficult to get reliable quantitative answers out of it.  Driving more quantitative results is possible but requires a significantly higher budget to conduct more interviews, cross-check results, and do additional analysis.

And forget about statistically significant findings.  In order to get valid statistics, you typically have to use a survey-based approach, where questions and answer choices are carefully planned in advance.  While that approach is useful in its own right, it doesn’t provide the opportunity to identify the most important trends on the fly and address them in subsequent interviews.  Primary research interviews tend to be somewhat free-form in order to address the highest-priority topics related to each interviewee’s experience.  Essentially, an interview-based approach trades off statistical significance for qualitative insight.  If statistical significance is an important requirement, use a survey instead.

So what are the implications?  In our nursery owner’s case, he should avoid setting prices or estimating costs solely based on primary research because it’s difficult to control for all the variables involved in prices that interviewees might have mentioned.  Similarly, you wouldn’t want to set growth targets based on a market growth rate determined through primary research.  While the estimate is likely to be in the right ballpark, it could be a few percentage points off in either direction.

Who do you talk to?

The list of people you might make calls to would depend on the project.  If you’re trying to understand how the market perceives your company and products, you would primarily contact current customers, prospects, and former customers.  You might also throw in some industry analysts and competitor salespeople.  If you’re examining distribution channels, you would primarily talk to salespeople, store managers, and so on.  For each project, you need to come up with a list of all the potential sources that might be relevant.

Sources of potential contacts run the gamut from LinkedIn, company sites, job boards, and conference proceedings to personal network contacts and referrals.  I’ll go into more detail on the process of finding contacts in a later post.

Who does it?

Most primary research projects are conducted by outside consultants rather than someone within the company.  There are a few good reasons for this:

• More objectivity on the part of interviewers
• Less temptation for interviewees to skew answers to suit their objectives, especially if the identity of the client and/or the purpose of the project are not disclosed
• Consultants more practiced and skilled at managing and conducting primary interviews

Time and budget

The downside to having an outside firm do your research is of course cost.  Projects range in scope but often run around 4-12 weeks in length and involve 30-100 interviews.  Depending on the scope, the price of an engagement often runs $30-150k.  Outliers could run up to $500k, $1 million, or more, depending on the scope of the work.  Larger projects could involve hundreds of interviews and substantial analysis of the results.  Top-tier consultants like McKinsey and Bain are of course priced at a premium as well compared to smaller firms.  On the lower end of the scale, individual contractors can often accomplish the same work with a much smaller budget.

For our nursery owner, the budget would likely be slim both based on the available budget, the fact that the research is restricted to one geography, and the size of the business opportunity being investigated.  An independent contractor might be able to complete the work for as little as $10-20k and provide very actionable information for planning the business expansion (or canceling it if it turns out to be unattractive).

So that’s primary (interview) research in a nutshell, based on my experience.  How have you seen it applied?  Any questions I should answer in further posts on the topic?

Next up: How to make your primary research  project successful

Think of research as an iterative process where you create a chain of searches going from general concepts to specific ones.  You’ll find the right facts when you get down to concepts specific enough to eliminate redundant general content but still broad enough to avoid hitting keyword-stuffed pages like job postings.

The process goes something like this:

1. Search
2. Identify relevant concepts
3. Organized and prioritize them
4. Iterate one level down with searches on the most important topics

The goals are to focus your time on high-priority concepts instead of whatever happens to come up and to start organizing your thoughts for what your deliverable will look like while you are doing research.  The biggest mistake most business analysts make in research projects is to spend too much time looking for data, past the point of diminishing returns, and not enough time thinking about the information and how to analyze it.  Taking a concept-based approach from the beginning is one way to avoid that trap.

A Home Depot example

To walk through a concrete example, let’s say you are doing research on Home Depot’s strategy as part of an analysis of the home improvement retail industry.  One good approach is to start with general background sources to get a sense for the company’s strategy.  In this case, however, let’s try the iterative approach I described, starting with a web search on “Home Depot strategy” to see what comes up.  Walking through the first 30 results or so, I came across a moderate amount of useful information, but more importantly some notable terms to follow up on.  After grouping them together, here are a few of the topics I would look into further:

While some of these company-specific phrases sometimes lead to overly-specific pages like job postings, they can also help you strike the information jackpot.  For example, Home Depot is currently positioning itself as “every day value,” but searching on that term mostly inundates you with job postings and other less than useful pages.  Of course, it also brings up a good presentation on merchandising by EVP Craig Menear, which provides amazingly detailed information on how Home Depot is working to use “destination” product lines to drive sales of complementary products.

