Wednesday, 26 September 2012

CRM must go with BI

I assume you own a car. May be two.
I am sure you have a bank account with reasonable amount of transactions.
I am sure you have taken a home loan to fund your dream house / apartment
I am sure you have parked some funds in mutual funds etc

Has your dealer ever called you to find if you would like to upgrade your car, or whether you are looking for second car, or simply test drive a new model just introduced? Most likely no. Has your bank ever called you to find out if you need a home loan or for that matter, any personal loan? Most likely no. Has your insurance co ever called you to find out if they can cover your other assets? Most likely no.

I checked and all these companies have CRM. Do they use it? Yes. Do they really use it? No.

Take my case. I drive a Honda Civic and when I bought it, it was pre-owned. First time when I took it to a Honda dealer for service, my name was entered as the current owner into their national database. They could have asked simple questions like I have any other car, how many members are in my family, are we double income or no. None of these questions would have been personal in nature. This is enough for Honda to apply certain demographic profile against me.  And its not difficult to find answers to questions like…

  • How long has been my ownership?
  • Am I happy with vehicle performance and service?
  • Does my demographic information indicate I could be looking for a second car?
  • Given the vehicle segment and my profile, Am I a candidate for upgrade?

Or take my bank account. I am on Platinum status. This means I met certain internal criteria. And they have even assigned a relationship manager I can call. With all financial and non-financial information available in front of them, my bank already has a profile about me. Similarly…

  • How does my family profile stack up against their offering?
  • What is the family income and what does that mean?
  • Do I have a credit card with the bank? How is my payment pattern? Is there an add-on card?
  • What is my average balance?
  • Can the average balance fit into any investment scheme?
  • Do I have a home loan? Do I need a home loan? Would I be willing to shift my home loan?

 Then, why don't they create more touch points to cross sell or up sell their products? I am not generalizing here to include all companies. But many companies implement CRM without addressing core purpose and vitality of leveraging data inputs. A BI tool can provide hundreds of insights which a bank or vehicle manufacturer can leverage. however, companies run blind campaigns from their CRM and they end up in junk mail. They call customer routinely and the calls turn out to be only routine.

Continuing and meaningful data is key and standalone CRM provide very little value addition.

'Subbu' Balakrishnan | EPM and BI CoE

'Subbu' is a qualified Cost & Works Accountant, Company Secretary and Law Graduate, with more than 20 years experience in operations and IT.

Sunday, 16 September 2012

Predictive Modeling and Planning & Budgeting

Embarking on something big or out of the turn? Its time to spice your Planning and Budgeting exercise with with Predictive Modeling Tools. Predictive Modeling in Planning and Budgeting is useful for generating realistic scenarios using data like past performance, business drivers etc. Admitedly, this is more than simulation of scenarios by varying underlying numbers that have gone in as Plan and Budget i.e., sales volume and price in certain territory or plain statistical extrapolation of your past data.

Lets look at it in the following context

• You have medium term strategic direction in place.
• Your annual planning and budgeting is in line with your strategic direction and objectives
• Your strategic direction and annual plan have undergone rigorous analysis like Porter's - Five Competetive Forces that shape Strategy

You have to take some calls on your annual and mid-term plans. Here's where Predictive Modelling Tools come in.

• You have sufficient past data to base your analysis
• And you have sufficient business drivers in place to base your calculation

Here I would like to move away from analytics at an operational level i.e., analytics crunching immediate to short term influencers to predict stock out or demand planning etc. Walmart uses services like Weather Trends International to correlate demand with weather condition. They are demand humunguous correlated data and are more complex to execute.

For example, you have grown 25% QoQ for the last 4 quarters and economy looks good. To reach your strategic goals, you have to add new capacity to meet demand, increase the marketing spend, invest in new products, beef up supply chain and expand overseas. Some of the questions in front of you are - would supply chain be able to meet the demand, are any disruptive technologies emerging, is competition catching up with better features, is demand elastic to pricing, is sufficient cash flow available? And you have to take calls on reducing your risks and spreading the resources most profitably.

Your past data can help answer some of the questions. Where there is no past data, build it. Since you have more than few variables to consider, that too with assumptions, its time to use Modelling. Apply on the data your important assumptions and the ones most likely to happen. Take a call taken on business drivers you can control and the ones lying outside the span of control of management. The important aspect lies in identifying the key business drivers & assumptions and making them as realistic as possible. This will throw up scenarios which will help in decision making. And what you decide goes into your Plan and Budget.

Lets take an example where business drivers were within the span of management control. Automotive industry suffers excess capacity, demand robust cash flow for operations, investment in new models, battle perception in crowded market place and finally, have a strong line up. With finite resources available, call must be taken to manage all of these at the same time. 6 years ago, Ford NA took few strategic decisions which proved to be the best. And these were not simple standalone decisions.

- They beefed up cash position by selling off non core brands like Jaguar, LandRover.
- Invested in new models and strengthened by focusing on Ford and Lincoln (they let go Mercury)
- Lowered cost by moving to towards common platform and investing in global products.
- Finally, they focused on QA to climb back on JD Power rating.

