The Role of the CFO in an Analytics-Driven Organization
Deloitte Insights video
Faced with limited opportunities for natural growth, leading chief financial officers (CFOs) are investing in analytics to gain ground on competitors and optimize spending. Analytics can enable experimentation that CFOs can quickly learn from, allowing them to scale rapidly around priority areas. Tune into this episode of Deloitte Insights to learn more.
It’s time for Insights, a video news production of Deloitte LLP. Now here’s your host, Sean O’Grady.
Sean O’Grady (Sean): Hello and welcome to Insights. Today, we are welcoming back two guests to discuss the role of a chief financial officer (CFO) in an analytics-driven organization. Now, one of our two guests is Tom Davenport, a senior advisor within Deloitte Analytics and a distinguished professor of Information Technology and Management at Babson College. He is also the author of several books on business analytics. And next to Tom is Ajit Kambil, the Global Research Director for the CFO Program at Deloitte. Gentlemen, welcome back to the show.
Ajit, I would like to begin with you. Can you summarize the mood of the CFO in the current economic environment?
Ajit Kambil (Ajit): Our third quarter survey and if you look at what is happening in Europe today, I would say it is one of cautious pessimism almost and a lot of CFOs are just holding on to their cash, and for analytics to make an impact today in this environment, it is got to either help them grow revenue or really prevent losses and save costs. I would say it is a mood of cautious pessimism.
Sean: A mood of cautious pessimism. So Tom, how does analytics fit into that kind of mood.
Tom Davenport (Tom): Well, I would love to say, it would lift the mood of cautious pessimism, but I am not sure by itself it will. I think the kinds of analytics that will appeal to CFOs in this environment will be those that don’t require a lot of spending before they really deliver value. So, programs that allow you to cut costs or to target your investments much more effectively with analytics I think are going to be much more popular than the ones involving massive investments and databases and so on that really require years and millions and millions of dollars to really show any advantage at all.
Sean: Has anyone done this? Is there a business case, Ajit, for the CFO or finance taking the lead in embedding analytics?
Ajit: What we see with CFOs today is they are also increasingly responsible for IT in the organization and a lot of CIOs effectively report to CFOs. CFOs also have to deliver the right business information to their peers in the organizations or business unit leader to effectively run their companies. And I think, at this moment, there are a couple of different types of things that are very critical to their internal clients. You are seeing, for example, greater use of e-commerce and growth in e-commerce. So, the business unit leaders need analytics to be more able to effectively target their customers in this new environment. From a finance perspective, we see a very bifurcated market in terms of capital. Some companies have a lot of cash, other companies are cash constrained and have a lot of debt coming due. If events like another liquidity crisis occur, those latter companies become prey and the others become predators. So, I think there is a lot of work going on right now where CFOs are using analytics to really understand the marketplace and the opportunities that they have to grow through acquisitions. They may be keeping their powder dry, but the analytics will be utilized to help them use that powder when they choose to acquire companies. And we are seeing that a lot of firms are quietly assessing what that landscape is looking like, preparing later on perhaps to make bids for acquisitions.
Tom: We recently saw one real pioneer in the analytics space, a very large gaming firm that had made major investments, but in a kind of very distributed way and moved all their analytics people into a centralized shared services function reporting to finance and basically they said, it is a neutral party and it can serve the entire organization. Obviously, a lot of smart and quantitative people and obviously we want our analytical investments to pay off. So, we are better to have that happen than in finance.
Ajit: I might just add, at this point in time, companies can grow through acquisitions or by taking market share from their competitors because the natural growth in our economies in the developed world is pretty constrained. So, doing things with analytics around the customer to take away the market share from your peers, I think, is an investment that many companies and CFOs ought to be looking at.
Sean: I think you just hit on a good word and that is investment. So, we are talking about a mood of cautious pessimism, but at the same time talking about an investment. So my last question for the two of you, and we can start with you Tom, is with the economics behind this building in analytics into this kind of environment, how does that work?
Tom: I think the CFOs are going to advocate for the big hit areas for the analytics that, as I said, don’t require a lot of up-front investment. So, pricing, I have always said, if you want to make money with your analytics, optimizing your prices is probably the best way to do it. You can almost always improve gross margins that way. Another idea would be that of randomized testing with controls of major investments and major remodels. We saw a large restaurant chain where the CFO said that I am going to take the responsibility for doing testing of a major remodeling effort to see is it interior or exterior that really pays off the best and is it a major, minor, or kind of a middle of a remodel that pays off the best, and they have found out that ultimately it was interior and middle level, but they saved a lot of money by not rolling this out until they really knew what worked well. I think any investment in analytics that targets marketing expenditures that really helps you figure out where do you optimize marketing spending, which can save a lot of money in this economic climate.
Sean: Final thoughts, over to you Ajit.
Ajit: I think Tom’s point about the restaurant company should be really emphasized, so to failing cheaply on experiments is a lot better than committing to large budgets that never sort of give any return, and I think in this environment CFOs would be well advised to look at the potentiality of analytics to enable experimentation and then, from that experimentation, quickly learn and then scale rapidly around the things that really work instead of just buying into some paper ware plan that you like.
Sean: So sticking with the restaurant metaphor, buffet style analytics testing.
Tom: Little sampling of each item along the buffet.
Sean: Gentlemen it was a pleasure having you both back on the program. Thank you.
Ajit: Thank you Sean, I appreciate it.
Sean: Alright, we have been talking about the role of a CFO in an analytics-driven organization with Tom Davenport, a senior advisor to Deloitte Analytics and a distinguished professor of Information Technology and Management at Babson College. We have also been joined by Ajit Kambil, the Global Research Director for the CFO Program at Deloitte.
If you would like to learn more about Tom, Ajit, or any of the topics discussed on today’s broadcast, you can find that information on our website at www.deloitte.com/insightsus. For all the good folks here at Insights, I am Sean O’Grady. We will see you next time.
Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms.
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