Breakfast Seminar A: IBM Canada Ltd. Conference St_ John's/FE… · Breakfast Seminar A: IBM Canada Ltd. Mining Growth with Business Analytics Tony Levy, Business Unit Executive,

Breakfast Seminar A:IBM Canada Ltd.

Mining Growth with Business Analytics

Tony Levy, Business Unit Executive, Business Analytics

David Powell, Global Finance Lead – BAO Centre of Competence

© 2012 IBM Corporation

Mining for Growth with Business Analytics

FEI Conference 2012 – St. John’sJune 7th, 2012

© 2012 IBM Corporation4

Tony Levy

David Powell F.C.A.

IBM Software GroupBusiness Analytics Software Global Solution Manager

IBM Global Business ServicesGlobal Finance Lead – BAO Center of Competence

Speakers


Today’s Discussion:

Why Analytics?

How do we advance Analytics?

Where do we start?


...fewer than 15%are confident that they get helpful information for making decisions about the future...

- CFO Executive Board, March 2012

Volatility, uncertainty & risk

“

”


CFOs are taking a more prominent role in enterprise decision making. Yet, many struggle to deliver business insight

CFOs have an advisory or decision making role on the enterprise agenda

Not satisfied with operational planning and forecasting analytical capability

Enterprises produce financial metrics manually

55% 40%70%

Source: 2010 IBM Global CFO Study


Value integrators invest in business insight and finance efficiency

Corporate philosophy of information standards

Standard Chart of Accounts

Standard processes

Standard data definitions

Operational planning and forecasting capability

Financetalent

development

Common planning platform



Business insight combines foresight with a reliable view of current and historical information

• What happened?

• How many, how often?• Where exactly is the problem?• Why is this happening?• What actions are needed?

• What will happen next? • What if these trends continue?• What are the potential

performance gaps?

• Balance sheet, profit and loss, and cash flow statements

• Revenue and cost variance analysis

• Customer, product and market profitability

• Spend optimization• Working capital analysis• Market, customer, & channel

pricing• Sales and supply chain

effectiveness

• Cash forecasting• Scenario-based planning and

forecasting• Strategic investment decision

support• Volatility and risk-based predictive

and behavioral modeling

Rear View Current View Forward-looking View


Value Integrators outperform

Value Integrators All other enterprises

Source: IBM Institute for Business Value, The Global CFO Study 2010 / Journey to a Value Integrator

Financial Outperformance

1 Year: 2009 to 20105 Years through 2010

7.8%

9.6%

10.8%

-0.7%

6.9%

8.9%

12 x better

39% better

21% better

EBITDA5-year CAGR, 2006-2010

Revenue5-year CAGR, 2006-2010

ROIC5-year average, 2006-2010

23.5%

8.4%9.9%

17.3%

6.6%8.1%

36% better

27% better

22% better

EBITDA1-year change, 2009-2010

Revenue1-year change, 2009-2010

ROIC2010



Why Analytics?


Where do we start?


What do we mean by advancing Analytics?Company 1 - Industrial – Electronics, Global, Fortune 500• Process review/Finance Transformation project. • Chart of accounts (Corporate) updated• Associated data transformation• Common Financial Consolidation solution• Next - standards for budgets, forecasts and management reporting.• Business intelligence/dashboard reporting

Now well situated to embrace ‘Predictive analytics’ and build on the overall Finance transformation work • End to end this project took 3 – 4 years.

So where are they situated?





Standard processes



Financetalent

development



Company #1 (before project)

Where does your company rank?





Standard processes



Financetalent

development




Company #1 (after project)


What do we mean by advancing Analytics?

Company 1 - Industrial – Electronics, Global, Fortune 500• Process review/Finance Transformation project. • Chart of accounts (Corporate) updated• Associated data transformation• Common Financial Consolidation solution• Next - standards for budgets, forecasts and management reporting.• Business intelligence/dashboard reporting

Now well situated to embrace ‘Predictive analytics’ and build on the overall Finance transformation work • End to end this project took 3 – 4 years.

So where are they situated? Becoming Value Integrators



Company 2 – Diversified Conglomerate, Global.• Decentralized management philosophy. • Subsidiaries follow their own standards for systems, multiple GL’s. • Corporate ‘control’ via a standardized corporate chart of accounts. • Corporate uses Performance Management solutions – for example Controller,

TM1 and Cognos BI. No current use of SPSS/predictive. • Company is thinking about advanced analytics. Limitations – cross company

detailed data not easily comparable. • So where are they situated?





