Predictive analytics can be an ally to CFOs who are looking for a viable tool to drive growth and manage enterprise profitability.
There are several ways in which a CFO can leverage predictive-analytics solutions to manage profitability and enable corporate functions to adopt its principles. CFOs can successfully lead that charge if they know that:
1. Analytics must be forward-looking to be truly impactful. A company can’t grow if its senior leaders are looking in the rear-view mirror to see what’s coming next. Robust, analytics-driven foresight is a great tool to inform better decisions.
2. Analytics is not just about developing a capability. It’s also about asking the right business questions and determining how to answer them. Analytics development makes up only 20 percent of value creation, according to the Analytic Function Effectiveness Benchmarking Study, a 4i internal study that measured the design, focus and impact of analytic functions on corporate performance across a sample of 35 companies. Participating executives indicated that the most important questions are: What decisions and business issues do we address with analytics? And, how are analytics-driven insights activated and realized?
3. Foresight analytics can remove ambiguity and help resolve conflict in the C-suite. It’s no secret that executives typically have different priorities depending on their roles and areas of ownership. Chief marketing officers want their marketing budgets increased. Heads of manufacturing want more funding to do research and development. However, it’s the CFO’s job to manage such agendas in the best interest of future growth prospects while at the same time being financially prudent. Foresight analytics can bring objectivity to these decisions by determining the return on investment from marketing and R&D spending while optimizing budget allocation among these functions. In addition, foresight analytics can help a CFO and his or her C-suite peers to better measure performance, scout opportunities and prioritize initiatives.
How can CFOs work more effectively with C-level counterparts through predictive analytics?
1. Robust forecasting analytics will bring objectivity and transparency to the planning process. Deploying a collaborative single-demand planning system can help finance, sales, operations and marketing properly align based on anticipated demand.
2. Reduce costs through tighter inventory control. Supply-chain and demand analytics can help reduce inventory levels with more accurate demand projections.
3. Increase marketing effectiveness. Many companies conduct ad hoc studies to measure the impact of marketing programs. But such studies are often backward-looking, take too long to assess and don’t have sufficient management support to drive decision-making. Those who act the most decisively tend to have an end-to-end marketing analytic process that looks forward, is iterative and truly has the management support to make it part of the executive conversation.
4. Increase impact of pricing and promotion decisions through optimization. The use of analytics to influence collective decision-making with retail partners is highly underleveraged, even as it’s an opportunity where predictive analytics can play a major role. Given the wealth of data available, it’s definite an area to consider investing in to drive both efficiency and effectiveness.
5. Invest smarter in innovation by looking forward. It’s common industry knowledge that 95 percent of new products fail, according to Acupoll. While they fail for a variety of reasons, it doesn’t mean a company can’t invest in acquiring the capability, research and sets of processes to increase the probability of success. There are many solutions in the market that identify, test and quantify the impact of new product and innovation ideas. Further, the cost of investing in such opportunities early is far more attractive than recouping significant cost of a failed innovation. Therefore, a CFO should seek to understand and champion these solutions where appropriate.
Lana Klein is a managing partner and co-founder at 4i. She leads its growth foresight solutions practice, building analytics-enabled marketing and growth strategies and solutions for major U.S. and global clients.
Colin Hare is senior vice president, growth solutions at 4i. He advises executives in the areas of growth strategy, innovation and marketing/sales across numerous industry verticals.