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Business Intelligence Strategy – Put the Horse Before the Cart

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5 minute read – After receiving great feedback on this topic, we have decided to remind leaders how important it is to establish clear objectives for business intelligence (BI) and data analytics initiatives.  There are almost as many strategic initiatives focused on business intelligence (BI) and data analytics as there are financial institutions.  The potential breadth and depth of BI is so large that creating clear objectives for BI initiatives is essential.  Yet, perhaps because it is so unwieldy, some organizations have bypassed getting clarity on the BI strategy and jumped into the “how” by focusing first on tools, data sources, and teams.

Putting strategy first in no way minimizes the critical nature of the tools, data sources, teams, etc. It is because it is such a heavy lift, and there are so many options, that the strategic reasons for taking on a BI initiative should be clear up front.  Without articulating what the organization hopes to accomplish and by when, the initiative runs the risk of being driven by inappropriate influences such as which tools are coolest, or which department has the most sway.  This top-down approach ensures that the organizational efforts align with strategy.

Start by asking what strategic outcomes are big and impactful enough to justify moving in this direction.  Think through what is driving the desire for better BI.  It must be grounded in the high-level strategy.

For example, consider two different organizations with two different strategies:

The very reason it’s so important to state the BI strategy is because most organizations want what both of the example organizations are great at, plus more.  And that may be possible, eventually, as BI often progresses in phases.  But prioritizing the key strategic outcomes at the outset provides guidance and a filter when necessary trade-offs must be made as the “how” gets underway.

One helpful exercise is to ask each leader or area to identify the 3 most impactful business opportunities to seize or problems to solve with better BI and have the leadership team discuss.  It’s also appropriate to have conversations around what will be useful beyond the 3, but focus on the most impactful at first.

Cultivating the BI culture and mindset.  First and foremost, don’t be handcuffed by the past.  Most have lived in a static data world where reports are pre-defined and it’s extremely difficult and unreliable at worst, or time-consuming at best, to get the desired BI.  Recognize that shifting away from the static data mindset amounts to asking leaders to think differently.  Begin by asking, What would you want to know in order to transform your part of the business?  Initially, don’t limit the thinking based on what you can get.  Just practice asking questions that push you to think about your business differently, like What do people who click on our prequalified credit card offers have in common? or What else can we see is happening before someone misses a loan payment?  To become an organization that takes optimal advantage of BI to run the business better and move the strategy forward, leaders first need to practice thinking outside of what they are used to getting.

Who will own and drive this important initiative?  It needs a dedicated owner, and that owner must recognize the pan-organizational nature of BI.  It often lands with IT because of the technology tools required, but business intelligence is everybody’s business.  Whether it’s IT, Marketing, or another area driving it, the entire leadership team must be engaged.  Relegating BI to a silo is not a recipe for success.

Don’t forget to circle back. Teams must consistently evaluate whether the BI strategy is yielding the desired “greatness” and success of the high-level strategy.  Regularly reassess and tweak as necessary.  If Organization #1 believes it has successfully fulfilled its BI strategy, they should ask themselves whether they are actually credit analysis, pricing, and collections ninjas, effectively helping people with dented credit get the money they need in a financially healthy way.  If the answer is no, it may be that the culture and mindset shift to fully utilize BI has not happened yet.  It will take leadership demonstrating time and time again how BI can and should be used before a successful shift can be made.

The success of any BI strategy requires a dizzying number of decisions and a complex array of technologies, data, people, and behaviors.  Start by defining the most impactful business opportunities and problems to address and articulate the strategic reasons that are driving your desire for better BI.  Clearly identifying the BI strategy sets the stage for success and guides the multitudes of decisions and activities to follow.

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c. myers live – Practices for Thriving CEOs Heading Into 2024

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Every day we talk with CEOs about leadership priorities for themselves and their teams.  In this episode of c. myers live, we discuss the priorities that should be top–of–mind as we enter the new year.  Our discussion encompasses the vital aspects of building capacity within the leadership team, prioritizing strategic initiatives, and the relentless pursuit of desired outcomes.  Tune in for actionable leadership insights that will elevate your development as a CEO and drive organizational success.  

About the Hosts:

Brian McHenry

brian mchenry headshotBrian, one of five c. myers owners, has worked closely with financial institution Boards and managements of all sizes in a variety of capacities. As a strategic planning facilitator, CEOs regularly praise Brian’s industry knowledge, calming communication skills, ability to authentically engage anyone with whom he interacts, and ability to keep discussions focused on linking strategy with desired measures of success.