Standard processes



Financetalent

development



Company #2

Where does your company rank?Company #1 (after project)



Company 2 – Diversified Conglomerate, Global.• Decentralized management philosophy. • Subsidiaries follow their own standards for systems, multiple GL’s. • Corporate ‘control’ via a standardized corporate chart of accounts. • Corporate uses Performance Management solutions – for example Controller,

TM1 and Cognos BI. No current use of SPSS/predictive. • Company is thinking about advanced analytics. Limitations – cross company

detailed data not easily comparable.

• So where are they situated? Disciplined Operators, starting to become Value Integrators.


What do we mean by advancing Analytics?Company 3 – Pharma, Global. • Implemented standard PM solutions at corporate, rolling out

globally. • Fragmented data in multiple data repositories• Have improved processes, still includes manual data manipulation and

spreadsheets• No common standards for lower level data. • Company is aware of gaps, and is planning to address. Likely a few years

before they’d ‘feel ready’ to embrace advanced analytics. • So where are they situated?





Standard processes



Financetalent

development



Company #3


Company #2

Company #1 (after project)



Company 3 – Pharma, Global. • Implemented standard PM solutions at corporate, rolling out

globally. • Fragmented data in multiple data repositories• Have improved processes, still includes manual data manipulation and

spreadsheets• No common standards for lower level data. • Company is aware of gaps, and is planning to address. Likely a few years

before they’d ‘feel ready’ to embrace advanced analytics.

• So where are they situated? Constrained Advisors, looking to grow into Disciplined Operators, and to become Value Integrators.


What do we mean by advancing Analytics?To summarize:

Each company has its own ‘position’, and different people will see the relative maturity levels in different ways. We’re looking at Financial data, but we could also apply similar thinking to Customer and Marketing data, and compare different parts of a company’s business with different benchmarks. See advanced analytics as a journey, that lets a company ‘advance’ its behavior and focus. When ready, a logical next step becomes to look into the power of predictive analytics and scenario modeling.In turn using time as an enabler in helping predict and impact future outcomes, with better business insight. Helping Finance move from scorekeeper to business partner.



• Next we’d like to take you on a journey to show you the art of the possible.

• To give you some ideas as to how you can grow into or deeper into the ‘Value Integrator’ mindset.

• Analytics is a large area, so by focusing on an advanced solution, we can show how this is built up and how it can add significant business benefit.

• We’ll be looking at key metrics, reporting and scenario modeling, also introducing the power of predictive analytics.


IBM Smarter Analytics

CFO performance insight



Increase visibility, insight, and control over financial performance through predictive analytics

Solution overviewMeasure, monitor, and anticipate business performance with pre-configured solution that:• Uncovers temporal-causal relationships between

performance metrics using predictive analytics• Enables guided root-cause analysis and what-if analytics

through executive style dashboard

Solution benefits• Reliably measure and monitor business performance• Anticipate performance gaps, understand root cause and assess alternatives• Deliver more reliable business insight on a stronger foundation of trusted information

CFO Performance Insight

Cross-industry

How can I anticipate and shape the impact of financial decisions?

IBM Smarter Analytics CFO performance insight


Temporal Causal Modeling

• Discover causal relationships

• Assess lead‐lag indicators• Examine strength of metrics relationships and degrees of separation

• Anticipate the momentum of metrics drivers

Predictive Analytics

Integrated Analytics• Identify performance gaps for critical KPIs• Analyze root causes guided by discovered causal relationships

• Assess the impact of alternatives scenarios• Enable effective decision making

Performance Measurement & Monitoring

IBM CFO performance insightHow it works

What‐if Analysis

Scenario Planning• Model multi‐dimensional business structures

• Evaluate the impact of alternative assumptions

• Immediately report on alternative scenarios

A pre‐configured reports, dashboards and planning models built on IBM Cognos and IBM SPSS software

Information Management FoundationData Warehouse

Data Integration

Source Systems – ERP, G/L, Legacy Systems

Advanced analytics increase visibility, insight and control over performance


Finance organizations that automate the production of metrics deliver stronger business insight

Business Insight AcceleratorsAutomate Production of

Operational Metrics

73%

57%

Financeorganizationswith strongbusinessinsight

All otherenterprises

FinancialMetrics

28% more

61%

43%

Financeorganizationswith strongbusinessinsight

All otherenterprises

OperationalMetrics

42% more

53%

35%

Financeorganizations withstrong business

insight

All other enterprises

51% more

Establish Non-Financial Data Standards

Automate Production of Financial Metrics



IBM CFO performance insightFinance scorecard “quadrants”

Financial Management Operational Revenue Management

Are we performing to shareholder expectations?

