Power nucleus

Somewhere inside those terabytes of customer information that your business buys and creates lies the holy grail of marketing: customer insight - that crucial understanding of what drives customer behaviour which, when acted upon, will transform your results and hence your career - if only you could find it...

Priceless in any market, real customer insight is discovered only by the best and luckiest of companies. Understanding what the best companies do is, of course, the stock-in-trade of management researchers and we have spent several years trying to uncover how customer insight is created and used. The results reveal a cyclical process that any company can follow, but few actually do.

Just as a jigsaw is easier once you have the picture, the challenge of translating data-to-value is, in the same way, to recognise each piece of the customer insight puzzle for what it is. The most fundamental difference between insightful companies and their envious followers is an understanding of the difference between the individual components of the value creation process. It may seem like a semantic quibble, but understanding the differences between data, information, knowledge, insight, actions and value is critical if you hope to turn one into another. In fact, they are all distinct entities (click on figure 1, left).

Insightful companies appreciate that data must be organised into information that leads to knowledge, some of which is insight, which can then inform marketing actions and create value. Our observations, at Cranfield School of Management, revealed that this process happens in an iterative cycle, in which each stage leads to another and, eventually, new prescribing. Thus, other customer data is fed back into the beginning of the process again (see figure 2, below).

These observations - that value comes from understanding these stages and linking them together - were useful, but added little to our understanding of how the best firms make each step efficient and effective. To uncover that, we needed to dig deeper.

From Data to Information
Most companies are, unsurprisingly, swimming in data and the flow is increasing thanks to modern technology. Data that has always been gathered, such as sales statistics, is now more accessible and data that was too difficult to gather, such as sales team anecdotes, now pours out of salesforce automation systems.

The significant finding here, however, relates to the kind of data that leads to the best information. Most data, like prescribing data, records prescribers' met needs. More useful is the data, like preference switches, that records unmet needs. A good example of this was seen in one company that recorded hospital doctors' `academic' activity; attending conferences, reading papers etc. This allowed their prescribing data to be organised into academically active and passive segments, which later drove educational activity. Eventually, this created a stronger proposition and higher share in one segment, and allowed the diversion of effort from other, less attractive, customers.

From Information to Knowledge
Creating knowledge from information (ie, organised data) is arguably the hardest step in the data-to-value process. In particular, firms can easily use expensive and hard-won information as padding for the annual business plan, but by not really taking it to heart they will gain little value .

Companies that manage to avoid falling into this trap illustrate two key lessons about knowledge management: firstly, they use and combine multiple sources of information. In a scientific and technology-based culture, it is easy to let statistical analysis drown out information from qualitative market research, or even anecdotal reports. Exemplar companies use formal processes to prevent this from happening and to ensure that all kinds of information are thrown into the knowledge pot.

Secondly, they use new knowledge to challenge, rather than endorse, existing thinking. All human beings are prone to read selectively and filter what they take in. Real insight occurs when contradictory information is examined. If we think that detailing is important, why are the empty territories doing so well? If contra-indications are the key issue, why are there so few requests for information on them?

From Knowledge to Insight
Pharmaceutical company cultures are, if nothing else, knowledge-based. Knowledge is a currency and a status symbol. One side effect of this, we observed, is the inability to value knowledge accurately. Like a man dripping with cheap jewellery, some companies mistake knowledge quantity for knowledge quality.

By contrast, more discerning companies have two habits which enable them to distinguish the bits of knowledge that are insightful from their less useful knowledge.

The first of these habits is always to look for segmentation effects. The best companies understand that all real segments are needs-based and so they seek knowledge that identifies or informs about such segments. It is less important, for instance, to know that only 10 per cent of all physicians attend more than one conference a year. It is much more important to know that the 5 per cent who attend four or more are the ones who lead opinions.

The second habit of top companies that enables them to spot insight 'signals' among the `noise' of information overload is filtering. In this, we were surprised to see down-to-earth managers putting into practice the rules of one of the most fashionable areas of academic theory, the resource-based view of the firm. In short, managers found insight by asking four questions about any knowledge their systems delivered to them:

Is this knowledge valuable? (ie, does it represent something that might influence customer preference, or is it just nice to know?)

Is this knowledge rare? (ie, do only we know this, or is it common knowledge in the market?)

Is this knowledge inimitable? (ie, would it be difficult, costly or time consuming for our competitors to gain this knowledge?)

Is our organisation aligned to use this knowledge? (ie, would acting on this knowledge be possible without rebuilding the company?).

Unless a piece of information meets all four of these criteria (which academics shorten to the acronym VRIO), then it is not a source of strength to the company and it is not an insight. By contrast, knowledge which meets all four of these tests is that holy grail of customer insight that we have been looking for.

From Insight to Action
The difficulty in translating data into customer insight makes it understandable that some marketers see customer insight as an end in itself. In reality, of course, it is worthless unless it leads to action that creates customer value. As is often the case, it was failure (to create value from insight) that taught us the most here. The first lesson is to avoid the art of the possible. When faced with insight that implied difficult or long-term changes, some firms decided to alter what was easy to change in the short term.

For instance, firing the advertising agency and changing the advertising is much easier for a company than generating new data, or restructuring its sales team.

The second lesson, related to this, is to act faster than the market. Politics can reduce the speed of change to a crawl and this is especially true in big pharma. Actions, even those that reflect excellent insight, can be rendered obsolete if the market changes faster than your marketing mix. One company, for instance, kept on firing at the same opinion leader segment long after the product life cycle meant that laggards were the only growth areas left.

From Action to Value
We were surprised to find that even those companies that had made the long journey from data to action, via information, knowledge and insight, did not always create the value they sought.

Actions that should have led to customer preference and higher share did not always do so and our research uncovered two reasons for this: firstly, high value is only created by significant action. At any one moment in the marketplace, your marketing activity is competing for attention with everything from direct competitor action to the latest changes in government bureaucracy. Even insightful changes to the marketing mix can be drowned out if launched at the wrong time, under-resourced, or both.

Secondly, as much as some marketers hate to admit it, marketing is not the only factor that affects customer value. The product can go out of stock, the sales team can reorganise, the accountants can change your terms of business. Any of these factors can dampen or destroy the effects of even the most insightful marketing.

This article captures the key tangible lessons about how firms create and use insight (see figure 3, below). There was however, something observable in our research that was intangible - how company culture hindered or helped the data-to-value process.

Creating insight and value is easier in open cultures, where people share information and it is not used for political processes. Where information is a weapon for blame, it is clear that knowledge management is stilted and smothered. Understanding and carefully managing every stage in the data-to-value wheel is necessary, but not sufficient. Only by turning the wheel in a supportive culture will it lead you to the holy grail of customer insight and real value.

The Author
Dr Brian Smith is a visiting research fellow at Cranfield School of Management and runs specialist strategy consultancy PragMedic (brian.smith@pragmedic.com), Dr Hugh Wilson is director of Cranfield's Customer Management Forum, and Professor Moira Clark is Professor of strategic marketing at Henley Management College