Business Intelligence for Consumer Packaged Goods: Actionable Insights for Business Decision

Business Intelligence is also known as : Business Intelligence Tools, Data Warehousing, Business Objects, Competitive Intelligence, Knowledge Management, Business Objects Intelligence Platform, Intelligence Software, Business Analysis Tools, Knowledge Management Tools, Knowledge Management Strategies, Knowledge Management System, Business Processes, Process Engineering, Business Process Software, Business Process Management.

Executive Summary

WHILE HISTORICALLY consumer packaged goods (CPG) organizations have made significant investments in data collection and integration, much of the data stored in their IT infrastructures has not been analyzed or deployed to further the firms' business performance. What is needed is a new generation of business intelligence (BI) tools and applications that are capable of integrating cross- and inter-enterprise processes and information. The resulting intelligence would enable CPG companies to make better operating decisions, increase company transparency, change business processes, and drive overall performance.

Those enterprises that learn to effectively harness the vast quantities of information generated by their IT systems—both within and outside the corporation—will enjoy a substantial competitive advantage.

1.0 Value Proposition

After decades of leading product innovation, the consumer packaged goods industry is facing a number of escalating challenges that are inhibiting its ability to reach consumers and convert them to customers.

First, the growing quantity of data maintained by CPG companies has yet to significantly improve the industry's understanding of consumer needs. Managers continue to rely on guesswork: risking bringing the wrong products to market, poorly executing on marketing campaigns and promotions, or distributing them to the wrong locations. It is not enough for marketers to understand what customers want today; they must also be able to anticipate customers' needs, and in so doing, develop timely, innovative, market leading products ahead of the competition. Mike Szafranski, director of business intelligence and enterprise content management for Kraft Foods, lives this challenge:

"On the marketing side, the goals are much less about cost cutting and more about building the relationship with the consumer, meeting the consumer's demands through innovation, [driving] new product development and using this approach as a platform for growth."

Next, today's consumers are so bombarded by advertising—a variety of research consistently shows that more than 80% of consumers don't like traditional advertising and seek to avoid it, a significant consideration when it comes time to bring a product offering to market. Nevertheless, good business intelligence enables a better understanding of consumers and their preferences; thereby helping marketers deliver meaningful, authentic, and targeted customer messages that rise above the noise of an increasingly cluttered marketplace.

Finally, although the logistics of a distributed global supply chain have created new opportunities for creating greater alignment between supply and demand, without proper business intelligence, account teams often fail to obtain adequate data to derive a true picture of consumer demand for the companies' products within the retail channel. For example, certain items could be out of stock, while others may not be selling at all"both situations lead to lost sales opportunities and create downstream challenges when attempting to justify future shelf space with the retailer.

Incredibly, the average out of stock rate for items on promotion can sometimes be as high as 30 per cent! Only by understanding consumer demand can marketers ensure that goods will be available for consumers when and where they are ready to buy.

Companies without a proper plan to address issues of data management, marketing, and logistics, will experience negative results: declining consumer mindshare, profits, and shareholder value. Indeed, New Paradigm's research shows that existing business intelligence solutions are insufficient to address these problems. Perhaps this explains why recent surveys of CIO spending show that BI and data warehousing (DW) have become a significant spending priority. (In January 2007, independent research revealed that 44 per cent of CIOs identified BI/DW as a top spending priority going forward.)

In this paper, we discuss how technological advances are enabling improved decision making across three broad axes: simplicity and relevance, agility and integration. New interfaces and approaches to business intelligence are empowering more decision makers by providing relevant data within a user-friendly interface. Meanwhile, new technology advancements, such as in-memory BI, are providing additional levels of performance and helping users gain real-time insight into their data. Further, by integrating BI within business processes and distributing it more widely, decisions can be made at the point of impact. But to ensure that the data can be trusted, a solid data foundation must first be established and aligned with the master data.

2.0 Simplicity and Relevance

Effective business intelligence is both simple and relevant: simple to allow a large number of users to access the information through an interactive, user-friendly interface"regardless of the type or source of information"and relevant so that users can employ it to address immediate issues and support business decisions.

2.1 Simplicity

The quantity of structured and unstructured data (emails, blogs, wikis, etc.) is increasing to such a degree that content management and search have become hot topics among the multitude of business and technology executives trying to gain insight beyond the structure of just "raw" numbers. Another important dimension is the source of information; internal sources have always been mined but external data is now increasingly pulled in from business intelligence portals. This can come in the form of syndicated research, industry reports, trends and analysis for better estimating demand, or as industry benchmarks that enable decision makers to measure themselves against corporate targets.