Are we driving revenue growth effectively?

Operational Expense Management

Capital Management

Are we managing operational expenses effectively?

Are we managing fixed and working capital effectively to increase future revenue and expense management capabilities?

Embedding Risk Management in the Quadrants

Are we managing the risks of sustaining this performance?


IBM CFO performance insightFinance scorecard metrics – 19 KPI’s

Financial Management Operational Revenue Management

EBITDANet IncomeROICOperating Profit (% of Sales)

Gross SalesAvg. Sales Value/UnitPrice RealizationMarket Share

Operational Expense Management

Capital Management

SG&A %Gross MarginMaterial Cost (% of Sales)Distribution cost (% of Sales)Headcount

Capital EfficiencyQuick RatioDays Sales Outstanding (DSO)Days Payables Days in InventoryBad Debt Write-Off


Metrics coverage of value drivers:19 KPIs & 5 KRIs

Performance metricsRisk indicators

Enhance Total Shareholder

Value

GrowRevenues

ImproveMargins

Use CapitalMore Effectively

Channels

Customers

Products/Services

Pricing

Total Delivered Cost

Sales & Marketing Spending Efficiency

General & Administrative Costs

Fixed Capital

Working Capital

Markets

ROIC

EBITDA

Net Income

Capital Efficiency

Inventories

A/R

A/PDSO

Days Inventory

DPO

SG&A %

Gross Sales

Operating Profit % of Sales

Gross Margin

Order Backlog

Market/Selling Price Realization

Customer Turnover

Market Share

Capacity Utilization

Labor

Materials

Production Efficiency

Material Cost %

Headcount (FTE)

Average Sales Value/Unit

Dist Efficiency Dist Cost %Warranty Expense

Trouble tickets

Bad DebtQuick Ratio


Are we looking at the right metrics?

Leading vsLagging

Internal vs External

Lagging

External

Leading

Internal

• Order backlog

• Gross sales• Gross margin

• EBITDA• Net Income

• Market share

• Trouble tickets

• Customer turnover


Is the refresh rate right?

Materiality

Variability

Low

High

High Frequent

Infrequent

Low

Less frequent or by exception

Less frequent


IBM CFO performance insightExecutive dashboard


Executive Dashboard

Traffic light indicators

Company Logo

Report List

Financial reports

Executive dashboard

Link to ERP Web Interface

“What-if” analysis

Metric trending

Actual vs Budget vs Forecast

Risk Status indicators



Executive Dashboard


Company Logo

Report List

Financial reports

Executive dashboard



Metric trending





Standard GL/AR/AP reports


Standard financial reports


Standard management reports


Executive Dashboard


Company Logo

Report List

Financial reports

Executive dashboard



Metric trending





Impact diagrams aid root-cause analysis


Executive Dashboard


Company Logo

Report List

Financial reports

Executive dashboard



Metric trending





Key Risk Indicators provide early warnings to potential weaknesses


Value Integrators implement a common reporting platform to a greater extent

Technology: Applications Rationalization

85%65%65%

46%

Common reportingplatform

Value Integrator Disciplined Operator Constrained Advisor Scorekeeper



Value Integrators implement a common planning platform to a greater extent

Technology: Applications Rationalization

79%46%

65%27%

Commonplanningplatform

Value Integrator Disciplined Operator Constrained Advisor Scorekeeper



Forecasts help anticipate performance gaps

Actual vs Budget vs Forecast Rolling Horizons


Are we measuring the reliability?

TARGET ACTUAL

Average Net Error (Bias) <1% 0.8%

Average Gross Error (Variation)+/- 5% <14%

Is this forecast biased?

Is there too much variation?

7.4%

2.0%

6.9%

1.3%2.6%

9.0%

12.8%

10.1%

2.2%

-13.7%

-7.7%

-5.1% -5.6%

-11.8%

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

April

May

June

July

Aug

ust

Sep

t

Oct

Nov

Dec

Jan-

06

Feb-

06

Mar

-06

Apr

-06

May

-06

Source: “Future Ready” (Wiley)

forecast

negative errors

positive errors


Advancing analytical capabilities: Improve the Value Integrator’s effectiveness against the #1 CFO agenda priority

Evolution of Analytics and ValueIntegrator’s Effectiveness in

Providing inputs into Enterprise Strategy

ANALYTICAL CAPABILITY

E F

F E

C T

I V

E N

E S

S*

OperationalPlanning andForecasting

ScenarioPlanning

PredictiveAnalytics

+65%

+75%+89%

* Percent more effective than baseline (Scorekeepers)



Executive Dashboard


Company Logo

Report List

Financial reports

Executive dashboard



Metric trending





Temporal causal modeling: discover causal relationships between drivers and KPIs

Proprietary algorithms developed by IBM Watson Research Center, that answer the following:Which metrics have the most impact on my performance?

