I recently spent two full days at a Retail Analytics and FP&A conference, which was terrific for many reasons. Retail FP&A (Financial Planning and Analysis) folks are very innovative in tying customer behavior to financial performance indicators. We in the software industry are true babes in the woods compared to retail companies on this one, trust me! You don’t want to know what they know about your buying behavior and buying probability. (Being a consumer at a retail FP&A conference felt like being a hidden observer at a meeting of TSA officials examining thousands of those full body scanner pictures.)
The key take-away for me was that Retail FP&A is very focused on analysis that really teases out the critical indicators and mechanics of their business, breaking everything down into measurable units of activity, and then putting it together to pretty accurately predict business performance.
Retail FP&A teamed with operating units
Retail FP&A folks seem to be well integrated into the operating parts of the enterprise, unlike what I often find in software, where FP&A is sometimes siloed within finance and often isn’t working together with functional managers on a daily or even weekly basis. Retail FP&A analysts seemed to be totally on top of non-financial and financial operating metrics and working regularly with their operating peers to improve performance based on both types of metrics.
Plus, retail FP&A executives have access to really cool giveaways, like the head of planning for the company that makes the Louisville Slugger baseball bat who gave away about 20 of them after his talk, or better yet, the CFO of Marc Fisher Footwear, who gave away six pairs of extremely expensive designer women’s shoes. So much for the t-shirts and dongles you usually get at tech conferences or the coffee you get at finance conferences.
Performance is relative
One critical point repeated over and over was that performance is relative. Typical business intelligence (BI) and analytics give you static insight into how your company is doing, a snapshot of what has happened, either a month ago, or if you are really fast, last week. It is great to know how your company is doing, the sooner the better, of course.
However, it is just as important to know how your performance compares to similar companies, and also to companies that might be on the edge of your radar screen but are moving fast. You may think 20 percent growth is great, but not if the rest of the industry is doing 50 percent and leaders are doing 100 percent growth.
Direct competitors may not matter very long
At the same time, as one CFO pointed out, you can have the wrong benchmarking focus. Look at local or regional department stores in the 1980s that only focused on each other and their fierce competition for local market share and brand awareness, when Walmart and Target were still very small entities. Most of them, except Macy’s, went into a death spiral when Walmart and Target went national.
Macy’s was nimble enough to dramatically transform itself through an intense alignment with changing customer preferences and heavy reliance on emerging technologies. As a result of successfully navigating the retail changes over the past 20 years, Macy’s was named the number-one fashion chain in the world in 2012 with $25 billion in revenue.
Paying attention only to your direct competitor can blind you to your future competitor.
Again, performance is relative — your performance may be the same or slightly better than your direct competitor, but is it as good as the next new thing that’s coming down the highway at lightning speed?
The customer doesn’t care about you
Another point that was made regularly and should be listened to by tech companies is that the customer doesn’t care about you. Seriously – the customer really doesn’t care about you. Sad but true. So stop investing in you and start investing your company’s resources in what the customer cares about.
For business-to-business (B2B) software companies, what the customer cares about is their success and their performance and serving their customers better. How can you help them do that? That’s what they will buy, and that’s what will keep them buying from you.
Pay attention to macro trends
And finally from a strategy perspective, a really good question to ask yourself and your management team continually: Do the macro trends support or contradict your strategy and the assumptions upon which your operating plan is based? What are your assumptions for economic growth? For population growth? Consumer and business confidence? Tax policies? For disruptions? For weather? Since the turn of the 21stcentury, can you really say these things don’t matter? Do you know how to easily get the latest data on these trends?
I thought this was particularly interesting because we in the tech industry love to track the latest technology innovations and how that is impacting the world; but do we pay enough attention to non-tech externalities that can have a major impact on business results? How often have you been in the position to apologize after the fact for missing a target because of a change in the environment that wasn’t on your radar screen?
You can be sure that your customers are watching the macro trends that affect their business, and their buying habits will be impacted by what they are seeing coming down the road. It is all part of focusing your business analysis on the customer and using that to better predict your performance.
The retail guys have been doing this a relatively long time, but the tech industry is pretty nimble and has the tools. We just have to learn what the right metrics are, use the benchmarks based on those metrics and incorporate them into our regular analysis.
And then finance needs to share the benchmarking data with all the key players in the company — or nothing will get improved.
This article originally appeared on Sandhill.