How to Use Operational Analytics to Lead During a Downturn
Are you running your business off financial statements alone? If your answer is yes, you’re missing out on significant insights on the overall health of your business and operations.
Now don’t get us wrong, financial statements can be a great tool for the month-to-month management of your business. But in today’s uncertain times, every organization needs deeper visibility to manage performance and drive decision-making on a far more real-time basis. In the face of an economic downturn, your operational health and performance need to be laser-focused. But financial statements alone cannot accurately convey the truth of these key measures.
This is where operational analytics can be a game-changer.
Bringing together both financial and operational management disciplines, operational analytics is increasingly becoming a tool of choice for the most successful organizations. As we enter another potential recession, business leaders across industries are turning to this branch of analytics to more accurately forecast, plan, and measure operations on a daily, real-time basis.
Comparing Operational Analytics and Financial Statements
To truly understand the value of operational analytics to your business, you first need to explore the limitations of financial statements. Operational analytics addresses four key shortcomings of running on financial statements alone.
Leading VS. Lagging Indicators
Financial Statements Standard financial statements provide details of what happened during the previous period. This is a very useful method of measuring performance; however, financial statements are a “lagging” indicator. They can only help you answer “What happened?” reactively after the month has ended.
Operational Analytics Properly implemented operational analytics solutions, on the other hand, provide your team with real-time and “leading” insight into your performance. Operational insights can predict what your financial statements will say about your results before the end of the month. This allows you to ask the question “What will happen?” and explore “Why did it happen?” proactively and prescriptively in your business. Operational analytics provides the opportunity to actively change your results.
Communicating With Non-Financial Leaders
CPAs and accountants are highly educated professionals, trained to properly read financial statements. But in most organizations, your entire executive leadership team is unlikely to have a financial background. This means a large portion of your core decision-makers is ill-equipped to run the business effectively off financial statements alone.
Operational analytics solutions allow you to customize the medium to your audience. Highly contextual reports can be designed to tell customized stories with data that is relevant to each department or leader. Operational analytics provide your team with actionable insights that can be used to immediately improve performance, rather than waiting for that information to flow through your month-end statements.
By definition, financial statement reporting is limited to monthly, quarterly, or annual reports. For most organizations, this is simply not fast enough. Speed of insight is an essential business requirement to remain agile in the face of uncertainty. When your business is relying on the right information to make timely and accurate decisions, waiting is not an option.
Operational Analytics Implementing a modern operational analytics solution includes the ability to monitor key performance indicators (KPIs) in real-time. The simple fact is that more timely information will result in better decision-making by your team. And, better decisions create better results. Those monthly financial statements will look a whole lot better with the addition of operational analytics in your teams’ hands.
In the hands of the right person, monthly financial statements can be an effective diagnostic tool to measure business performance. But in 2020, no organization should be limited to only financial statements to measure their performance. A single data source does not make a comprehensive and diagnostic report.
Operational Analytics Operational analytics provide not only high-level dashboards but drill-down capabilities that allow your team to “troubleshoot” your business. These capabilities have traditionally been limited to experienced resources with years of experience relying on “gut feelings” or a highly skilled accountant to properly infer results. Now you can provide knowledge directly to your team, empowering a whole new level of informed business planning.
Operational Analytics in Action
Given the high-value proposition, every organization should have an action plan to implement operational analytics as part of its organizational arsenal. In our experience, organizations with successful strategies typically follow three guiding principles.
Engage Across the Entire Organization
While executive sponsorship is important, it is also critical that your operational analytics initiatives include your entire business. Engaged teams drive more innovation and create a truly “data-driven” culture. This will bring your operational analytics initiative to new levels and improve day-to-day decision-making company-wide. You will be astounded by the results delivered by your team when they are empowered with actionable data.
It is very easy to fall into scope creep and attempt to “boil the ocean” with your operational analytics efforts. The sheer ability to do it all and measure everything can stall progress. But we find it’s best to start small. Identify a handful of simple metrics that can be delivered with your currently available data and go from there. This approach will allow your team to build momentum quickly and establish a solid foundation for gradually adding more advanced analytic capabilities. Early success is critical to motivating your teams.
Adapt Over Time No organization gets its operational analytics process 100% correct with their initial implementation. In fact, the most successful organizations view their operational analytics as an on-going effort that adapts to meet changing business requirements. It’s important to remember that operational analytics is not a project. It is a continuous process that drives your organization’s performance improvement efforts.
For any team to reach its full potential, they need to be empowered with timely information to make better decisions, faster. If your organization is limited, managing performance with lagging financial statements – constantly asking “What happened?” – now is the time to implement an operational analytics solution focused on putting control back in your hands and leading your business forward.
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