• Use historical data to discover those metrics that have the strongest impact on selected business objectives, directly or indirectly

• Use historical data to evaluate the strength of user-specified metric relationships

How do these metrics interact with each other?• Use historical data to discover significant causal relationships

among metrics: time lag between metrics, strength, degrees of separation.

What is driving my performance?• Use identified causal relationships to automatically discover the

metric values driving observed performance If nothing else changes, what will my future performance be?

• Use causal-temporal model to project future performance based on historical data







Automatically discover causal lead-lag relationships among business metrics

Width of the edges represent strength of the relationships

Lags represent the temporal cause-effect duration between the metrics

Selection of business dimensions for enterprise hierarchical analysis

Filter to select user specified degrees of separation relative to the selected metric

Filter to select user specified time horizon for analysis

Filter to select user specified strengths for the relationship

Positive vs negative correlations are displayed as solid vs dashed lines


Move from current period (Sep ’11) –to Nov ‘11


Intuitive visualization enables insights into large scale networks

The impacted and impacting relationships are organized in well defined categories based on the strengths of the relationships

Sparklines displaying trends in metrics with current, lowest and highest values


The selected metric is on the right and the Impacted and impacting metrics are on the left


Intuitive visualization enables insights into large scale networks

The selected metric represents the core. Impacted and impacting metrics are on the circumference

The impacted and impacting relationships are organized in well defined categories based on the strengths of the relationships

The height of the bar represents the degrees of separation from the selected metric. The numeric at the top represents the lag



Executive Dashboard


Company Logo

Report List

Financial reports

Executive dashboard



Metric trending





Integrated what-if analysis: Provides an in-depth view on impact of alternative business forecast assumptions, all on a single page view


Change DSO for Nov & Dec from 78.92 and 82.47 DSO to 35.00 and 35.00




Why Analytics?


Where do we start?


“Where do I start”?

In order to start on a journey, 2 things are needed:• Start point – Where are you today?• Destination – Where do you want to be tomorrow? • Once you establish this, all that is needed is to agree the path to get there.

© 2012 IBM Corporation60 60

Analytics: The New Path to ValueMIT Sloan Management Review IBM Institute of Business ValueOctober 2010

Five Recommendations to put Analytics into practice

4

5

Focus on the biggest and highest value opportunities

Develop an Information Agenda to plan for the future

Build an information foundation while bringing

in new capabilities

Embed insights to drive actions and deliver value

Start with questions, not with data

1

3

2


#1 Focus on the biggest and highest value opportunities:Identify Key Pain Points

Limited visibility, insight and control over the key drivers of financial and operational performance.Inability to anticipate performance gaps with enough lead time to assess alternatives and enable effective decision makingLimited ability to deliver strong business insight from trusted sources Lack of timely, reliable reporting and analysis Finance organizations struggling to use information more effectively and efficiently in decision making

“

While measuring and monitoring performance is most often cited as their top priority, over 40% of CFOs rate themselves as ineffective

- 2010 IBM Global CFO study


A typical Business Value Accelerator (BVA) is a short engagement to frame the analytics opportunity and define a program of action

DATA COLLECTION & SYNTHESIS (4-6 Weeks)

“As-is” vs. “to-be”Cost and value driversBaseline models Internal benchmarksRoot causes for gaps

ANALYSIS & RECOMMENDATIONS (4-6 Weeks)

Opportunities with range of savings / returnEnablers and dependenciesTransformation roadmap with prioritization Readiness for changeFinal report and presentation to sponsors

Business Value Accelerator - Approach Business Value Accelerator - Benefits

Fast Start – BVAs enable rapid deployment, outcomes driven by the business, and are based on actual client insights and data

Strengthened Trust: Confidence is built throughout BVA engagements

Business Knowledge: BVA increases chances of success and relevancy of the solution to the business


#2 “Where do I start”? Start with questions, not with data

• Think about your industry, your customers, your competitors, your company.• How do you compare?

How close am I to being a Value Integrator? How far along this track are my competitors?