Looking at these results, you can start to see the outline of a few analyses that might be interesting to present to a client.  One might be a chart showing Home Depot’s customer satisfaction scores over the last few years combined with changes in staffing policies and other initiatives as well as financial results.  It seems like customer service has been one of the hot-button issues for the company over the last few years, and one that led to former CEO Bob Nardelli’s departure in 2007.

By partitioning your search out this way, you also get halfway to a document outline.  Even when you’re in the middle of looking for data, never let yourself get so absorbed in the research process that you neglect to keep thinking through what you’re going to do with it.

• The learning attained in business school is easily duplicated at work or through self-directed study
• Supposedly, only a few schools give students a positive financial return after accounting for tuition costs and two years of foregone salary
• There are various gaps in the curriculum (e.g., not enough focus on people management, communication)
• More recently, both the analytical techniques and mindset they promote have been accused of contributing to the financial crisis and ethical problems at companies like Enron

There are a lot of nuances to these arguments, and I can’t cover them all here.  So I’m going to present my qualitative opinion on the educational and career value of business school.  These are inherently individual topics, based on a person’s background before school, their plans afterwards, and how much effort they put in.  So consider this anecdotal.  Nevertheless, here are the highlights of my experience:

• Completed around 150 team-based projects
• Worked on a dozen different teams of classmates that all ended up organizing tasks and seeing things in a unique way
• Conducted four significant outside consulting projects for companies ranging from a startup to a Brazilian tile manufacturer to Nextel
• Honed my job search skills through several hundred interviews, as well as writing cover letters and customizing my resume equally many times
• Developed a network of at least 150 friends and acquaintances in my class and gained access to the much larger alumni network
• Earned a credential that I believe made a significant difference in my earnings over the next five years
• Had a number of outstanding professors, both academics and practitioners from backgrounds including consulting, private equity, Fortune 500 companies – you name it
• Led a student organization with about 200 members

In a nutshell, business school was one of the top two growth experiences in my career, the other being starting a company.  I find critiques that imply that you can get the same degree of learning by reading a bunch of business books to be fairly naïve.  Becoming conversant in a topic is not the same thing as understanding it in depth.  Essentially no one is motivated enough to get the same depth of knowledge from outside reading, and self study completely misses the experiential component of the learning – everything from doing problem sets and case presentations to working with your team members.  It’s also difficult to approach various subjects with the same degree of structure and enthusiasm.  You might be excited about finance but not about marketing, or vice versa.

In contrast, many people’s work experience tends to be fairly routine and boring.  They end up doing slightly more responsible versions of the same thing for years.  The pace of learning is often slow.

Basically, critics make the mistake of comparing the ideal work experience with an actual business school experience.  As you probably know, few people have an ideal work experience that allows them to constantly learn new skills and take on responsibility as quickly as they can handle it.  For those few, especially entrepreneurs, consultants, and investment bankers, the case for an MBA is of course much weaker.

While I gained a great deal from b-school, its value depends highly on your situation and what you want to get out of it.

• If you are a specialist (e.g., financial trading, market research, technology product management) and are on a good career path, an MBA program may not add much value and may simply put your progression on hold for 1-2 years.
• If you plan to work in a non-profit field, you won’t get the same increase in salary, potentially making the degree a poor financial choice.
• For people in certain professions like management consulting, you really do end up learning a lot on the job.  The educational value of b-school will be much less for you, although the network and credential might still be helpful.
• If you want to change career tracks or are unsatisfied with the pace of progression in your career, business school was made for you.  It’s the perfect opportunity to reset your career and pursue a new path.
  • Just be realistic about the odds of achieving your chosen career.  For example, private equity and venture capital attract many MBA’s, but only a few with a combination of luck, hard work, and typically a top-tier school like Stanford or Harvard make it.  So don’t bet the farm on a dream like that unless you have a very good plan B.
• If you want to start a company, it’s a tough call.  Business school gives you a well-rounded background to be a company owner, but you might learn more by just running the company.  Also, most entrepreneurs who fail do so because of lack of capital, so the money you could sink into the MBA might be better spent on the business.  Finally, if the success of your business depends on specialized industry or functional expertise, an MBA may not help you with that.