Kraft Foods is investing significant resources in order to increase the simplicity and relevance of its business intelligence. Kraft is a $34.4 billion company, manufacturing and distributing snacks, beverages, cheese and dairy, and other convenience or grocery food items. Among its successful products, the company counts seven brands worth over $1 billion and 50 brands worth over $100 million. And with 90,000 employees and 159 manufacturing plants worldwide, it is truly a global player. Szafranski explains Kraft's complex situation:

"The challenge in the consumer goods industry for us and a number of our peer companies, is the complexity and magnitude of data that is needed to get a complete picture of the marketplace. We have to get many sources of data transformed, cleansed, and harmonized just to marry consumption data from a retailer for a certain category, in a certain demographic segment with our shipment and our planning and forecasting data. Repeating this for different use cases with retailers, syndicated sources, and distributors, creates a significant challenge but also a significant opportunity."

To solve this challenge, all partners need to collaborate and construct a platform to enable an exchange of information. Although this may require some participants to share what was previously their closely guarded proprietary information, when the data is finally allowed to flow freely in all directions, all of the partners are likely to benefit significantly.

A new approach to the interface is also needed. To that end, new technology and tools in the areas of user interface and visual mapping are coming to the market every year. Szafranski describes his own idealized vision of a "simple" business intelligence user interface:

"I view consumer information evolving from a syndicated data space to a much more unstructured, accessible environment in the future. I think the future of all this should be as simple as a Google search box. Something where you can write questions in English which are translated into queries against structured and unstructured data, which then comes back to you with an answer in English."

2.2 Relevance

Consumer goods executives are inundated with data"sometimes to the point where the sheer volume of it makes taking action difficult. This plethora of data is derived from various sources and presented in many different forms. Data from initial research (panels, focus groups, consumer groups, etc.), internal transactions (manufacturing, shipments, costs, etc.) and/or feedback from the channel (sales, promotions, etc.) all answer different questions and must be reconciled. Still, the key to gaining insight and competitive advantage is not the quantity of data, it's the relevance of it.

"The amount of data is staggering, and there doesn't seem to be an end to it—it continues to grow by heaps and bounds," remarks Tom O'Toole, director of go-to-market systems at Brown-Forman, one of the largest American-owned companies in the spirits and wine business, and a diversified producer and marketer of various consumer products. "We're certainly one of the heavy users amongst our industry. Our main concern is what to do with this data, and making sure that what we're storing is useful for the business. The interesting insights and actionable pieces of information are increasingly challenging to unearth."

A number of factors are driving this growth in raw data, including technology advances such as Radio Frequency Identification (RFID).1 Although this particular technology has generated significant fanfare, its value continues to be debated. While information is now available at the micro-level throughout the supply chain, it is of questionable benefit if business processes cannot be dynamically altered to reflect what has been learned from it"for example, if products cannot be rerouted based on new distribution information, or orders cannot be canceled based on lagging consumer interest figures, etc.

The solution is to clearly define what information is relevant to each business decision and to meticulously map it across all of the various business functions and roles. At Brown-Forman, this detailed process is paying huge dividends. "To achieve our objectives, we are delivering BI on a roles basis, based on a hierarchy of business metrics," O'Toole explains.

"We looked at every role from the front-office (sales, marketing) to the back-office (finance, HR) and refined our business processes into 23 sub processes. Then we used the common 'RACI' approach to establish who was 'responsible', 'accountable', and had to be 'consulted' or 'informed' about these processes. Finally, we implemented these processes and attached reports through our portal."

3.0 Agility

Instantaneous or real-time response rates can have a meaningful impact on the rapid sales cycles throughout the channel. This is a particularly acute challenge in the consumer goods industry, where data volumes are high yet rapid decision making can directly impact the day-to-day business. Rapid response rates (i.e. less than a few seconds) on queries of millions of entries can provide a significant competitive advantage. Recent developments in hardware and software technology are now capable of delivering real-time response rates through in-memory BI technology.

