Today's decision, tomorrow's ROI

Teradata's Business Impact Model sees the future of your business.

by Janet Kreiling

With today's capital expenditure funds as scarce as hens' teeth, especially for technology, companies need to know that any investment they make will have a definite return. Now, for database platforms and customer relationship management (CRM) solutions, they can. Teradata's Business Impact Model (BIM) is the ultra-modern equivalent of a crystal ball. The predictive mathematical model treats the acquisition of technology as an investment portfolio, with analyses of value, growth, risk and timing.

By including the estimated costs of acquiring the technology as well as the expected annual benefits, the BIM helps executives project and measure the return on investment (ROI) from Teradata data warehousing and CRM solutions. The model goes far beyond the financials. It involves close consultation with company executives about their business goals and trouble areas to determine the best solution possible; when numbers are plugged in, they come from the company's own data.

Cheik Daddah, senior marketing specialist at Teradata, looks at the BIM as more than a forecasting tool; it's "business value consulting." Intensive surveys develop very specific ROI predictions and help customers unlock the value in their data. Ultimately, realizing value from data might be as crucial as wise spending.

Kim Collins, research director for Gartner's Financial Services Research Group, believes that deep analysis of customer data will be requisite for success in the financial services industry. "Financial services providers that fail to use analytics throughout their CRM cycle will be unable to justify or effectively plan their CRM initiatives and will risk losing customers," she says. "People have to start by thinking about their vision, but to decide what the strategy should be requires going down to metrics, which can help companies identify pockets of opportunity and then plan resource allocation and product development."

From silos to a single view
Reaching that level of analysis requires streamlined information access and pure data. To get there, more and more companies are moving toward an enterprise-wide data warehouse. Here's where the BIM shines. It is ideal for forecasting and validating savings that result from data mart consolidation. Most companies have grown up around silo after silo of data organized to meet the needs of individual departments—inventory, sales, R&D, CRM, supply chain management and human resources, to name a few. The cost of running a single data mart is upwards of $1 million annually. Multiply that by dozens or even hundreds of data marts, and the problem becomes evident.

Because these costs, including human resources, hardware, software, maintenance and upgrades, are dispersed over many different budget lines, seeing the total expense can be difficult. Hard cash aside, separate data marts exact other costs, such as the confusion that results from redundant data, multiple views of customers and suppliers, inconsistent data in different locations and hard-to-enforce business rules.

The BIM considers them all, often culminating in "an eye-opening moment when executives see them totaled up," Daddah says. "They don't realize they're bleeding that much expense until they look at the data mart environment as a whole. Focusing on a single data mart prohibits them from realizing how much cost is actually absorbed."

So how does the BIM assess the damage and stop the bleeding? Through a survey by representatives of four groups within Teradata—the Business Value Consulting team, the account team, industry consultants and Professional Services consultants with technological expertise. The survey, based on intensive discussions with the potential customer's executives and IT personnel, evaluates not only personnel and other costs, but also the size of the various data marts, their functions, their data interdependencies and whether they can be naturally grouped either by function or location.

Part of the value provided by the Business Value Consultants, Daddah says, is mediation between business managers and the IT staff. Another is the creation of a baseline—where the company is before it starts consolidating.

"It's easy for a vendor to say, 'Company A got this ROI from the same solution, so you should too.' But the gains must be forecast based on this particular customer's installations, characteristics, goals and so on," he adds. "One size does not fit all. The BIM team does not approach valuation from a tool perspective but rather from a methodology standpoint."

When it comes to data mart consolidation, the BIM typically forecasts ROI in stages, since it makes sense for most companies to consolidate in stages. Daddah points out that ROI is calculated on a cash flow basis in four metrics: net present value, internal rate of return, modified internal rate of return and extended payback period.

Daddah also emphasizes that the estimates are very conservative: "If I have a choice of using two numbers for personnel allocation or some other factor, I'll take the more conservative one. I overestimate costs and underestimate benefits."

