Is Data Strategy or Corporate Strategy more important? Why?
sb-2019-06-TK-data-driven.indd strategy+business BY PAWAN KUMAR, RAMY SEDRA, AND JAVIER BARGUÑÓ CASANOVA TECH & INNOVATION Winning with a data-driven strategy Making decisions based on hard evidence requires a major shift in culture, technology, and mind-set. JUNE 5, 2019 w w w .strategy-business.com 2 Pawan Kumar
[email protected] is PwC India’s joint leader for technology consulting. Based in Bangalore, he is a partner with PwC India. Ramy Sedra
[email protected] is PwC Canada’s data and analytics consulting leader. Based in Montreal, he is a partner with PwC Canada. Javier Barguñó Casanova
[email protected] is PwC Spain’s data and analytics consulting leader. Based in Madrid, he is a partner with PwC Spain. The entire ethos of Spanish hotel chain Ilunion is built on innovation, and its most powerful tool for solving problems is now data. In January 2017, Ilunion started giving detailed information about the company’s bookings and revenue to man- agers and staff so that they could make smarter decisions. The company’s system consolidates more than 12 million data points from different sources and pres- ents it via user-friendly dashboards. For example, a pricing analytics tool recom- mends changes to room rates based on real-time supply and demand. Another dashboard shows key metrics such as revenue, average room price, and occupan- cy rates for each hotel, segmented by market and channel. That allows managers to spot problems early on so that they can take corrective action. Ilunion is now rolling out access to meaningful operational data in other areas of the business — for instance, the company’s health club and laundry services divisions — to sharpen decision making and inspire process innovation. Ilunion was founded in 1989, five years before Amazon’s founding and more than a decade before the phrase digital native was reportedly first uttered. Yet Ilunion’s leaders, and those of other more established companies and organiza- tions that have incorporated data and analytics into the fabric of the business, have been able to accomplish what many digital startups were designed to do from their inception: exploit data to hone and evolve their value proposition. For companies old and new, in nearly every industry, this data-driven approach is no longer something to aspire to. It is quickly becoming a strategic imperative, one that can make or break a company’s ability to retain customers, grow revenue, and maintain its competitive advantage. w w w .strategy-business.com 3 This imperative is reflected in one of the findings from PwC’s latest Glob- al CEO Survey: Seventy-seven percent of CEOs reported that they planned to pursue operational efficiencies to increase revenue in 2019. A disciplined and comprehensive embrace of data will be essential to meeting this goal. It will re- quire that everyday decisions and actions be informed by the latest 360-degree information on a situation, rather than gut instincts or historical precedent. More traditional organizations that have internal hurdles to overcome both culturally (“that’s not the way we do things around here”) and practically (legacy infrastructure, siloed business units) might seem to be at a disadvantage. But that doesn’t mean they can’t transform their situation, as long as their intentions are clear. And digital startups can also benefit from focusing on several areas that enable a data-driven strategy. Barriers to transformation If becoming data-driven were straightforward, every business would do it. Yet PwC’s CEO Survey reveals that despite the widespread understanding of data’s critical role in companies’ strategic agenda, the gap between the insights that are needed by a business and those that are actually accessible has not closed in the past decade. Unaddressed, the situation is likely to grow worse rather than bet- ter, as data volumes increase at an accelerating pace. Why is it that when established organizations sit on decades’ worth of rich data, they struggle to exploit it to powerful effect? For one thing, tradition- al companies tend to have trouble corralling data into usable and actionable For companies old and new, a data-driven approach is no longer something to aspire to. It is quickly becoming a strategic imperative. w w w .strategy-business.com 4 intelligence. In our experience, common reasons are siloed data, poor data re- liability, and a lack of analytical talent. Companies can also be impeded by in- compatible legacy systems and the fact that different types of data may exist in different formats across the parts of an organization, making them hard to compare or combine reliably. In many cases, investment in platforms intended to collate high volumes of data hasn’t solved the problem. Such plans often progress without a specific use case in mind, or they lack the flexibility to extend the technology to subsequent needs. In other cases, data initiatives have concentrated on individual units, rather than on the core of the organization. Without broader company buy-in, initial momentum has faltered. How to become data-driven For data to be transformational, it needs to be business-critical, from the top to the bottom of the organization. The right insights then need to be readily acces- sible, interpretable, and actionable at the point of need — a situation enabled by technology and a culture of making data easily available. Digital-first businesses understand this necessity and have used it as an or- ganizing principle for everything they do. More established companies can get there too, by linking data to the business agenda, creating a data-driven culture, bringing data-generated insights to life, and implementing the requisite techno- logical infrastructure. These efforts are detailed below. 