Published first on http://www.gtnews.com and  http://www.afponline.org/ in May 2014

The financial planning and analysis (FP&A)  board met for the third time in London on 1 May at Hermes Fund Managers’ offices in the City of London. Marc Lloyd, the firm’s head of FP&A, again played host to Ash Sharma, head of FP&A at Alliance Boots Healthcare; Darren Craddock, director of planning and forecasting at insurer Aviva; and Frederik Reynaert, head of financial planning and reporting at travel firm Thomas Cook.

Other board members in attendance at a fascinating evening, where discussion focused on how best to generate insights from ‘big data’ and ensure staff have the people skills to communicate data in a way that generates insights, were Joseph McElligott, a finance manager in the UK national health service (NHS); Cliff Jackson, a senior financial analyst with BP; and Timothy Green, head of FP&A at insurance broker, Cooper Gay Swett & Crawford.

Founder and director of the London FP&A Club networking body, Larysa Melnychuk, established the advisory board of senior professionals to help guide strategic advancement of the sector. She invited Steve Wills, director of the Insight Management Academy and a visiting fellow and contributor to the new Master’s Degree in the subject at Winchester University Business School, UK, to help guide the debate. The well-known ‘Chatham House’ rules on anonymity were deployed to encourage a full and frank debate.

Board members were also fortunate to be joined by Shariq Daudi, head of long-term planning and budgeting at Etihad Airways, who flew over from Abu Dhabi, UAE, to join the discussion about insight management (IM). He had been impressed by the earlier best practice guidelines produced by the board on the key people skills required by FP&A professionals and the key requirements of a successful technology system. All best practice guidelines aim to help FP&A professionals deliver business advantages and to advance the profession, alongside the Association for Financial Professionals’ (AFP) certification programme, which seeks to provide a professional benchmark.

“People would love to have a piece of software that could deliver insight management,” Wills told board members in his opening address, which was designed to get them considering what the evolving function could do for them. “It doesn’t exist, however, you need people to deliver insight and business advantage.”

Wills also challenged his audience to think about how they could release pent-up value in their firms. This could come from better communicating and actioning insights gleaned from customers, from the financials of the business, or from internal staff.

In response to his question: ‘What percentage of the value you have identified for your business was actually realised?’ only one member of the 10 attendees reported that the figure was significant. The majority of FP&A professionals admitted that less than 20% of the value they’d identified was actually delivered to their corporate. Evidently there is a problem here and one that better insight management might be able to fix by bridging the gap between value identified and value realised.

Defining Insight Management

“Insight management joins market research, database analysis and competitive market intelligence in one function …and should give the business an ability to perceive clearly and deeply,” explained Wills. “It is the latter that delivers the true value [as it’s an approach] and not just a one-off nugget of information, although that can be valuable in itself.”

As an example of the power of an insight management (IM) approach, especially when combined with the financial and analytical powers of an FP&A professional – typically the most outward-facing finance person in a firm – Wills cited the case of UK supermarket chain Tesco. The company took on the sector’s previous leader Sainsbury’s, Wal-Mart-owned Asda and a host of smaller competitors to become the UK’s biggest grocer by the mid-1990s and a globally important player.

Tesco’s growth was due largely to its ClubCard loyalty programme, and the IM techniques and approach associated with it. “In 1996 the former number one UK grocer Sainsbury’s was worth £8bn and Tesco only £6bn,” said Wills. “Fast forward 14 years later to 2010 and the former was still valued at the same price, whereas Tesco’s was worth £36bn.” He went on to detail how the company used customer insights delivered by the Tesco ClubCard to identify management, customer growth and efficiency advantages that grew its market share by 14% over that timespan against fierce competition.

Companies without IM typically get the Highest Paid Person’s Opinion, or HIPPO, rather than competitive evidence-based insight, Wills warned. Insight should be treated as a strategic asset rather like IT, and managed accordingly – as Tesco and major companies such as Barclays, Boots, Akzo Nobel and GlaxoSmithKline – now do.

Insight Management Guidelines

Wills is currently working on a comprehensive list of the best practice guidelines that he’d advise FP&A professionals to follow, linked to Winchester University’s course in this area. He suggested that the best path was to lay out some ground rules and a clear approach to follow.

IM involves, and can be delivered, by:

• Understanding the goals and capabilities of your organisation and its customers.
• Identifying all types of information that could be relevant in helping achieve these business and customer goals – whether from the end user, financial, supply chain, treasury or other areas of the business that you’ve identified as being important.
• Gather that information and make it accessible by establishing efficient, accurate and robust methods for acquiring, mining and storing it (as per Tesco’s ClubCard programme).
• Apply sound analytical techniques to identify opportunities.
• Use appropriate communication techniques to realise value.

The third and fourth guidelines are sometimes cited as research, analysis and knowledge management techniques but true insight management needs all of the above steps to be followed, concluded Wills. The debate was then opened for board members to discuss their experiences and practical examples of how an IM approach and FP&A skills could potentially be combined to offer business advantages.

Barriers and Boundaries

Speaking under Chatham House rules, one board member responded: “Functional boundaries are becoming more and more redundant,” when asked if his group envisaged any barriers to FP&A professionals adopting lessons from an IM approach.

FP&A can be internally focused while IM is often externally focused on the customer-facing aspects of a business, which one member suggested could cause problems in integrating the two. Conversely, another pointed out that IM could identify the ideas for FP&A finance professionals to cost and then either OK to reject, depending upon the identified value to the business – leading to a harmonious approach.

This led to the observation that if marketing people – bearing in mind that much of the IM approach grew from this discipline – were running an approach without financers’ buy-in then it could lead to conflict. The two skillsets and personality types do not always get along.

“There is value in creative tension, however,” noted another attendee, “and FP&A could add the value to IM.” The possibility of incorporating the new discipline it into an FP&A department – emphasising the ‘A for analytical’ in the financial planning and analysis processes (FP&A) was then debated. Half of the attendees preferred the idea of creative tension between practitioners and a differentiated, mutual learning deployment.

Potential barriers to widespread adoption of an IM approach were identified as “imperfect data acquisition” especially in legacy, technologically deficit IT environments. However, as Wills pointed out, get the management approach right and there are still valuable insights to be gained. The individual is as important as the technology, even in a ‘big data’ world where more and more unstructured data is available.

“Correlation is not necessarily causation either,” observed a member, who warned that robust management mechanisms were required to avoid the wrong lessons being learned from vast amounts of incoming data ‘machine analysed’ without a controlling human brain.

Examples and Conclusions

Some great examples of IM in action were shared by board members although some, such as Tesco’s ClubCard programme, happened before the term itself was coined, or at least recognised as a function in its own right.

UK life-to-motor insurance group Aviva provides another example of IM in practice. Aviva launched telematics data storage and assessment pilots many years ago, for gathering data and insights about their customers driving habits and to correlate the findings with age and gender. These insights can be used to tailor, and price, motor insurance policies accordingly at different demographics to maximise value and customer acquisition.

This telematics approach to motor insurance is now moving beyond the pilot stage to actual implementation in some marketplaces around the world, such as the UK, as the supporting technology and real-time management and risk approaches get better.

It is a real live example of how IM – and the related management approach – can lead to new ideas and markets in a big data world. It also offers an example of how finance professionals, with their accounting, pricing, risk and other skills, can put data and people-driven insights to good use. As a member concluded, “you don’t need great insight to see that this is a valuable asset.”