Even the most casual fan is aware of the importance of analytics in baseball. Michael Lewis’s book Moneyball and the Brad Pitt movie of the same name dramatized the value of in-depth analysis in putting a winning team on the field. But analytics also has an important role in the business side of major league sports—including in the offices of the teams’ CFOs.
Analytics help you win on and off the field
An article in the June 2017 issue of CFO magazine profiled Rob Gagliardi, the CFO of the Tampa Bay Rays. He uses analytics to create a range of financial scenarios. These scenarios correspond to varying levels of his team’s potential success on the field. CFO observed that “the large sums that teams spend on player salaries is one reason why owners and management are so much in need of timely and accurate data on other financial aspects of the operation.” As Gagliardi said, “I can’t dictate what they spend on salaries… But we can give them a sense of some parameters they can play within.”1
Image courtesy of Turbostats
Another CFO article a few months back focused on the value of analytics in supporting any company’s strategic vision. If not a vision of World Series glory, at least the more prosaic vision of strong quarter to quarter growth. Citing a survey by accounting giant KPMG, that article said, “three of the top five CFO initiatives thought to add the most strategic value to an organization involved financial data analysis or forecasting, with ‘achieving profitable growth through financial data analysis’ at number one.”2
Leaders in analytics also lead in profitability and growth
Needless to say, IBM is also a great believer in analytics. The IBM Institute for Business Value surveyed CFOs and senior finance professionals in two separate studies. Both of them explored the connection between analytics and business performance. And, both found that leaders in analytics also tend to lead, on average, in key business metrics. These metrics include profitability and revenue growth. The studies also found that leaders use a similar approach when adopting and using analytics.
Here are four key methods these leaders used to drive their success.
Focus on common data definitions
Analytics leaders were 154 percent more likely than their peers to use common finance data definitions. They were 62 percent more likely to use a standard chart of accounts. Common data definitions help set the stage for broader, deeper use of analytics throughout the organization.
Apply advanced capabilities such as predictive and prescriptive analytics
Top finance leaders were 28 percent more likely to use predictive and prescriptive solutions to improve revenue collection. One example is to segment customers by risk profiles. Statistical data modeling and historic trends for payment behavior and disputes form the basis for these profiles.
Integrate financial and operational information
Integrating financial and operational information can help CFOs see how different aspects of the business are working together—or not working together. Are there operational objectives at odds with the company’s financial goals—or vice versa? (Like the goal of winning on the field versus the cost of retaining an expensive free agent.) With analytics, you can more easily spot the conflicts and model alternative courses of action for resolving them.
Develop analytics talent and share analytical expertise
When do analytics yield the greatest benefits? When those who use them have the knowledge and skill to get the most out of their solutions. Leaders in finance cultivate analytics talent three times more than their peers. They also established centers of excellence to centralize and share analytics expertise five times more often.
A roadmap for success for all CFOs
These are just a few of the lessons that come from the experience of top CFOs. They can be a helpful roadmap in achieving success in analytics and, more importantly, in the fiercely competitive playing field of financial performance. To learn more, download the IBM white paper: “Finance analytics: Seven hows and millions of whys.”
Another great way for CFOs—and anyone in the office of Finance–to see how much analytics has to offer is to attend IBM Think 2018 in Las Vegas. There will be a track devoted to performance management and planning sessions and plenty of networking opportunities.
And to read about one more practice followed by smart CFOs (and by baseball managers during every game) is that of continuous planning. Learn about it in another recent blog, “CFOs Who Ignore Continuous Planning May be Putting Their Business at Risk.”
1 David McCann, “Simplifying Planning Season,” CFO magazine, June 2017
2 Edward Teach, “Vision Quest: Expectations for CFOs to add strategic value have never been higher,” CFO magazine, June 2016