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Making analytics a daily discipline with David Axson
Delaney Turner 270003RQ8K Delaney.Turner@ca.ibm.com | | Tags:  finance_forum finance business_analytics
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David Axson is the author of From Data to Decisions – Best Practices in Planning and Management Reporting (Wiley 2003), Best Practices in Planning and Performance Management (Wiley 2007) and The Management Mythbuster (Wiley 2010). He's also the keynote speaker for IBM Finance Forum events in North America. In the second half of my interview, we talk about making analytics a daily discipline and how he explains IBM Finance Forum to his finance peers.
When you talk about getting analytics through that "last mile" and starting where the pain greatest, what does that look like?
A couple of points to preface that. First, we really need to get analytics out of the back room. At the moment, in many organizations, analytics are something we do when there’s a crisis. “Is there a major problem? Oh, we’d better analyze the root cause to make sure it doesn’t happen again.” Or it’s something we do when we have some spare time, which isn’t that often. Analytics needs to be a core capability. It needs to be part of the weekly agenda for the Finance organization and for the broader management organization.
One particular area of analysis I’m seeing companies focus on today is Revenue at Risk. Do you understand the portion of your revenue that is at risk? What is your exposure in your customer base in different markets? If you were doing all your business in the automotive sector over the past two or three years, you’d have had a pretty rough time. If you were doing similar business but were focused on military and defense contracting, you’d have weathered the storm a lot better.
A simple example: I sit on the board of my children’s school. It’s a private school in northeastern Ohio. We did a revenue at risk analysis of our parent population to understand the occupation of the parents who were writing the tuition cheques. We wanted to know our exposure to financial services and brokerage, to real estate, to construction. We were pleased to find that we had a very broad and well-diversified parent population. If we had done that analysis in this part of Ohio 20 years ago, we’d have had a heavy concentration of parents in manufacturing ,which would have put us at significant risk when the manufacturing sector had a downturn. In fact, the school almost when bankrupt in the early 80s for exactly that reason.
Instead, we now have a high preponderance of professionals – lawyers, doctors, accountants. There’s still some exposure to manufacturing in the industries that remain, but also a high percentage of people focused on education. That provided us with a comfort level that our exposure to revenue at risk was limited. This analysis was done by a two-person finance team in a 500-pupil school. If they can do it, anyone can do it.
Have you seen companies out there that are taking a similar approach? Who’s getting it right?
Certainly retail and hospitality have had a focus on yield management and margin management for a long time. You see rich analytics there.
In the financial services sector, which has been battered, one company that stands out is American Express, which has been very smart about profitability in its customer base. In 2009, the Wall Street Journal reported that the company was willing to write some of its customers cheques for $300 to take their business elsewhere. They’d discovered a segment of their customer base that cost them money, so it actually made sense to write them a cheque. There’s some cool stuff going on out there.
If you were sitting with a Finance professional, what would you tell them about IBM Finance Forum? What would they learn?
We’re seeing the global economy heal. There are some signs of growth – it seems a little patchy, but there are some green shoots out there. It really is time to think ahead. Finance largely took a time out over the last three years. We’re now seeing predictability return but we are seeing stability return. Now is the time to plan ahead and think about how Finance is going to make significant change over the next two years.
I’m going to talk about the Finance agenda for 2011 and beyond. Where we should be prioritizing our time and effort? There’s going to be very practical discussions about how we move forward, taking into account the lessons of the last three years, but also beginning to understand that this is the best opportunity we’ve ever had to integrate technology into our analytics and risk management practices, which as I’ve mentioned is no longer a nice to do, but imperative.