Well designed and well implemented operational systems help businesses run more efficiently and give end users easier access to order information. This enables them to provide a higher quality of service to their customers but it also means that the corporate system is gathering a lot of raw data. This podcast is an excerpt from a recent webinar about gaining insight into business operations by mining the data corporate systems are so good at collecting. Our guest is Fred Owen, President of MITS, a business intelligence and data mining software company based in Seattle.
Right-click to here to download - NP Sessions - Episode 2
FRED: I really appreciate the chance to come on and talk a little bit about my experience. I think it’s relevant for what we’re going through today and can help provide a little bit of context for this situation and how companies can respond and improve the situation that they find themselves in. So I’d like to do that by really just telling a story about an experience that I had. So if you’ll go with me, back in time, to 1987 - 22 years ago.
I was working for a company and I was, at that time what they called in the old days, the data processing manager. And the company that I worked for was about 100 employees and was a privately held manufacturing firm. As the IT person, I’d been on the job for about a year and found my way around the organization pretty well. We’d made some improvements, for example, I had replaced the main computer system with one that was more flexible and it had more capacity. I had spent time streamlining their order processing workflow so that orders could get to the system in a more expedient manner. I’d automated several of the more, what we considered in the day, oppressive manual tasks and I helped the management team with their annual budgeting process. I was pleased to be able to do that from a technical perspective. So the computer system was reliable; I felt like I was in control. We were even going so far as to do daily backups of the system in case some unforeseen disaster should befall us. So basically, inside the organization; inside the four walls of the company, things were running pretty well and I was feeling pretty good about that. But little did I realize that the challenge would come from outside.
The situation was that the owner of the company was nontechnical and he was also pretty quick tempered and I would even characterize him as being blustery. He relied on his understanding of the industry to steer the organization. Sort of a gut feel thing, seat of the pants to some degree. But it really depended on his knowledge of the industry, having been in it for a number of years. So that served him well. During his tenure, the company had grown; he was very pleased with the success that we had had. We opened a new production facility in the Midwest (this was a West Coast based company) and the company had really achieved record sales results. They were doing well.
Then one Monday morning, in October 1987, the stock market dropped about twenty two percent in one day. Many of you will remember that. Ushering in a sharp economic recession and our company at that time was a supplier to the consumer marine industry. Our products made their way to the manufacturers and they became part of the personal discretionary expense that one would call a personal pleasure boat. So that industry began to go through some serious convulsions as you can imagine. We found ourselves in a scenario where there were risks everywhere. We really felt like careful, informed navigation of these really uncharted business waters that we found ourselves in was just more important than ever.
I remember a day, a particular day, when the boss blustered over to my workstation, which was in an open area, and in a loud voice, announced to me and everyone else that could hear, he said, “Our business is off and I know it’s because of this recessionary climate we find ourselves in, but I don’t know exactly where or what to do about it. I’m pretty sure the answer is somewhere in that computer system of yours. Look into it and tell me what’s going on.” He didn’t even think the computer system was his.
So I launched an intense effort over the next several weeks where I began to use, really, all the resources I had at my disposal. In those days, there were not very many resources, as you can imagine. I used those resources to sift through the detailed transactions in that production system and I was looking for clues about how the economic downturn was affecting our business. As I set out, I didn’t know exactly where to go and what to look at. I just began looking at data. I used a myriad of database queries and reports to do that. I derived a number of spreadsheets and, in those days, spreadsheets were things that you bought down at the office supply store. They came in a book; they had a number of columns; they were made of paper; you filled them out with pencil because you had to be able to erase them. Using that spreadsheet technology I was able to learn a few things that were very important.
One of them was which customers had slowed their purchasing activities first. That provided an early indicator of their economic wellbeing; how they were navigating through this economy. I was able to learn what customers had delayed payment; providing another important indicator, well before they hit ninety days past due. All told, I was able to learn from our operational computer system, information that provided a number of important insights. The management of the company then was able to, with a degree of wisdom, apply that knowledge and steer clear of some of the biggest risks. Really, mitigate the damage that that economic downturn had had on this particular company.
Now, the affects of the economic downturn were still significant but by applying what I had learned, the owner was able to preserve the value of the business and negotiate it’s eventual sale to another organization and that provided him with a handsome return. That might not have been possible without this effort. So when you distill this story down to its essence, it really provides the basic motivation for MITS products and that is gaining insight from corporate databases and using that insight to make wise decisions.
To me it was very exciting to help that company succeed back in 1987; in a measureable way. Today the company I work for helps many organizations achieve more results but hopefully without the need for the old paper style spreadsheet technology. So with that background and with that view of sort of the situation we find ourselves in, we come before you today to give you an idea, some ideas, about how you can make the most of the situation in which we find ourselves in today.
GEORGE: Fred, I have a question for you, if you don’t mind. You had to spend time culling through data. Eventually to start identifying something you could put your hands on so that you could take back to somebody else that has to make decisions based on that. Not knowing whether there was anything useful in it or not, I presume, but assuming that there was (everybody assumes that there’s some valuable information in the data that is being collected by their operational system) so? I guess if I have to ask a question from an end user’s standpoint, how do you even start to approach it. How do you start if you don’t - you have no clue? There may be some assumptions that we all make or that the industry makes, but that doesn’t necessarily correlate to results. So we end up generating a lot of activity in the organization that bears no fruit, or useful fruit. So how do we start? Where do we go from here?
FRED: Well I think the key question that really revolves this disconnect, and the disconnect goes something like this… We all see our business through our particular experience but if I’m managing a business and I walk through the order processing department and the phones are ringing and people are busy, I think we’re doing well because I’ve taken that input and I’ve digested it and I’ve reached this conclusion so we all have a sense of how things are going. But without really, objectively, measuring that activity, our view is distorted and so I have a lot of respect for hard data. If we can actually look at the numbers, we’ll get a better picture; a more accurate picture of what’s happening and we can make better decisions from that. And I think that if we can sort of put aside that lens that we use, this distorted lens, and look at it more objectively, that that’s a good first step. Beyond that, business is relatively simple. You know the formula for business success is just income minus expenses equals profit. At the end of the day just make sure that number is positive right? And make sure that number is as big as possible. Just at a fundamental level, if we begin looking at some of those big pieces, what’s happening in the income stream. You probably all know what’s happening at sort of a macro level. That’s easy; our sales are up forty percent or down twenty or whatever the number is. You know that. But hidden in there are a myriad of details that give you insight into specific things you can do to improve them. So being able to readily dig into and understand and digest that information, I think is the key. So I think we all have a sense for what big pieces we need to look at and I think it really does involve just wading into it. As you do that, you’ll see things that stand out over performers, under performers, anomalies that don’t fit the pattern; that need to be investigated more fully. That’s essentially? I think where the key is.