There is a lot of buzz within Information Systems about "Big Data." We are coming up with new and better ways to collect information. We are also hoping to figure out how to extract meaningful information from the volumes of various threads stored in the files.
It's one thing to collect all of the information. It's a much more difficult task to transform all of that data into a few simple insights that can translate into meaningful business results.
Tesco is one of the world's largest retailers. They are early adopters of all kinds of operational excellence programs. They have adopted the Toyota Production System and integrated those techniques into their logistical systems. They have been collecting immense amounts of data for about thirty years. What could they do with all of this data?
In an article in Harvard Business Review, they found an answer:
But to get the full value of its improved supply chain capabilities, Tesco needed to marry its upgraded operations with a deeper knowledge of its customers than it could get from aggregated scanner data. So in 1993, the company launched its "Clubcard" with which customers could earn points for purchases, redeemable for discounts or gifts. While it was building loyalty with Clubcard points, Tesco quietly built up profiles of its card-holders, including which areas of the store they visited and their product preferences. Working with consultancy dunnhumby, they eventually defined 16 lifestyle "clusters" by combining in-store shopping data (which told them what customers bought and where) and home shopping data (which also told them what customers wanted to buy but which wasn't available).
You may be saying, OK, so they built a customer database. What's the big deal? The big deal, and what's really powerful, is what Tesco did with the insights it gathered. It used the customer profiles to uncover unmet needs, and to design and launch a series of services to meet those needs, including smaller local convenience stores and online shopping. Tesco tracked where customers bought — online, or in convenience, High Street, supermarket or hypermarket formats. Then it customized the product ranges at smaller stores for the local customer base. With only 1,500 items, a convenience store has to get its product mix just right. As told to me by Dan Jones, the chairman of the Lean Academy who worked with Tesco, CEO Terry Leahy was convinced that the company should develop these new formats, and actively supported their development, despite the concerns of store managers that their sales would be cannibalized. (For more on the Tesco story, see Terry Leahy's book Management in 10 Words and Dan Jones' book Lean Solutions).
Linking supply chain capabilities and customer insights, Tesco worked out the operational details of how to deliver exactly what customers wanted to each type of store. Their agile supply chain allowed them to replenish small stores at the same cost as big stores — so they could charge the same prices in every format. They continued to use insights from Clubcard to regularly adjust offers, tweaking the supply chain accordingly. Interestingly, as soon as they rolled out home shopping, store managers saw increased sales rather than cannibalization and so were quickly won over.
The bottom line is that this type of work is extremely hard--even for a company as forward-thinking and receptive to change as Tesco. But this type of work is vital to the long-term survival of any organization.
Here is the link to the full article: http://blogs.hbr.org/cs/2013/03/operational_excellence_meet_cu.html
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