For the tools or services used to monitor and manage strategy implementation to deliver the greatest value to the CEO and his or her organisation, the information they provide must be timely, relevant and insightful. Naturally, the information must also be accurate.
In our experience, the levels of analytics used by senior management in SMEs vary widely. As you might expect, there are also extremes, examples of which are given below.
The so-called CRAP model
C – collect data
R – report
A – avoid analysis
P – postpone action
The so-called CARE model
C – collect data
A – analyse it
R – recommend action
E – experiment and execute
Four levels of analytics can be identified to support strategy execution: descriptive, diagnostic, predictive and guiding. These four are described in more detail below.
1. Descriptive analytics
The first level focuses on describing what has already happened. It answers the question “what happened?”. A very typical descriptive analytic is the accounting completed each month. So is the bank account balance on the last day of the month and the number of customer meetings held by vendors in the previous month.
2. Diagnostic analytics
This level of analytics answers the question “why did this happen?”. Diagnostic analytics delves into the root causes and explanatory factors of events in order to improve the understanding of the organisation. A vivid example is the CFO’s explanation to the board meeting of a large monthly deviation in the company’s profitability.
3. Predictive analytics
Predictive analytics seeks to communicate “what could happen?” if certain laws hold true. For example, a cash flow forecast with a few different scenarios or various sensitivity analyses on the impact of interest rate rises on dividend stock valuation levels. The aim of predictive analytics is to identify different scenarios for the future.
4. Guiding analytics
As the name suggests, guiding analytics is the process of guiding a company by answering the question “what should we do if scenario X happens?” or “how could we achieve future scenario Y”.
- If the rise in commodity prices due to the interest rate pandemic is permanent, how can we maintain our sales margin?
- What options do we have to improve our self-sufficiency so that we can access debt financing for our growth investments in 2022?
- How can we increase our average customer bill without increasing our unit prices?
- What options do we have to finance the opening of a new branch given our current financial structure?
How do you identify what level of service your organisation is at?
A simple way to identify the level of senior management analytics is to look at past and upcoming executive team or board meetings. Whichever model of agenda items you have:
- A review of the previous month’s accounting results
- Any of the questions described above with supporting analytics
What is the level of analytics and discussion in your management team or board? What level would you like it to be? How much more likely would you be to achieve your goals by working at the highest levels of analytics?
Sources: Dearborn et al. 2018