Understanding the ROI of Analytics: Asset or Expense?
When it comes to understanding the potential return on investment (ROI) for implementing an analytics solution, the research can be a little convoluted. Some sources view investments in analytics solutions as little more than a vanity expense, while others portray analytics solutions as a crucial asset that can yield astronomical (and quite tangible) returns. In a manner of speaking, both views can be considered as correct. That's because, as we've discussed in a previous article, the overall effectiveness of any analytics solution is heavily dependent on how it is set up, implemented, and ultimately used. In the same manner, it is also dependent upon how such a solution is viewed by the company—as a way of eliminating work, or as a tool for enabling people to do better work.
If your organizational culture views analytics as nothing more than an expense, or something to fill reporting needs, this will have a negative impact on its effectiveness and lead to poor practices such as inadequate training, minimal use, and/or improper/incomplete data collection. On the other hand, organizations that treat their analytics solutions as valued assets often encourage best practices such as thorough training, frequent use, and integrated data sources. Fostering a data driven culture in business thereafter increases the efficacy of the analytics investment.
The "asset vs. expense" argument has been spurred forward by the availability of confusing research, with dozens of case studies that yield a dizzying range of conflicting results. For example, one case study from Michigan State University that looked at the effects of implementing an advanced analytics solution discovered an ROI of only 55 percent over 2.1 years, with an annual revenue benefit of roughly $34,400. That doesn't sound too impressive. And yet… There is also another case study—looking at the effects of the exact same analytics solution being implemented by a retail food company—that discovered an ROI of 283 percent over a span of only 3 months, with an annual revenue benefit of over $670,000. These are numbers that any organization would love to see on their books.
With such wide-ranging research results, though, how can anyone be expected to accurately determine the ROI of investing in an analytics solution?
Making Sense of it All
According to a 2012 study from Nucleus Research, the ROI of analytics depends upon a number of specific "stages of evolution." Looking at dozens of implementations, they found that average ROIs corresponded with four specific stages:
Stage 1: Automating Reports – on average, organizations at this initial stage saw an average ROI of 188 percent.
Stage 2: Leveraged Analytics – this stage, in which analytics is used to drive decision making, organizations experienced an average ROI of 389 percent (over double that found in stage 1).
Stage 3: Strategic Use – in this stage, analytics is employed across the entire organization and used to modify/improve day-to-day operations, resulting in an average ROI of 968 percent.
Stage 4: Predictive Analytics – this stage integrates the above best practices while tapping into "Big Data," from both internal and external sources (such as partner organizations and social media), leading to the highest average ROI of all—a staggering 1209 percent.
Mashey Analytics: An Asset that Pays for Itself
Here at Mashey, we understand the importance of creating returns on your analytics investments. We know that this means far more than simply providing solutions. That's why we've made it our mission to help our clients build their own data-driven cultures of knowledge and confidence by designing and delivering modern data and analytics solutions.
Contact us if you would like to discuss how we can help make you more successful with data analytics.