For example, a monthly or even, weekly report would not provide any meaningful input that would reduce the number of out of stock occurrences. Yet, with the increased technological capacity now available (and at a reasonable cost), today's BI solutions can process reports "on the fly," instead of having to process and "massage" the data into pre-formatted tables and databases. Real-time information means real-time decision making; enabling companies to monitor and adjust the promotion of products and flow of goods fast enough to impact results.

Kimberly-Clark is a leading global health and hygiene company employing more than 55,000 people worldwide and posting sales of $16.7 billion in 2006. Headquartered in Dallas, Texas, and with operations in 37 countries, the corporation's global brands are sold in more than 150 countries. The management team attributes the firm's success to its practice of leveraging insights from customers, shoppers and users of the innovations Kimberly-Clark brings to market. This enables the firm to develop entirely new products and categories, and improves its performance in existing brands.2 For Phil Nikolai, the company's senior manager of global data warehousing, the implementation of hardware acceleration through in-memory technology was one of the most significant advances his group had ever delivered to its business unit.

"The move to in-memory business intelligence has been a huge win for us. We first did a five-day proof of concept to show the business unit what this was about but they were still skeptical. After the implementation, the query times were two to 120 times faster. They [the business unit] could not believe the results we delivered"we even had to warn them about the upgrade so they wouldn't think there was an error, as queries that used to take 10 to 15 minutes were now delivered [in] under a minute. For the first time in my career, we actually had a honeymoon phase with the business unit."

Any improvement in the frequency of updates can result in significant benefits. For example, at another consumer goods company, information used to be aggregated on a monthly basis. Recent upgrades have now made it possible to deliver the same supply chain information daily. This has significant business implications. The sales force now has a much better assessment of the impact of promotional activities. When sales are aggregated monthly, it's challenging to determine whether point-of-sale promotions in some locations really drove sales.

Complicated by potential variations that can affect sales (weather, competitive activity, etc.), the results can be difficult to understand. Frequent updates also enable sales representatives to address supply chain discrepancies in a more timely and effective manner. If a store or region's inventory is particularly low on an item, the situation can be addressed immediately before the inventory is exhausted. Finally, for senior management, frequent updates enable a whole new look at the overall operations and profitability of the company, from the warehouse to the retail shelf.

4.0 Integration

Business intelligence is moving beyond the end-of-line analysis and reporting function to an integrated system embedded within business processes. In the past, the reporting mechanisms that reached the end user came at the final stage of a tedious "in series" approach to business intelligence. Data was processed, stored in the production system, and then extracted into a data warehouse in a linear sequence. Only then was the information the end users required ready for analysis and reporting. The new approach injects BI "in parallel" with the business processes; thereby providing clients with more timely access to better information about critical business processes.

In addition, the simple definition of a "transaction" can reveal significant discrepancies across departments and users. By the time a particular transaction is completed, so many deductions, rebates, discounts and other trade spending has occurred that it is almost impossible to specifically identify profit centers at a granular level (i.e. by customer, by product, by channel). And without this level of detail, planning for profitable volume growth becomes no more than an educated guess. The challenge lies in the insight, not the availability of the raw data.

The ultimate benefit is derived from complete integration of the information across systems and departments. In this event, planning for day-to-day activities and significant occasions, such as new product introductions, can be integrated across marketing, sales and other departments. From the onset, the benefits of such integration include consistent and accurate information and customer messaging, and ultimately, substantial revenue and profitability improvements.

Customer interviews revealed that BI is not just for senior managers; smart companies are distributing it more broadly across their organizations. Every business process requires a certain amount of insight and analytics which should be delivered to the right individual at the right time. As previously mentioned, Brown-Forman has gone to great lengths to implement this approach. "We are moving from a situation where about two per cent of the company are [sic] power users and high volume users, to a scenario where business intelligence will affect 20 per cent of our employees," notes O'Toole.

"The end-users are asking for it-more and more we hear 'this is great' after we've introduced people to these new tools. For example, sales managers can now monitor activity, get insights into competitors and market trends, take this info and prepare their action plan, and then go out to deliver on this plan, all through the business intelligence portal."

As BI is integrated with business processes, there is also an opportunity to revisit existing processes to ensure they represent best practices. After all, accurately documenting and measuring an ineffective process does nothing to improve the business. Most effective BI solutions will provide industry-specific resources in the form of expertise (e.g. consultants) or specific technical resources (e.g. templates, queries).

