HOW SHOULD YOU RECOGNIZE THE FINANCIAL COSTS AND BENEFITS OF CUSTOMER ANALYTICS INVESTMENTS?
Much like investing in a new building or developing a new product, there is substantial uncertainty in the payback of an investment focused on predicting the behavior of customers based on data and analytic assets. Unlike those more traditional investments, the end result being built in a customer analytics strategy is often not well-understood outside of the domain of the analytics practice or the line of business, and there are few standard practices for valuing those assets.
HOW CAN WE APPROACH THE CFO WITH A CREDIBLE BUSINESS CASE?
It’s our objective to provide senior leadership throughout the management team of our clients and colleagues to understand how to evaluate an investment strategy, and its full implication for indirect costs, profit and loss, and cash management. We also want to right some wrongs of the traditional practice around analytics strategy investment presented by solution vendors. The traditional practice is to focus myopically only on the direct expenses and direct returns of the solution itself, from the context of the line of business, and not the enterprise. The typical presentation is “If you buy our product today, you can earn a 35% ROI in 2 years.”
A PROVEN SUPPLY-SIDE AND DEMAND-SIDE INVESTMENT STRATEGY
In this Corios RedPaper, we present a proven approach for making smart investment decisions in customer analytics, including:
We’ve developed a simple, scenario-based financial model for analytics investments in customer strategy. Our process starts by specifying some essential planning assumptions that describe the current state of the firm and its capabilities, the roadmap they are on to enhance their decision-making capabilities via analytics, and their financial treatment of assets to be constructed through this investment.
- On-premise vs. cloud-based analytics platform scenarios
- Financial drivers
- Income generation
- Operating expenses
- Investment schedules
- Income (P&L) statement
- Cash flow statement
How should we set priorities around which customers, which offers and when should we execute these analytics-driven next best actions, enabled by our customer analytics platform? This is the role of the marketing and sales leaders, and our advice with these leaders is to focus on the execution strategies that will earn the company the greatest return given how the company earns that income, linked back to both top-down executive leadership direction around income and cost of funds drivers, as well as the customer behavior that indicates where the best bottom-up opportunities present themselves.