Learn more about Brian

Sally Myers

sally myers headshotSally is a founder of c. myers corporation and one of five owners. Driven by a deep commitment to helping financial industry leaders and regulators for more than two decades, her guidance has shaped c. myers’ focus on helping clients create opportunities and approach problem solving from a scalable perspective. She has also been a strategic force behind the development of c. myers’ financial models.

Learn more about Sally

Other ways to listen to c. myers live:

listen on google podcasts listen on spotify listen on apple podcasts

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180-Second Exercise: Amazon One Palm Scanning Opportunities 

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Biometric authentication methods are one the newest generations of security measures and one of the latest iterations can be found at your local Whole Foods.  The next time you are buying organic kombucha, you may find yourself in front of an Amazon One sensor alongside the register. Amazon One sensors enable consumers to use their palm for identity matching – actually it analyzes the palm and underlying vein structure to create a unique, encoded signature – quickly hold your hand over the scanner and be on your merry way as your “palm signature” charges the card you have designated in your Amazon account.  

This next chapter of authentication and identification comes with a slew of questions of how financial institutions will be impacted.  These questions are perfect for a 180-second exercise.  In previous blogs, we’ve explained that 180-second exercises are a great way to practice brainstorming and thinking creatively about the different questions, concerns, and changes in the economy and consumer behavior – fast! 

In light of spreading adaptation of this technology – Coors Field in Colorado uses Amazon One devices to complete age verification and more retailers are deploying Amazon One each week – we recommend the following question in your next leadership team meeting: 

What are 15 ways financial institutions can leverage the opportunities presented by biometric authentication technology such as Amazon One? 

Set a timer for 180 seconds and encourage participants to go for as many ideas as possible without worrying about whether they’re “good” ideas.  It can be easy to focus on potential concerns and risks when thinking about changes in the competitive landscape.  Taking the opposite approach and identifying potential positive outcomes might highlight opportunities that the financial institution can take advantage of to help compete and thrive. 

 

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Why a Financial Roadmap is Important

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4 minute read – More and more decision–makers are understanding how important it is to have a financial roadmap – similar to their technology roadmaps – that links to strategy.  After receiving great feedback on this topic, we have decided to remind leaders how important it can be to use roadmaps as a way to communicate longer-term financial outcomes to stakeholders and help align expectations in 2024 and beyond. 

To help connect the strategy to the longer-term financial future, a strategic financial plan should look out 3-5 years.  The intent is not to be precise, but to provide a rough sketch that builds on the current structure and trends, and layers on the financial consequences and timing of the strategy.  

The longer-term view is important because the budget usually captures only one year – often too short of a time frame to show the full costs and benefits.  In addition, layering on all major efforts to see how they work together financially, in combination over time, helps create a more complete financial picture.   

As you create your strategic financial plan, be sure to incorporate some key concepts:  

  • Initially, create a path where current trends continue.  This paints a picture of where the institution is heading in the longer term.  Don’t get too detailed – this isn’t a budget.
  • Then layer on your major initiatives with their timing and test a variety of outcomes, such as incurring the expenses and getting the benefit you expect and, alternatively, less benefit than you expect.  You may want your team to generate ideas for new initiatives, or ideas to increase non-interest income, or reduce expenses.  Include what-ifs that throw some stressors at the plan like lower (or higher) than expected loan growth, lower deposit growth, and higher provision for loan loss expense.
  • For some initiatives, it may be hard to predict the benefits.  Strategic financial planning can help the team look at those initiatives from different points of view.  For example, a new commercial lending program will likely not be taken on without understanding the costs, but it may be difficult to predict how many new commercial loans will result over the next few years.  Creating a couple of different views of new commercial lending volumes can help clarify how much business must be generated for the program to be worth it.  This helps the team understand how important the new loan volumes are and can also help with setting goals.
  • Since this is a business model-focused exercise designed to bring the team’s thoughts together, the entire leadership team should participate.  The finance department will provide the supporting modeling, but this is not a finance-department-only creation.  The conversations are one of the main benefits because they result in broader understanding as the plan reveals how various initiatives function as part of the whole and moves the spotlight from individual departments to the overall direction of the organization.

