Economist and data analyst, David Maher, director of Melbourne-based company Right Brain Insights, shares his thoughts on how cloud software is a valuable tool for companies to understand and use critical business data. In his first post, David looked at why you need to invest in data to drive business success. This article is the second in a 5-part series.
We live in a globally connected, digital economy. In this world the all-pervasive force is data. So much so that is has become to the digital economy, what oil was to the industrial. There has never been a better time to use data to drive your business performance.
In my first post, we looked at how cloud software systems such as WorkflowMax and Xero help you gain valuable insight into your business. However, for many businesses it can be difficult to make sense of this data and recognise it as the asset it is. After all, you don’t see ‘data’ sitting on too many balance sheets around the place.
So, what are some practical ways you can begin to make data meaningful to your business?
Good news – it’s a pretty simple process. Here are 3 steps to get you started:
1) What are your goals?
Think about it this way – imagine driving through a city, not knowing where you are, or what your destination is, but you have a map, but no streets are signed. Confusing? Well a business can be just like that if you don’t have goals (bankers and accountants would called these budgets). They form the point relevance to which actual results can be compared to, refining your data from 0’s & 1’s to something of real value.
2) Assign data to these goals (& shut out the noise)
Ok – you know your goals. Now assign some data to them. Don’t freak out (!) - this can be super simple. For example, you have a goal of $100K of income per month. ‘Income’ by ‘month’ is your data point. Make sense?
Other simple ones could be how many hours you want to work, effective charge out rates, net and/or gross profit margins, asset utilisation… the list goes on.
The data points you choose will relate to your particular business. A creative agency we worked with focused on ‘how many hours does each staff member need to bill out each day, at their standard hourly rate, to any client, in order for us to make a 25% net profit margin?’ The answer in that case was 2.5 hours per person.
An airline may focus on the amount of hours their planes are in the air vs. on the ground. A retailer may focus on gross margin and sell-through rates. Make sense?
Now you’ll find that there are many things worth tracking relative to your goals. This raises an important point around ‘noise’.
Throughout this stage keep the focus on your goals. There is SO MUCH data out there you could measure almost anything a bazillion (yes, a ‘bazillion’) ways.
You’ll only confuse yourself and the whole process will prove utterly pointless.
Focus on the least amount of data points you require. It’s the age old adage – keep it simple. Remember too – we don’t want a tsunami of data. We want the right data, that will yield that one critical insight at exactly the moment we need it.
3) Build yourself an intelligence infrastructure
You know your goals. You know what to record relative to your goals. Now we need to build the map, and track where we are vs. where we want to be.
That is an intelligence infrastructure.
The key here is to think ‘good vs. bad’. You want your intelligence system to point out (or at least point you in the direction of where to look further) what is a good product, client, supplier, staff member, site, tool or any other moving part in your business – versus a bad one.
By understanding (and SEEING) this you can begin to optimise. Clients that looks like ‘A’ are awesome, but clients like ‘B’, we are not going to touch them with a 40-foot pole…
Critically - how you design your intelligence is of utmost importance. The game here is to INFORM decisions. As a business owner you will need to make decisions. Only question is whether they will be informed or uninformed. Personally, I’d take an informed decision any day of the week.
But informing is more than just having the data and knowing it’s correct.
Whatever the report/chart/output, make sure that it communicates to the decision maker(s) with clarity and conviction. That will give them the confidence to act.
So you’ve got data - now what? Discover what questions you should focus on to make sense of your business data in David’s next post in his 5-part series on the WorkflowMax blog - sign up for updates below so you don’t miss it!