Now each one of these i.e., cash flow, manufacturing cost, quality and line of vehicles are key business drivers towards profitability. May be this is a over simplified example, but Predictive Analytics helps test your plan against key business drivers, how finite resources can be allocated and how to still reach your strategic goal.

 'Subbu' Balakrishnan | EPM and BI CoE

'Subbu' is a qualified Cost & Works Accountant, Company Secretary and Law Graduate, with more than 20 years experience in operations and IT.

Sunday, 9 September 2012

More the merrier in Planning

Some time back we were doing discovery session with a large consumer facing automotive company having multiple products and multiple plants. We were looking at implementing a solution for their planning process (they had long outgrown their excel based manual way of working).

Here are some discoveries and outlines:

Top Down:
  • Top Down consists of CEO laying down desired market share and EBITDA. 
  • CFO and Planning Dept percolate the expectations and broad guideline for Bottom Up numbers.
  • Planning Dept constantly researches demographic data to determine market size by town, region etc. Desired market share is indicated against this data.

Bottom Up:
  • Marketing Dept rolls up sales number by town, region, zone for every product and category 
  • Engineering project current product cost and expected saving to arrive at marginal cost 
  • Operations work on manufacturing cost, CAPEX, planned production at various plants etc 
  • Fixed cost is determined and suitable apportionment formula is arrived at

Over few handshakes, top down and bottom up numbers are leveled and agreed upon.

As part of discovery, we looked at business drivers all around. For example, on the revenue side, we discovered;
  1. This company shares sales data every month with their competitors and receive similar information from them. 
  2. Information is available on planned new product release by the company and by competitor 
  3. Data on sales influencers like festive period, incentives available 
  4. Data on dealer spread and dealer productivity available

We drew an architecture to include all the external data into the planning process as business drivers i.e., demographic data, competitors sales information, dealer productivity and other sales influencers. Why?

Demographic data,as the base, derives potential consumer size and segmentation in a given market. Segmentation information drives product mix, product price, incentives and positioning. Market size determines dealer spread, market coverage, productivity and additional investment, if any. Competitors sales data (while price information is freely available in public domain) vis-a-vis actual sales, will validate size, segmentation, relative market share on a continuing basis.

By including all these into the planning process,
1. Top Down and Bottom Up approach became 360 degrees by looking internally and externally
2. As all these data reflect market dynamics, monthly update provided better analysis of Plan Vs Actual
3. Drilling down on Variances became more rounded, providing information for actionable items

If we had not considered these, a typical implementation, bereft of business drivers, would have only resulted in superior automation of the existing process and nothing more.

 'Subbu' Balakrishnan | EPM and BI CoE

'Subbu' is a qualified Cost & Works Accountant, Company Secretary and Law Graduate, with more than 20 years experience in operations and IT.

Monday, 3 September 2012

Business Drivers and Planning

Another one quarter, it will be time to switch on the crystal ball. Apart from a host of budgeting techniques, business drivers based planning and predictive analytics in planning, are becoming the latest tools for CFO's and analysts.

In its traditional form, which most companies follow, Planning and Budgeting work in the time tested manner. In some cases even Plan and Budget are treated as one and the same. Budgets are made, sometimes by chart of accounts, and after few handshakes, it goes through acceptance. For companies which have devoted attention to this area, analysis is made more rigorously. Sometimes adopting techniques like Zero Based Budgeting to challenge basic assumptions.

For large companies with complex operations and geographical spread, planning and budgeting solutions are implemented to break down individual constituents. This allows cohesive management of the planning / budgeting process (through workflow etc) and placing ownership with the respective functions.

These are just more efficient ways of conducting the exercise and enabling a better comparison of Plan Vs Actual subsequently.   CAPEX is decided and cash flow adjusted. Forex is hedged to bring some uniformity. Volume & Pricing analyzed and adjusted by region, product line, business line to met Top Down objectives. Sometimes this is touted as business drivers based approach while it only amounts to only elaboration of the planning process.

The fundamental assumption in business continuity is that it will obey the known variables. Known variables could be within the span of control of the management or could be outside. The ones within span of control could be head count, market size, production capacity & constraints, etc and the ones outside are assumptions around economic outlook, crude price or dollar value etc. And these known variables are used to drive the plan and the budget follows. These are still not the business drivers.
What are business drivers then?

Let’s term them as activities and influencers, both internal and external, which have bearing on the performance. Let’s not consider black swan events which can overwhelm. For example... your sales is dependent on expanding your dealer network from the current level. This activity is measurable, achievable and has bearing on business result. Let’s consider, rising price of petrol. This can dampen sale of gasoline cars and / or increase sale of diesel powered ones. This can lead either revised product mix or reduction in price of petrol powered cars to stimulate sales. Another example is the rising interest cost bearing down on sale of vehicle. Manufacturers have an option of either subsidizing interest (higher variable cost) or trimming down production (lower marginal contribution).

There will be an argument whether these examples are business drivers or keys for scenario analysis. I think it all lies on how much this has been factored into the plan and budget. Less considered, more they will fall into scenario analysis and vice versa.

'Subbu' Balakrishnan | EPM and BI CoE

'Subbu' is a qualified Cost & Works Accountant, Company Secretary and Law Graduate, with more than 20 years experience in operations and IT.