How is Finance Leveraging Data Analytics? Spotlight on Etihad Airways

Nov 12, 2014

Jim Kaitz, President and Chief Executive Officer, AFP

The smartest companies today are not only gauging their markets with sophisticated forecasting tools, but looking across their own businesses—throughout each unit—to understand where there are opportunities to improve processes and lower costs. Companies that truly comprehend and seize the power of analytics use the disparate data across business functions to make the entire machine operate at a higher level.

A survey from Deloitte Touche Tohmatsu Limited clearly indicates that wielding analytics intelligently across the business—led by the finance function—helps companies operate more cohesively. “It only makes sense that by taking the lead to apply analytics to operational decisions … CFOs can strengthen ties throughout the business and expand influence outside core finance functions,” the study says. “To truly own analytics, CFOs should bridge the gap between strategic and operational decision-making with analytics,” Deloitte says.

A recent study from the Association for Financial Professionals (AFP) reveals that only 35% of data intelligence programs are considered successful. These successful programs consistently include the following key characteristics:
•They are extensive and broad, serving a number of departments and functions across the organization
•Executive management serves a leadership role, with an appointed head of the program
•Finance is a strategic contributor
•A centralized data intelligence program manages some or all data projects for the company.

Forward-thinking companies are getting it right. Etihad Airways, for example, radically transformed its profit and loss (P&L) forecasting and cost modeling processes to introduce dynamic planning. A revolutionary software tool enables the airline’s finance function to gain input across every part of the business, engaging each business unit, eliminating disparate spreadsheet models and facilitating deeper financial analysis.

Where it previously took Etihad almost three months to pull its P&L reports together, the new system dramatically cuts prep time to generate and update the airline's five-year plan and other long-term planning procedures. Perhaps more important, the new system creates a sense that every unit across the business “owns the numbers.”

Other examples of this type of “inward analytics” abound. The Deloitte survey cites an initiative led by the finance division at a $1 billion food manufacturer, which created greater efficiencies and reduced costs. The company's finance department created analytic models that looked at profitability at the SKU level and illuminated those insights to help the operation gain a deeper understanding of how to contain costs. “Finance crossed over into decision-making traditionally outside its function by using an analytics solution to evaluate sourcing and suppliers,” Deloitte says.

Clearly, data is king. And finance should be leading the charge to harvest and capitalize on the data. The most successful of these are gaining industry recognition. Standard Chartered Bank won the Asian Banker Technology Implementation Award for data analytics for a system it launched with Teradata Corporation. The project is designed to integrate and standardize management information systems from 10 different instances across 53 countries offering a faster analytical platform for more accurate decision-making related forecasting.

The consequences of failing to adopt an aggressive approach to analytics can be dire. One company experienced firsthand the potentially negative results of using old technology in today's new business world. Because of a spreadsheet error, TIBCO Software was overvalued during a merger proceeding by about $100 million. The company had originally been valued at $4 billion for its sale to Vista Equity partners, but the brokerage firm managing the account overstated the company's diluted common stock.

Of course, people in finance are just that—people—and people are bound to make mistakes. However, employing the right tools can certainly limit errors or, at a minimum, provide keener insight into why errors occur and prevent them from happening repeatedly. Surprisingly, though, most companies are still employing the same decades-old tools to make decisions in today’s market. According to another AFP survey, 73% of finance professionals use spreadsheets for more than half of their FP&A analytical work. Just 37% use specialized FP&A software, although 10% say they plan to adopt such a system within the next 12 months.

Finance professionals have an opportunity today to help shift their businesses forward. One key to their success is taking a leadership role and training the analytics lens inward. According to Deloitte, “it's the difference between 'managing the business'—the big, upper-level strategic decisions, such as planning, budgeting and forecasting, that are the CFO's traditional responsibilities—and 'running the business.'”