5.0 Alignment

The previous sections address the quality of the insight needed and the importance of linking it to business processes. The manner in which data is collected, processed and stored has an immense impact on the quality and value of business intelligence tools, (i.e., "garbage in, garbage out"). For this reason, master data management (MDM), which defines how data is managed from its initial collection to final use, is a critical underpinning of successful BI implementations. This is especially true for the consumer goods industry, where the quantity of data and the variety of sources adds to the complexity.

The concept of MDM is fairly straightforward: without clean and properly aligned data across the organization, it's difficult to answer key business questions. And although it might appear just as straightforward to solve it, the level of complexity of today's IT organizations poses a real challenge. "Master data management is a real challenge for us. We have been able to move forward on the business intelligence front in the past with setting MDM aside, but we can't wait anymore," says Phil Nikolai. Globalization of supply and demand networks is a large contributor to this pressure to implement MDM.

"Until recently, when a large global retail chain wanted to see a report of all the products we had sold to them worldwide, we struggled to piece together all the various customer numbers and products numbers used by all our regional offices. So we are focusing our MDM efforts on customer and product information, and making great strides."

6.0 The Payoff

The challenges faced by the consumer goods industry will only grow with time. Trends, such as the growing number of disengaged consumers, increased data volume, business globalization, and complexity, are here to stay. To maintain their competitive advantage, organizations must leverage internal and external information into an accessible, usable medium and provide BI to a larger number of employees. Business intelligence solutions will continue to evolve, as exciting new capabilities such as in-memory technology evolve and are adopted broadly within the marketplace.

We are making a case for a broader definition of BI; one where CIOs need to use and promote BI not just as a means to report on corporate performance, but also to enable broader analysis and understanding by incorporating and managing content in addition to data, an enabler of enterprise knowledge management and enterprise intelligence in the future. Organizations that enable business intelligence solutions built on the tenets of simplicity and relevance, agility and integration have the potential to sustain competitive advantage in a world where change is the only constant. Simple and relevant BI tools can empower employees to make effective decisions with increasing speed and agility. By integrating real-time decision making with mission critical business processes, smart businesses can keep up with and even excel in the innovation-driven world of the 21st century.

Yet BI in and of itself is not enough to enable consumer goods companies to launch the right products, run the right promotions, or properly stock the shelves. But BI is a key part of the solution to deliver a harmonized report of retailer consumption data, combined with historical shipment data for analysis of promotion activity. As a simple example, this would empower consumer goods companies by giving them the opportunity to evaluate which promotions were the most successful and most profitable in the past, and giving them the opportunity to make better decisions on upcoming ones.

Moving from legacy BI solutions to these next generation solutions represents a giant step forward and corporations will continue to face a choice: execute these best practices or fall by the wayside. Early adopters will see empowered employees, rapid execution and adjustments to plan, resulting in bottom-line growth.

About The Author

I am grateful to Pierre-Luc Bisaillon and Paul Barter of the New Paradigm team for their help in researching this paper and I also thank SAP and Intel for their financial support of this White Paper series. However, the views expressed are my own and my company New Paradigm takes responsibility for the opinions expressed herein. Don Tapscott, chairman and founder, New Paradigm

DON TAPSCOTT, one of the world's leading authorities on business strategy, is the founder and chairman of international think tank New Paradigm. Established in 1993, New Paradigm produces ground-breaking research on the role of technology in innovation, competitiveness and society. The company was acquired by BSG Alliance in November of 2007, and is expanding its syndicated research programs globally. Currently four multi million dollar efforts—The Enterprise 2.0, Talent 2.0, Marketing 2.0 and Government 2.0—investigate strategies for winning through next generation enterprises.

Tapscott is the author of 11 widely read books about information technology in business and society, including Paradigm Shift, The Digital Economy, Growing Up Digital and The Naked Corporation. His most recent book, Wikinomics: How Mass Collaboration Changes Everything is an international best seller in 20 languages. It was a finalist for the prestigious Financial Times/Goldman Sachs Best Business Book award and has been chosen by many publications including The Economist as one of the best books of the year. He is also adjunct professor of management at the Joseph L. Rotman School of Management, University of Toronto. His clients include top executives of many of the world's largest corporations, and government leaders from many countries. He holds a master's degree in Research Methodology and two Doctor of Laws (Hon). www.newparadigm.com

Endnotes

1. Wikipedia defines RFID as an automatic identification method, relying on storing and remotely retrieving data using devices called RFID tags or transponders.
2. www.kimberly-clark.com, July 2007.

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