A US manufacturer leverages advanced analytics to improve and streamline its revenue forecasting. The company added additional variables—including invoice data, the number of ongoing projects and even the number of phone calls it received—to develop more accurate forecasts, faster.
A global telecommunications company leverages advanced analytics to improve collections of revenue. The company segmented customers on the basis of a risk profile created by using statistical data modeling and historic trends for payment behavior and disputes.
These were just two of the examples CFOs and senior finance executives shared about their analytics plans during IBM Insight2015 in Las Vegas last week.
The conference theme was “Lead in the Insight Economy”—an affirmation of the role data and analytics play in value creation and growth—and many of the finance executives I spoke with came to discuss ways to better capitalize on analytics.
I wasn’t surprised.
Our recent study of 337 CFOs and senior finance executives found that adoption of analytics across all key areas of finance is set to double in the next two years.
For areas like revenue forecasting and finance process optimization, the growth will be even higher. Use of analytics for revenue forecasting is projected to jump from 34 percent to 82 percent by finance organizations. Similarly, use of analytics for finance process optimization will grow from 21 percent to 73 percent.
Why such a staggering increase?
I believe we’re at this tipping point for three reasons:
- The return on investment (ROI) for analytics not only is substantial, but also continues to increase. Nucleus Research last year reported a $13.01 return for every $1 invested in analytics. This represented a 22 percent increase in the ROI since 2011.
- There’s simply a great deal more data available today than there was several years ago. Social data, mobile data and third-party data can provide valuable input to aid in forecasting and decision making.
- There’s a need to integrate financial and operational data to create new insights – for example, understanding how different aspects of the business are performing, such as the supply chain or the workforce.
How can you better capitalize on analytics?
While investments in analytics are growing, the question that I heard from many finance executives at Insight2015 was: How can we get the most from our investment?
To answer this question, I shared three lessons we learned from the most effective finance organizations in our recent study.
These leaders, comprising roughly 28 percent of our total study population, are more effective holistically across 10 finance-focused activities and report better financial performance in terms of revenue growth and profitability.
These organizations are also at least two times more effective than their peers at activities outside of finance, such as supply chain analytics; fraud, waste and abuse detection; and new products and services opportunity identification.
The distinguishing behaviors that set these particular finance organizations apart suggest three key takeaways:
Lesson 1: Consider moving to more advanced tools and forward-looking analyses
A few months ago, I explained why not all analytics are equal. While descriptive analytics can help you assess how your business has performed, you’ll need predictive and prescriptive analytics to support forecasting and next-best action recommendations.
And the most effective finance organizations clearly showed a preference for these advanced analytics. They were 28 percent more likely than others to use forward-looking analytics.
If you’re currently using analytics primarily to report on past performance, it’s time to consider where you can be more predictive and prescriptive.
Lesson 2: Be strategic and pervasive with your approach
We also found that the most effective finance organizations implement analytics more consistently across their businesses, supporting both finance-focused activities as well as enterprise activities, such as customer analytics, sales performance and workforce analytics.
This requires not only mapping analytic initiatives against key business goals, but also creating an integrated data strategy that addresses both financial and operational data.
What data sources will you need to tap into? How will that data be cleansed? How will your organization confirm data quality?
Getting usable insights out of your analytic efforts requires putting good data in.
Lesson 3: Collaborate closely with your C-suite peers
Close collaboration across the C-suite also proved a significant differentiator for the leaders. CFOs of the most effective finance organizations were more likely to closely collaborate with their C-suite peers as shown here:
According to the most effective finance organizations, working with their C-suite peers to advance analytics and share information and insights across the enterprise is vital. How closely do you currently work with Supply Chain, Marketing, Sales and HR leaders?
Closing insights from Insight2015
At Insight2015, Rob Thomas, vice president of product development for IBM Analytics, shared a short video in which a child is heard asking her father “where do insights come from?”
In his answer, the father explains how it starts with a single piece of data, that then links with another piece, which leads to a spark. As new data is added, he tells her, you start to “see things differently” and “find out things you didn’t know before.”
As the conference came to a close, finance executives I met with echoed this wisdom. As one senior Finance executive said: “Advanced analytics give me answers to questions that I did not even know I had.”
It was an astute observation and one that aptly sums up the opportunity.
To learn more, read the full study: Capitalizing on analytics in finance: Creating trusted insights for the enterprise