1. Link data to the business agenda. The power of data lies in what teams do For data to be transformational, it needs to be business-critical, from the top to the bottom of the organization. w w w .strategy-business.com 5 with it. Companies must clearly define their use cases, mapping them to the broader agenda. Those that succeed typically ensure that data-driven decisions are embedded in their business strategies and innovation plans. A prerequisite is viewing data as an asset with a clear link to business impact. Leadership and board sponsorship of data programs is critical. To complete the circle, entity-level insights must be fed back to the head office and must inform group-level business plans. The software company Adobe has created a data-driven operating model (DDOM) for running its digital business. The DDOM dashboard shows the overall health of a business and maps a customer’s entire buying journey, from discovery to try, buy, and renew. It’s like a turbocharged CRM system, driv- en by real-time data. Through the DDOM approach, Adobe can base detailed customer models not just on transactions but also on behavioral and experien- tial insights and digital touch points. As a result, Adobe can more accurately predict when a customer might be thinking of switching to a new vendor, or whether a customer is a good candidate for other Adobe offerings, allow- ing the company to take the right action, e.g., cross-selling or upselling, at the right time. At Transport for London (TfL), the local government body responsible for the transport system in greater London — including more than 100 million passenger journeys on the London Underground metro system every month — performance analytics are now housed in a central shared-services center. This center communicates directly with individual lines of business, with clear re- quirements for accountability. Traditionally, TfL’s shared-services unit had produced periodic performance reports, but the reporting structure had not changed much over time, so indi- vidual business units were not checking the reports. The finance department decided to change the reporting structure to bring it more in line with the vari- ous demands of business units, with the goal of making those units more finan- cially aware and more accountable. “We needed to change the type of reporting to highlight the financial aware- ness issues and to make the individual business units accountable for their re- sults, rather than the finance service just sending reports,” says Najam Israr, head of delivery enhancement at TfL’s finance service center. “We also needed w w w .strategy-business.com 6 to give them sufficient detail. For example, cost centers can view their own re- ports, such as to check if they are overpaying specific suppliers, and which ones in particular. In fact, we are now saying to each business unit that they can pro- duce their own KPIs — that they are now responsible for analyzing and manag- ing these.” Now that TfL has begun to lay the foundations for better data, and for more agile and devolved reporting, managers from across the different business units have begun taking a keen interest, and asking what else might be possible, Israr emphasizes. “They are already requesting enhancements — more detail, and different ways of displaying it. [Because we are] a public-sector body which moves very slowly, it’s been transformational to see what effect this new ap- proach to data is having,” he adds. “It is helping us tremendously in mitigating financial risk.” 2. Create a data-driven culture. Becoming a data-driven organization de- pends on getting the buy-in of everyone in the business, who will adapt to new ways of thinking and working based on what the data is telling them. Generat- ing consistent enthusiasm across the wider organization can be difficult — espe- cially when it depends on rallying other leaders with competing agendas. Indeed, cultural change is usually the most critical element in making an organization more data driven. Yet it is also the area that receives the least in- vestment, and it is the toughest to get right. Changing an employee’s thinking away from “gut feel” toward evidence-based decision making is not something that can be achieved with token change management or training. It needs to be Cultural change is usually the most critical element in making an organization more data driven. w w w .strategy-business.com 7 embedded in the way people think and work every day. This includes fostering a culture and expectation of data ownership, and of using data to guide any pro- cess and quality improvement. Finding and hiring the talent that can drive data-led innovation should be a further priority. Digital-era startups tend to have a wealth of this talent, which in turn cements the right kind of culture. Traditional businesses may