Looking to Stay Ahead of the Competition? 3 Questions CPG Execs Need to Answer Before Pursuing Analytics

Topics: Leadership, Finance, Management

“Only 13.3% [of surveyed finance professionals] are pursuing the full complement of descriptive, prescriptive and predictive analytics, while nearly three times as many (34.9%) indicated that they do not even know which forms of analytics their companies have adopted,” according to the Wall Street Journal post “Analytics: Five Skills to Help Finance Soar” by Tom Davenport of Deloitte Analytics and the President’s Distinguished Professor of Information Technology and Management, Babson College.

“Companies that understand and embrace the importance of accessing and leveraging internal and external data
will gain competitive advantage over the ones that resist.”

While on the surface, the 30,000 ft. required by CPG executives to manage the complexities of their organizations may seem prohibitive of involving themselves in the minutia of an analytics initiative, it is the involvement of executive teams in prioritizing and valuing these initiatives that largely determines their success in impacting business outcomes.

In a CIO Review column, “Steps the CPG Manufacturers Can Take to Foster Innovation, by Vittori Cretella, CIO of Mars, he states, “Companies that understand and embrace the importance of accessing and leveraging internal and external data will gain competitive advantage over the ones that resist.”

The truth is that there is probably a data or analytics solution available for each department in your organization, so prioritizing which few will benefit the most from the C-Level involvement can be guided by considering these questions:

How and to what extent can this analytics initiative directly affect business performance?spot-runs-start-la-large.jpg

One of the hesitations that CPG execs have in getting involved in analytics initiatives is that the impact of the information and efficiency improvements gained only indirectly affect revenue, profit and volume outcomes. However, the value-added and competitive advantage gained by investing in an analytics solution is most impactful when 1) it provides a new, measurable picture of organizational health and 2) this insight is used to influence future decision making that results in a quantifiable return on both the solution investment and the organizational practice/process the solution improves.

Take, for example, the area of Trade Promotion where companies allocate on average over 20% of annual revenue. CPG executive teams should be asking how adding an analytics solution to a historically unsuccessful, but necessary, practice will tell them something they don’t already know about their business while giving them functionality to improve and quantify the improvement on their 20%+ investment.

How will this initiative empower my employees?

With any new initiative, there will be the challenge of managing change. Executive involvement is crucial to align understanding and objectives of the change when it impacts multiple departments within the organization. However, there is a difference between executive involvement in an initiative and an executive driving an initiative. One of the differentiators should be the ability to draw a correlation between employee action and business performance. When this happens, leadership invests in both the organization and the employee.

In Trade Promotions, when executives drive investment in an analytics solution such as Trade Promotion Optimization, it breaks down barriers between sales, marketing and finance because it aligns KPIs and puts an emphasis on the data-driven decision making that links these traditionally siloed departments. Furthermore, it puts quantifiable measurements in place to link directly to organizational performance. For example, it is easy to see how trade promotion performance connects to incremental revenue and profit.

What is the cost of not having these analytical capabilities?

Simply put, the greater the cost, the greater the need for executive level involvement. Measuring that cost is often challenging. However, if we have quantified the answer to our first question, to what extent can this analytics solution directly impact my business performance? The cost of not doing it is measurable. Add to this the potential gains of competitors who are benefiting from already rolling out this solution and the cost becomes more apparent.

Obviously, these costs are still speculative, but critical for executives to consider both the commit required for an initial analytics investment and the potential for future growth with this solution. Our clients realize at least a 3%-5% return on their annual trade investment and a 12X ROI on the software cost. For a company investing $20 million annually in trade, that is potentially turning away $1,000,000 in annual incremental profit.

"CPG executive teams should be asking how adding an analytics solution to a historically unsuccessful, but necessary, practice
will tell them something they don’t already know about their business while giving them functionality
to improve and quantify the improvement on their 20%+ investment."

It’s not an if, but when.

According to the post, “The need to lead in data and analytics” by McKinsey and Co., “high performers in analytics are nearly three times likelier than their low-performer peers to say their CEOs directly sponsor their analytics initiatives.” For CPG companies, the time to integrate sophisticated analytical capabilities to improve the understanding of your business and improve performance is both here and possible. The question that executives need to consider is what they are doing to make sure it will be a success.

What to read next: How Trade Promotion Analytics Can Unpack Potential for Profit and People


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