• What are best practices? • What resources do I need?

What capabilities, availability do we have internally?What external help is available?

• How much will it cost?• What’s the cost of NOT doing this?• Can I benchmark where my Company is?• Where does it hurt the most? (What are my pain points?)


Examples of Best Practices for Performance Management

Total Cost of the planning and management accounting function per $1,000 USD Revenue

Personnel cost (incl. benefits) of the planning and management accounting function per $1,000 USD Revenue

Systems cost of the planning and management accounting function per $100,000 USD Revenue

Total cost of the process “perform planning/budgeting/ forecasting” per $1,000 USD Revenue

Cycle Time to complete the financial forecast

Cycle (days) to complete annual budget cycle

Number of FTE’s for the planning and management accounting function per $1 billion USD Revenue

All companies

Entity count Median Benchmark

122 $2.33 $1.19

188 $1.62 $0.77

133 $10.34 $4.95

215 $0.79 $0.37

462 11.00 5.00

1066 50.00 28.00

598 17.92 7.09


Quickly pilot a pre-configured performance dashboard

Assess Gap & Identify ValueOpportunity

EstablishSolution

Approach

Implement& Deploy

PM Diagnostic (GBS BAO)

IBM Cognos Optimization BVA (GBS BAO)

FPM Business Value Assessment (BA SW)

CFO Performance Dashboard

Improve efficiency and effectiveness of performance management cycle based on strong metrics framework

Optimizing value of existing IBM Cognos software investments

Business value opportunity assessment for BA SW in Finance

#3 Embed insights to drive actions and deliver valueCFO Performance Insight combines software and services to generate business insight







Integrated Analytics• Identify performance gaps for critical KPIs• Analyze root causes guided by discovered causal relationships

• Assess the impact of alternatives scenarios• Enable effective decision making

Performance Measurement & Monitoring

#4 Build an information foundation while bringing in new capabilitiesIBM CFO performance insight: how it works

What‐if Analysis

Scenario Planning• Model multi‐dimensional business structures

• Evaluate the impact of alternative assumptions

• Immediately report on alternative scenarios

A pre‐configured reports, dashboards and planning models built on IBM Cognos and IBM SPSS software

Information Management FoundationData Warehouse

Data Integration

Source Systems – ERP, G/L, Legacy Systems

Advanced analytics increase visibility, insight and control over performance


#5 Develop an Information Agenda to plan for the futureValue integrators invest in business insight and finance efficiency



Standard processes



Financetalent

development




IBM advantage

$16B for 30 acquisitions since 2005More than 10,000 technical professionals9,000 consultants delivering IBM analytics solutionsPower7: workload optimized analytic processingSmart Analytics cloudComprehensive, heterogeneous Big Data platform for the EnterpriseWorld’s largest math department in private industryFirst-of-a-kind breakthrough innovations including IBM WatsonNumber 1 in patent ranking for 19 years and nearly 600 analytics patents / year More than 27,000 Business Partner certifications


CFO Performance Insight: Solution Support - Canada

David Pratt – BAO BIPM Leader (Eastern Time Zone) [email protected]

Matt Pakula – Business Development Manager – Advanced Analytics (Eastern Time Zone) [email protected]

David Powell – BAO Global Finance Lead (Eastern Time Zone) [email protected]

Tony Levy – BA SW Global Solution Manager (Central Time Zone)[email protected]


Feedback forms / prize

Please complete FEEDBACK formsEach form completed will receive an IBM Golf Kit.

Please visit us in our IBM booth and ask about our complimentary workshop for qualified CFO’s.


A smarter planet is built on Smarter Analytics



IBM Corporation 2012• IBM, the IBM logo, ibm.com, Cognos, and the planet icon are trademarks or registered trademarks of International

Business Machines Corporation in the United States, other countries, or both. If these and other IBM trademarked terms are marked on their first occurrence in this information with the appropriate symbol (® or ™), these symbols indicate U.S. registered or common law trademarks owned by IBM at the time this information was published. Such trademarks may also be registered or common law trademarks in other countries. A current list of IBM trademarks is available on the Web at “Copyright and trademark information” at www.ibm.com/legal/copytrade.shtml.

• Other company, product, and service names may be trademarks or service marks of others.• References in this publication to IBM products or services do not imply that IBM intends to make them available in all

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Breakfast Seminar A: IBM Canada Ltd. Conference St_ John's/FE… · Breakfast Seminar A: IBM Canada Ltd. Mining Growth with Business Analytics Tony Levy, Business Unit Executive,