In the last article I wrote for this newsletter, I talked about one of those special moments in one’s career when you could prove a direct positive impact on shareholder value through a contribution made by loss prevention. Sort of staying with that theme, and especially in light of these very trying economic times, this time I’d like to address the multifaceted impact opportunity of maximizing the use of business intelligence (BI) on the performance of the retail business.
One of the ways BI has been used by companies today (and not just retail companies) is in a tactical application. Tactical BI has been used to achieve short term goals by analyzing daily or weekly data. Tactical decisions which are actions derived from tactical BI analysis include responses to exception based reports, data mining activities, intelligent video and other action oriented opportunities. In fact, tactical BI utilizing operational key performance indicators has the advantage of a much faster ROI (albeit maybe not as great in the long term) as strategic BI which provides management with the ability to identify long-term organizational goals by comparing monthly or yearly historical data over time.
Retail Systems Research (RSR) has produced many outstanding studies and several of them are within the immediate interest domain of loss prevention. In their 2008 Benchmark Study entitled "Winning Trends in Loss Prevention," they stated “retailers have hopes they can leverage their investments with a fresh infusion of business intelligence. To be truly effective, this business intelligence must deliver information to store management on the selling floor."
This intelligence is analyzed data that is information for action. The action could be a case of multiple refund frauds or a “sweethearting” series of events at the POS or a training issue or even an IT issue where the handshake between a new POS system and the existing PLU system is too loose and creates shrink.
Whatever the information that action is to be taken, it is critical that the action be taken and the results of that action are fed back into the intelligence system for learning purposes.
The most recent loss prevention benchmark report published by RSR is entitled "Loss Prevention and Beyond: Survival of the Fittest." RSR categorizes the retailers they study into several categories including ‘winners’ and ‘laggards’. I think of an LP conference where the attendees wear baseball caps with a big “W” or “L” on the front to indicate the category of retailer they represent. In this report, they said, “laggards don’t believe they can execute their LP plans and they don’t have enough staff to review the output of their legacy systems. Without the infusion of business intelligence into these legacy systems the status quo can be expected to remain intact.”
I think the theme of lack of staff will become more common as retailers find ways (albeit sometimes misguided) to cut expenses. BUT (and I’m talking a big "but" here), the appropriate implementation of meaningful, actionable, operational tactical BI will have significant ROI in less than six months, if managed correctly, and will position the retailer to survive these economic times and to be a ‘winner' when we all pull through this era.
Examples of BI to which I refer include the rules based exception systems which have grown in popularity in the last several years, intelligent video implemented in a way which provides the user with visual intelligence, data mining which has barely tapped its potential and the integration of some or all of these technologies.
And, when we think of BI as an LP supportive tool, let’s think shareholder impact. Think in terms of reducing loss through the detection, investigation, resolution and recovery of the dishonest employee - faster and more efficiently. Think in terms of identifying training deficiencies and responding to those needs quickly. Think in terms of staffing improvements and productivity improvements. And, what about sales improvements? I think a huge opportunity lies therein which will have a direct impact on shrink as a percent to sales.
So, if we can deploy tactical BI in our companies and quickly earn the ROI associated with that deployment, we will have an early and measurable impact on shareholder value.