In 99% of cases, Daddah notes, the forecasts make consolidation clearly profitable. "It's like babysitting for one 12-year-old, rather than 12 one-year-olds," he says. Users experience not only fewer worries but also fewer costs when they consolidate.

A vision for CRM
Consolidating all data into a single enterprise data warehouse (EDW) delivers another very powerful benefit—a single view of the customer. That uniform view is invaluable to CRM, but embarking on a new CRM solution can be somewhat intimidating. Once again, the BIM is a useful tool for forecasting revenue enhancement and/or cost containment.

Teradata has developed 36 templates geared to specific functions in specific industries. The BIM uses these templates to conduct an initial analysis, which sometimes provides enough that the customer can decide whether to purchase new CRM products.

Usually, however, business executives prefer the more intensive BIM process. "We sit down with the customer, again with people from both the business and IT areas, and listen to their requirements, look at their data-handling systems and talk about where they want to be," says Daddah. "Often customers know where their pain is, but their IT systems are not delivering what's needed to address the business problem."

The key to successful value consulting in CRM, he adds, "is to convince customers to think strategically, enterprise-wide. The discussions capture where a customer is today, and from there we look at where it could be tomorrow. Our approach is visionary in the sense that it forces the company to think long term, not just short term."

It's all well and good to talk about how it works, but you need to see an example to really understand the BIM process. A European bank wanted to improve its sales conversion rate, i.e. the rate at which customer contacts are converted into sales. Daddah, an MBA and former commercial banker himself, explains that the proposal focused on all possible phases of improvement, including baseline profiling, which would double the rate; intermediate demographic segmentation, which would double it yet again; and value-based segmentation, which would boost it even further.

The gains were calculated on the actual conversion rate, not simply the response rate, and they benefited from Teradata's extensive experience with global financial services. That level of experience, Daddah says, enables the Business Value Consulting team to estimate with confidence that certain actions will double or quadruple the sales conversion rate for this particular bank.

Sometimes the EDW's single view of the customer creates unexpected linkages that further boost CRM effectiveness; the BIM often is able to identify these. Daddah cites an on-line sales organization that correlates e-mails with sales. Now, with its EDW, it also tracks purchases over time by customers who were contacted. According to a company manager, tracking those secondary impacts, which gives a clearer picture of the effectiveness of marketing campaigns, was impossible without the integrated data warehouse.

"A big hurdle to more effective CRM," Gartner's Collins points out, "is simply getting people to realize there are solutions, that they can look at their data a lot more closely." BIM forecasts and a well-executed EDW and CRM strategy make that realization possible much earlier in the process.

Realizing outrageous ROI
Do the estimates actually hold up in practice? Daddah reports an extremely high rate of accuracy. In fact, because BIM estimates are conservative, gains are often much more than expected; one manufacturing company recently announced cost savings of some $11 million annually, rather than the $4 million projected by initial forecasts.

Customers who want to see just what the numbers are can request a follow-up, or validation, study. In a validation BIM, the Teradata team interviews users about how the Teradata platform and solutions affect their daily work lives and how the changes have added value to the business. Teradata is also developing a full-cycle value assessment, which would allow a company to conduct a BIM at set intervals to monitor ROI and tweak the effectiveness of various projects.

"We offer a unique program," Daddah says. "We look at real business drivers—cost containment, cash flow acceleration and revenue enhancement. We become closely involved with our customers, we use their own data for solutions that are very carefully tailored to them as individual enterprises, we forecast conservatively and we have extensive experience in modeling business impacts so customers can believe our ROI estimates."

He concludes, "We believe that our type of modeling is crucial to companies. It helps unlock the value in their data, and it lets them know just what their returns will be." T

Janet Kreiling, Kreiling Associates, specializes in writing about the telecommunications, computer, software, e-commerce, energy and automotive industries.

PHOTOGRAPHY BY ANDY SNOW