Build a Data-Driven Strategy: 4 Easy Steps
Most managers know data is valuable. Only a few ever extract that value.
The challenge lies in knowing what to do with information once you have it. Reports are generally used as passive evaluation tools, but this only scratches the surface. Effective data analysis shows not only what to improve, but also how to improve it. Businesses are getting really good at generating reports. Managers now have so much information, it’s hard to know where to start.
If the phrase “data analysis” sounds a little intimidating, don’t worry. You don’t need a business degree, just a little common sense. The following process offers a straight-forward approach to getting more value from your numbers.
Create a Goal
The first step in making an effective, data-driven plan is to…stop looking at the data. You need to be working towards a business goal, and it’s easy to forget that when you get too wrapped up in the numbers. Back away from your spreadsheets, think about your major priorities, and decide what you want to achieve.
Come up with a specific and measurable objective. (Instead of “make better purchasing decisions,” opt for something like “increase inventory turns to X.”) Pick one or two KPIs to track success. For instance, if you want to improve inventory turns, you might focus on metrics like T&E ratio, GMROI, and turns by product group or item.
Make sure your goal is reachable. Look at historical data, determine what typical performance is for this area, and establish a baseline. Then set a realistic target for improvement. It’s much better to achieve a modest goal than fail at an ambitious one. Scoring an initial easy win will generate momentum to tackle bigger challenges later on.
Find the Sore Thumb
Once you’ve selected your KPIs, start digging into the information around them. It’s ok if you don’t have any theories yet. Just pick a report and break down the component parts. Look for numbers that seem unusually high or low, or anything that surprises you. (In other words, look for things that stick out like a sore thumb.)
A word of caution: the numbers that seem the most interesting at first aren’t always the most important. If you think you’ve found a smoking gun, try to drill down two layers below it. For instance, say your average inventory turns are low. You may want to drill down into the product group majors and minors. If one is significantly underperforming, then you’ve found your target.
Make a Plan
When you’ve found your “sore thumbs”, you can start thinking of ways to heal them. This is where data analysis really pays off. All too often, managers come up with plans based on the top-level numbers in a report. But those top-level numbers can be misleading. If you follow a problem down to its root cause, more effective strategies will start to reveal themselves.
In the previous example, had the Purchasing manager just seen a disappointing overall average number of turns, he may have told his buyers they needed to “fix” their processes. In reality, his buyers’ processes are already pretty effective. They only need to make adjustments around one product group.
Track Your Progress
Once you’ve put your data-driven plan into action, you’ll need to step back and find out if the change is effective. Believe it or not, there are best practices for tracking your data. Follow these steps to get maximum insight with minimum time commitment.
DO continuously monitor performance. If KPIs start to tank, you need to know when it happens, not a month later.
DON’T get wrapped up with minor peaks and dips. It’s standard for metrics to fluctuate a bit from one day to the next. Your goal is to improve performance over the long-term. Watch the overall trend, and don’t worry too much about last week.
DO create a simple dashboard for tracking your KPIs.If you’re spending 30 minutes a week on manual calculations, it’s time for a new approach. Use charts and graphs when possible, as they make it easier to monitor trends and spot outliers.
DON’T fill your dashboard with lots of metrics. It’s too easy to get distracted, and you’ll always see something interesting to investigate. Chasing data butterflies is not a good use of your time. Keep it simple. Only include KPIs for the primary initiative.
DO schedule time to explore your data. Deep analysis is important, you just can’t afford to do it every day. Set aside time once a month or once a quarter to do some thorough digging.
DON’T horde information. Some managers get cagey about sharing data with their team. This is a mistake. The people responsible for improving KPIs should have access to data about them. (If your buyers are supposed to increase inventory turns, they need more than a monthly line graph.) Exploring information for themselves engages people with the challenge and makes them more invested in the solution.
DO provide your team with regular updates. Seeing the impact of their efforts is great motivation. If possible, save yourself some time by setting up an automated process to email the report once a day or once a week. Set some short-term goals and offer recognition or token rewards when those goals are met.
DON’T confuse “correlation” with “causation”. Things may improve after you roll out your master plan, but that doesn’t necessarily mean your master plan is what made them improve. Be patient, be curious, and keep digging into the numbers.
Most managers use reports to track performance. Superstar managers use them to drive action. Fortunately, turning numbers into strategies is pretty straightforward. It just takes a little patience and a few analytical adventures.