Many executive teams now consider strategic financial planning to be a part of their broader strategic planning process.  One organization we work with was happily surprised when, after creating their first financial roadmap, the Board said they were very impressed with the depth of thinking that went into it and liked how it completed the strategic picture for them.  The Board’s reaction was a happy surprise since the main reason they added a financial roadmap was for examiners, because they are heavily investing in infrastructure for the future and wanted to emphasize the longer-term view (the examiners were impressed, too). 

quoteAnother institution, that was wavering on whether to take on a particular initiative, said that the financial roadmap provided the view they needed to make a confident decision.  Even the leader who was pushing for the initiative, which they decided not to do, was on board with the decision.  One leader commented that the consensus they reached was a great example of the team leaving their silos.  A different leader, who does not claim finance as a strength, said that the roadmap helped him understand how critical the loan growth goal was for the financial success of the plan.  He found this knowledge to be very motivating. 

As soon as we begin to look beyond today, fuzziness becomes inherent, and that’s okay.  Creating a financial roadmap, or strategic financial plan, is a proven way to gain clarity and a deeper understanding of the organization’s longer-term financial future. 

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3 Step Balancing Act – Risk, Strategy, and Financial Performance

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6 minute read – The following blog post was written by c. myers and originally published by CUES on October 12, 2023.

Strategic plans are all about possibilities, but the possibilities for risks to get in the way are also part of the equation.  Knowing that there are risks and knowing that they can impact financial performance means that choices must be made.  Those choices are better made after reaching as much clarity and alignment as possible, especially in a changing or uncertain environment.  Stakeholders who follow a defined process to address the most concerning risks and their effects on financial performance, have more clarity and confidence in how resilient their plans are and whether they need to be adjusted.

Step 1:  Agree on Risk Appetite and Current Level of Risk

This step not only allows decision-makers to articulate their appetite for different types of risk, it also fosters alignment around how much risk is actually present.  Start by identifying your major areas of risk, then determine how much risk various stakeholders are comfortable with in each area and how much risk they perceive the institution has taken on.  This is a targeted way to uncover where risk appetites and perceptions of current risk diverge so they can be brought out for discussion.  The value is in the conversation, which typically leads to better alignment.

In this example, each team member was asked to rate their appetite for and perceived current level of risk on a scale of 0-10 for each category.  Here, we’re showing the average of the team’s rantings.  The team’s appetite for risk to revenue is very close to the perceived current level of risk.  Liquidity risk is a different story.  Conversations can center around why the appetite for this risk is relatively low and why the perceived current level is high.  It’s also helpful to discuss wide variations in individual scores, such as why one person believes the current level is high while another rates it low.  See our blog, Linking Revenue Opportunities with Appetite for Risk, for more ideas.

Step 2:  Ready the Strategic Financial Plan

Many organizations already have a longer-term financial view of the strategic plan, often called a strategic financial plan or financial roadmap.  This is an important tool when balancing risk, strategy, and financial performance.  The plan looks out 3-5 years and provides a high-level financial view that builds upon the current structure and trends, and layers on the financial consequences and timing of the strategy.  This provides a view of the institution’s expectations for a likely scenario.  The fact that none of us can accurately predict the future means that it serves as an excellent starting point but is definitely not set in stone.  Rather, it is a valuable base for alternative outcomes or what-ifs for Step 3.  See our blog, Why a Financial Roadmap is Important, for more information.

Step 3:  Address the Highest Priority Risks

Armed with Steps 1 and 2, stakeholders can begin to address the risks that concern them the most.  Questions for discussion include:

  • What could we do (or what more could we do) to mitigate this risk?
  • What are the costs or downsides of mitigation? How does mitigation impact the strategy?
  • Is the risk already being addressed through the strategy or other means? What is the timeline for resolution?
  • Is the organization on a path that will increase the risk? How much and how quickly?
  • If the risk has not materialized yet but is a concern, how likely is it to materialize and when?

Using the strategic financial plan as a base, what-ifs illustrate what could happen to financial performance if risks are realized or mitigation actions are taken.  Stakeholders can then have more complete information to base discussions and decisions on, which could include adjusting the plan.  For insights on how to connect aggregated risks to strategic net worth, listen to our podcast, Maximizing Net Worth: Insights for Financial Institutions.

Risk evolves over time, so this process is not a “one and done.”  Consider building in regular check-ins – revisiting risk questions periodically is appropriate and can help keep everyone on the same page.

This 3-step process enhances clarity and communication between Board and Management.  It can help stakeholders get more comfortable with the directions the institution is taking and how it’s protecting against the most concerning risks.  By connecting these dots, stakeholders are better able to balance their strategic path, risk tolerance, and financial performance, boosting confidence that they’re making better-informed decisions.