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September 16, 2019

Why Analysts Need Business Awareness

Summary:

Too often, analysis ignores commercial priorities or constraints for the business, and recommendations might actually destroy value.

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I have mentioned before that analysts benefit from stronger commercial awareness. But what do I mean by this term?

The easiest way to explain is to set it in context. A lack of commercial awareness is normally shown when an analyst presents findings. The impression the analyst leaves with internal customers is of being naive.

I’ve written before that this too often happens to otherwise very technically capable analysts. Their work may be based on high-quality, well-prepared data. Their analysis may be statistically robust and perhaps even presented using engaging data visualization.

But, if the analysis ignores commercial priorities or constraints for the business, or recommendation would actually destroy value, it is doomed. Other problems can be ignorance of competitor behavior, agreed strategy or even how the business makes money.

As someone who works with a number of the U.K.’s largest businesses, I regularly see the need for commercial awareness. Clients request training or mentoring to hone this skill. So, in this post, I will seek to draw back the curtain on what is meant by this term.

Commercial Awareness 1: Understanding Finances

This might sounds like a Captain Obvious statement, but most analysts and data scientists have no background in finance.

Yet much of their work requires a good understanding of how the business they serve makes money. The work can often also require an awareness of current financial performance, so the analyst can understand priorities.

Having worked with a number of finance professionals, as well as a bank and an insurer, I’ve found that much training or communication on this topic assumes too much in terms of people’s understanding of the basics.

See also: Expanding Into Small Commercial  

The single best sources I have found is a great book called “Naked Finance” by Dr. Dave Meckin. I had the pleasure of being on one of Dave’s training courses many years ago, and he really brought the subject to life. In this book, he helps explain key topics, including:

  • Understanding profit and drivers of profit
  • Reading the three main financial statements
  • Understanding how companies are valued
  • Seeing what drives share price movements
  • Comparing value of potential projects (NPV)

If you recognize the need to better understand the basics of business finance, then I highly recommend Dave’s book.

Commercial Awareness 2: Strategic Alignment

Another way analysts can get it wrong is failing to understand the context of not just current performance but also future plans. In a previous post, I recommended that customer insight strategies need to influence and be aligned to the business strategy.

Analysts will benefit from understanding not just the final communication of the business strategy but also the rationale. What does the brand stand for? How is it different from competitors’? How does this play to strengths or opportunities? What participation decisions have been made with regard to markets, products, channels and segments.

Understanding more clearly the unique identity of the business will help analysts. Take time to read strategy documents, to understand more clearly threats, opportunities and relevant profit levers.

A great tactic here can be job shares/swaps/shadowing, giving analysts the opportunity to work with the finance or strategy teams charged with strategic reviews. Analysts can develop an appreciation of priorities and which potential insights actually align with bigger picture — another way of avoiding coming across as a naive analyst.

Commercial Awareness 3: Market and Competitor Intelligence

Guest blogger Peter Lavers has shared before on the need for B2B businesses to have market and competitor insights. The same is true for business-to-consumer firms.

Failing to understand the dynamics and trends in a market can result in inappropriate recommendations. Not knowing what competitors are doing and what has worked in the past can result in “insights” that sound just like copycat or too-late recommendations.

I shared before the advantages of a broader holistic definition of customer insight. Within that approach, there are advantages to including market and competitor intelligence teams. Too often, these fine people are kept separate from other data analysts or market researchers. Often, they report into finance or strategy lines.

However, the regular analysis of market and competitor behavior often allows them to develop crucial domain knowledge, expertise that may prove crucial to analysts and modelers, for example when developing econometric models.

See also: Innovation: ‘Where Do We Start?’  

Some of these teams also develop models of market behavior that are very useful for scenario modeling and stress testing strategies. At the most basic, analysts need to know if apparent strong performance by their firm or a competitor is truly out-performing the market (or just “a rising tide lifts all boats“).

How Do You Develop Commercial Awareness?

I hope those thoughts are useful. You may include other aspects within commercial awareness. If so, please do share comment below or on social media.

Either way, I encourage you to invest in developing the commercial knowledge of your analysts. Doing so can pay you back in spades, in terms of their confidence and impact on other stakeholders. Feel free to get in touch if you’d like to know more about my training courses to develop these skills.

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About the Author

Paul Laughlin is the founder of Laughlin Consultancy, which helps companies generate sustainable value from their customer insight. This includes growing their bottom line, improving customer retention and demonstrating to regulators that they treat customers fairly.

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