SME Businesses and Data Mining – Who Cares?

SME businesses in our region are the biggest employers and biggest tax contributors (source: ABS) and are the backbone of our economy. Over 80% of SME businesses use computer systems in some form to manage their business operations from book-keeping through to automated business equipment (ABS, 2009).

Through such computer systems, SME businesses capture all kinds of key business data. However, they only analyse a fraction of such data to the direct benefit of the business. Apart from generating the compliance data for the tax office and the stock standard Profit & Loss and Balance Sheet for the business, many SME business owners are oblivious to the potential of what stories their data systems could tell them.

So, why should SME business care about data mining? Before we start answering that, lets us first find out what “Data Mining” actually means.

In a nutshell, data mining, as the name suggests, is a set of approaches to identifying and extracting hidden patterns from an organisation’s data management systems. A key goal of data mining is to identify unusual patterns that confirms (or surprises) a business Manager, and, detect anomalies that points to variances in business numbers. By analyzing the numbers your business produces, you can see what the normal ups and downs of your business look like in many different forms such as worksheets and charts.

So what are the key benefits of Data Mining then? Suppose an organisation decides to “mine” its customer data, the immediate benefits that it can realise could be:

• Cross-selling opportunities at higher margins
• Improved customer satisfaction and retention
• Identifying best and most profitable clients
• Enhance company marketing and sales practices

If an organisation decides to “mine” its inventory data, the benefits could be:

• Improved forecasting of inventory requirements thereby reducing the value of stock held
• Pricing and profitability trends over a period leading to scheduling timely inventory purchase from suppliers at the right time
• Improved purchasing efficiency leading to reduced warehouse costs
• Supplier lock-in leading to better trade terms

By “listening” to what your business data is telling you, businesses can prepare early and take corrective actions where required or recognise business opportunities ahead of the competition and exploit the possibilities. Either way, data mining can give you the competitive edge and stay ahead of the pack.

So where do you start in your data mining journey?

Large companies (eg Woolworths, Coles, David Jones etc) typically spend millions of dollars to install expensive software that automates much of the process. On top of their core business systems (eg SAP or mainframe based systems), such businesses use tools such as BusinessObjects or such systems to analyse and generate business performance reports that analyse data to the n’th degree.

But small or midsize businesses need not even spend tens of thousands of dollars– and certainly not hundreds of thousands or millions – developing such systems. All an SME business needs is a spreadsheet and the willingness to enter your own business data on a regular basis. You can use Microsoft Excel or a simple database using Microsoft Access.

Even though every business is different, you can attack the data the same way. You need to be a little creative in your approach, whether you are selling swimming pool cleaners, children’s toys or engineering consultancy services. Your goal is to find typical and aberrational patterns in your sales and other data.

For SME businesses using systems such as MYOB, QuickBooks or such similar off-the-shelf systems, there are many providers of add-on solutions that allow you to mine your business data at a fraction of what it would cost a business owner to build the tools themselves.

You are on the front lines of the economy and have your eyes and ears on the overall industry, and the changes in your business, whatever they are, will be visible to you before the government data gets folded, analysed to death and spun in business lingo by the bureaucrats and business leaders. The main idea behind data mining is that your business might show stresses or improvement in the economy before the official data picks it up. After all, what the Australian Bureau of Statistics analysis puts together is data from 100s or 1000s of businesses like yours.

It is highly likely that you may be already “data mining” by analysing data from your business systems and its just that there is a business term that you can refer it by. Companies like Microsoft provide tools such as Microsoft Reporting Services based on their SQL Server system. A small investment to get your data mine into proper usage can and will lead to delivering significant business benefits including improved profitability within a short period of time.