In the few years since I began using analytics, the view that it might be “just a fad” has shifted to a growing understanding of its potential. There is a role for analytics in virtually every aspect of a business: forecasting financial performance, pricing products and services, strengthening operations, identifying new markets, improving margins, and assessing and monitoring risks.
In my former role as CFO, and now as CEO, I know that analytics can be a powerful tool to look ahead, helping answer such questions as: What challenges will organizations face a few years out, and what services might they need? How should those services be priced? What type of resources might be needed and where? Where might the business be vulnerable if the data underlying certain assumptions change?
What’s important to keep in mind, though, is that the power of analytics depends heavily on several factors: the quality and preciseness of the questions being asked; the organization’s ability to gather the data that can address those questions; the integrity of the data gathered; and the ability of users to draw insights from the data in an objective manner.
As an organization we use analytics to understand who prices well and why, what practice areas have stronger margins than others, and linkages between talent assessment and contributions to performance. Analytics has also provided valuable insight for understanding clients, creating market differentiation, and identifying new services and revenue streams.
Why CFOs Should Lead the Analytics Effort
As with any business process, there must be a system underlying the analytics effort and a leader in order for it to be effective. CFOs are the logical choice to own analytics and put it to work to serve the organization’s needs.
First, CFOs “own” most of the unprecedented quantities of data that companies are collecting from their own operations, supply chains, production processes and customer interactions. Many CFOs are already using analytics to better understand where the business is strong and where it needs improvement, and how to allocate limited resources more effectively. Analytics empowers CFOs to exercise more centralized control of operational business decision-making. As profit can fall between the operational cracks, analytics can be a game changer by leading to improved operational discipline.
Second, many CFOs are already using analytics to address their organization’s strategic issues. By owning analytics, they can continue to expand their strategic leadership role in growing the top line, strengthen their ties throughout the business and expand their influence outside the finance function.
Third, CFOs’ position as the steward of value and impartial guardian of truth across the organization gives them the credibility and trust that is needed when analytics produces insights that debunk some of the myths or accepted wisdom that can reside within the business, or about constraints on business performance. When people are provided observations that do not align with their thinking, there is a tendency to say, “That can’t be right,” and it can be challenging to convince them that the results and the data they’re based on are accurate. If they don’t trust the messenger, they are unlikely to trust the message.
Getting Business Leaders’ Buy-in
Without the support of the CEO and the buy-in from the businesses, even the most carefully planned analytics effort will likely fail. The CFO and the analytics team should work closely with business leaders to identify relevant questions for analytics to answer. That means asking business leaders what is important to the business and their strategy, and using analytics to advance their strategy, or perhaps even correct it.
Demonstrate the value that analytics can bring to the business by providing data-driven insights to questions such as, “What price point should be used for this customer on this day?” or “What inventory should be pulled forward or out of the supply chain?” Each analysis should have a business purpose and should address the question, “What business responses or actions should this trigger?”
Bringing the businesses in to provide input to the analytics effort gives them an ownership stake in its success. Simply putting charts and tables in front of business leaders at the end of an analytics effort does not.
Reliable Data, Strong Talent
Telling an effective story with analytics means the data underlying the insights must be unimpeachable. Having good data to prove that numbers and insights are accurate is essential when people challenge results. Having consistently reliable and accurate data requires a strong methodology for obtaining the information, one that is fair, reasonable and repeatable. Data should be entered into the system only once, and be accessible to address many different queries. The more often the same data is entered in different ways, the more likely it is that the data won’t be consistent; not having consistent data will quickly undermine the entire analytics effort.
A strong analytics effort also requires a willingness to invest in people who can help CFOs determine and implement the analytic capabilities that are needed. Having people on the analytics team who can ask the right questions is as important to the success of the analytics effort as the data itself. That requires people with a deep understanding of technology and data, such as data scientists, and the ability to interpret the data, provide insights and tell a fact-based story across the enterprise.
Many companies that have embraced analytics have only begun to scratch the surface in leveraging the predictive power that analytics offers. My new role as CEO has only deepened my view of the importance and efficacy of analytics, particularly for improving operations and understanding how to drive growth. I encourage CFOs who believe data analytics is important to the success of their company to raise the profile of analytics to a higher level — bring it up at executive meetings, apply it in board settings and use it with clients and customers. Take the ball and run with it; otherwise, you could be left on the sidelines.
Frank Friedman is CEO, and former CFO, of Deloitte LLP.