CFO/Corporate Finance Business Analytics and the CFO Function By Gary Cokins, CPIM How do business analytics apply to the CFO’s finance and accounting function? It is increasingly apparent that corporate accounting is evolving from its traditional role of collecting and validating data and subsequently reporting information to a more value-adding role of providing and supporting analysis for decision making. To be clear, the message is not about accountants simply getting better with traditional financial analysis methods like cost-volume-profit (CPV) breakeven graphs and expense-to-sales ratios. The message here is about how accountants can use “deep analytics” to discover relationships to discern knowledge not previously made visible – to provide information to line managers for better decisions. Accountants’ progress with analytics has been notable. With the recent explosion of available digital data, accountants are certainly getting better at measuring and reporting more. But are the measures and reports the most relevant ones? Do they answer critical questions to drive growth and profits? The upside potential to applying analytics with the accountants’ financial planning and analysis (FP&A) role is substantial. As the CFO’s scope of responsibility broadens with more oversight and as CFOs become that “strategic advisor” so often written about, they now have the opportunity to become catalysts for introducing innovation and change. This can include leading transformational projects that increase efficiencies, lower costs, increase revenues, and better execute strategies. Accountants traditionally have been reactive to historical information. Business analytics enables them to help their organization be more proactive. The trend clearly is toward increased use of business analytics and enterprise performance improvement (EPM) methods within the finance function. An example described is a shift beyond just reporting profitability by product and service line toward providing a more encompassing view of channel and customer profitability reporting using activity-based costing (ABC) principles. With this type of reporting business analytics can take decisions to a higher level by providing insights as to what factors differentiate higher from lower profit levels from a supplier’s customers other than just the customer’s sales volume with the supplier. Measuring and Analyzing Customer Profitability The only value a company will ever create for its shareholders and owners is the value that comes from its customers – current ones and new ones acquired in the future. To remain 16
“There is a wide gap between what the CFO’s function reports and what the marketing and sales function needs.”
competitive, companies must determine how to keep customers Gary Cokins longer, grow them into bigger cpelink.com/cokins customers, make them more profitable, serve them more efficiently, and acquire more profitable customers similar to existing customers who are already very profitable to the supplier. But there’s a problem with pursuing these ideals. Customers increasingly view suppliers’ products and standard service lines as commodities. This means that suppliers must shift their actions toward differentiating their services, offers, price discounts, and deals to different types of existing customers to retain and grow them. Further, they should concentrate their marketing and sales efforts on acquiring new and relatively more profitable customers. As companies shift from a product-centric focus to a customercentric focus, a myth that almost all current customers are profitable needs to be replaced with the truth. Some high-demanding customers may indeed be unprofitable! Unfortunately, many companies’ management accounting systems are not able to report customer profitability information to support analysis for how to rationalize which types of customers to retain, grow, or win back and which types of new customers to acquire. With this shift in attention from products to customers, managers are increasingly seeking granular nonproduct-associated costs to serve customer-related information as well as information about intangibles, such as customer loyalty and social media messaging about their company and its competitors. Today in many companies there is a wide gap between what the CFO’s function reports and what the marketing and sales function needs. That gap needs to be closed.
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