Empowering CFOs with rich insights that drive profitability
July 11, 2013 4 Comments
As I meet clients across all of our markets, I’m constantly amazed at the rapidly changing role of financial executives. Today they have more complex responsibilities than ever before, and in many cases are being asked to lead strategic decision-making efforts that impact the long-term performance and profitability of their businesses. This places finance executives in the unique position to both valuate the current performance of their companies and also to advise operational leaders on possible strategic initiatives to drive growth. To successfully achieve both of these objectives, finance executives must access key financial and operational data to gain deeper insights into their day-to-day operations.
Common roadblocks to growth
In the last several years, I’ve noticed that our clients—regardless of industry, business function, or company size—need guidance on how to best implement effective business intelligence practices, Big Data analysis, and performance management. One of the most common questions I receive is, “How do I best approach these practices within my organization?” Many clients realize they lack integrated systems and standardization across their enterprise, leading to misalignment between financial and operational metrics. This misalignment presents a variety of challenges to key business imperatives, including:
- Benchmarking portfolio key metrics to determine portfolio outliers
- Making well-informed decisions on whether to eliminate, fix, or expand portfolio offerings
- Identifying and properly valuing the most important customers
- Selecting metrics that align with company strategy and drive business profitability
- Creating an effective pricing strategy
- Understanding how promotions and markdowns affect sales
Addressing these issues is easier said than done, and is further complicated by typical operational challenges that impact a finance organization’s ability to truly partner with its business team effectively and efficiently. Clients have shared these common obstacles:
- We conceptually understand operational performance but don’t fully know what drives it
- We have a ton of data but zero information
- I have the information, but don’t know what to do with it
- 98% of what we do is reactive; we’re looking in the past instead of focusing on what’s happening today
- We don’t have a complete understanding of what the business needs
- All we generate at the end of the month is a stack of Excel schedules and reports
- We don’t have enough accountability with the business owners—too much of it is placed on finance
- We can’t make timely decisions
Understanding the drivers of profitability
Based on our experience, the following elements should be addressed to optimize your ability to better understand the drivers of profitability.
Focus on the data
Creating consistent and accurate data and common definitions across your data sources is a must. Without this, you will not have a comprehensive and standard view of information across your enterprise. In order to build better strategic decision-making capabilities into your organization, reliable and commonly understood data is required.
Align your enterprise metrics
Many of our clients rely on certain metrics to drive key business decisions—but without alignment, their departments, business units, or functions will end up defining the same metric differently. Determining profitability metrics that align with the company strategy and drive business profitability is always a challenge, but this is a critical component. In this process, it is also important to benchmark key portfolio metrics against peers and industry targets to determine your organization’s outliers.
Understand your portfolio rationalization
Once you have aligned your stakeholders on the appropriate metrics, determine which of your offerings are outside the target performance metrics and start making informed decisions to eliminate, fix, or expand portfolio offerings—with a focus on the top and bottom 10% of your portfolio. A leading practice is to start creating product/customer P&Ls to benchmark against your portfolio.
Develop a pricing strategy
Improving your ability to understand how price changes affect KPIs based on trends and seasonality will result in a more accurate and broadly accepted pricing strategy. This will also provide you with additional insights into how new offerings will perform and help ensure your strategy attains maximum value and decreases margin leakage.
Leveraging best-in-class technologies to realize business value
We’ve found that companies that successfully align their profitability metrics with their core business strategy and goals can ultimately achieve profitable growth. By adopting a lean, collaborative approach to access and analyze the right data for your organization with leading-edge technologies, you can quickly and cost-effectively drive profitability. To help organizations achieve these objectives, Slalom recently built a CFO profitability analysis solution in Tableau, which gives CFOs a one-stop portal to rapidly evaluate the health of their business. To learn more, read the press release here announcing our solution as a winner in the Tableau Software Partner Challenge.