Overall, I’m a big fan of the MBA, as you can tell.  However, I would be remiss not to mention a few areas where b-school curricula are typically weak:

• Sales and sales force management
• Areas where you have to do it to understand it, like recruiting and managing people
• Hands-on experience in realistic work situations
  • For example, a market research class will teach you statistical analysis and types of research, but it will tend to mimic a real market research project, with client demands and ambiguous data, rather poorly.
  • In my opinion, offering more opportunities for real project work similar to post-MBA jobs is the most important area where business schools can improve.

Coincidentally, a book called Rethinking the MBA recently came out.  It discusses the pressures business schools face and how they are responding to them.  While I haven’t had a chance to read it, I’ll make sure to follow up on this post once I do.

For those of you who have or plan to get an MBA, what’s your perspective?

This kind of monitoring can be useful to flag sudden problems, but it’s mostly a big time sink.  More importantly, it doesn’t provide any substantive insight.  You feel like you’re keeping track of the state of the business, but mainly you’re just going through the motions.  Looking at high-level numbers provides no deeper understanding into why the business is performing a certain way and can even be misleading.  Not that I don’t do the same thing.  I get far too fixated on the visitors and page views for this blog at times.

So what should you do instead?  Well, business intelligence, as it’s called these days, has matured into its own vast (and expensive) field, but here are a few thoughts to start with.

Establish more meaningful metrics

Checking top line numbers doesn’t tell you much.  Are sales down because a competitor launched a new promotion, the salespeople are slacking off, or demand is trending down?  Hard to say.  Breaking the numbers down to a more detailed level doesn’t answer these questions by itself, but it’s an important first step.  So look at sales broken down by new versus old customers, by channel, by product, and so on.

Look at trends rather than blips

One day’s data is likely to be more noise than signal, and this becomes even more true once you start doing breakdowns as discussed above because you’re dealing with smaller sample sizes.  Everything else being equal, each product or customer segment will be more volatile than your overall business.  So it’s much more useful to look at the trend over a few weeks to see whether results are moving in a consistent direction.  Try to review each week’s new results in the context of the past 4-5 weeks.

Use a dashboard

Put all of these metrics in one place where you can quickly and regularly review them – in other words, a dashboard.  The format isn’t important.  It could be as simple as updating a quick spreadsheet in Excel.  For most companies, it makes more sense to start with a manual version of the dashboard than to get a software package initially.  You need to figure out which metrics are useful and exactly how you want to define them before you get bogged down in implementing a system.

Start instrumenting your business

While instrument is not really a verb, the point is that sometimes you need to generate more information to get more insight into what’s going on.  It might mean keeping track of your sales pipeline better – numbers like how many calls are made per day, when proposals get written, and what your win/loss numbers are.  Those data can start to give you a much better idea of how productive your sales process really is.  The same goes for any part of your business.  If a critical aspect of it is a black hole, figure out how to start gathering more data on it so that you can make more informed decisions.  For example, try using different phone numbers for different sources of inbound sales leads so that you can better determine which lead generation programs are the most effective.  Virtual number services like Google Voice now make this much easier than it used to be, although this is still an area where there are no good turnkey solutions, to my knowledge.

Do experiments

One of the challenges in marketing is separating the results of your marketing programs from other factors – the weather, competitors, economic growth, you name it…  The best way to minimize the confusion is to run experiments with different programs in separate geographies.  For example, many small and large businesses still run Yellow Pages ads but have little idea how effective they are.  One solution could be to take a baseline measurement of revenue in several regions, then run different ads in each region.  You could have some regions with a large ad, some with a small ad, and some with no phone book ads.  Variations in the results across regions will help you better understand the ROI of different marketing approaches.  This is often called A/B testing.