How do you measure the impact and ROI of your analytic resources and investment? How are your analytic resources performing compared to the rest of the industry? And what steps should you take today to ensure your analytics will keep you competitive tomorrow?

In a Fair Isaac-initiated study conducted by McKinsey & Company, 35 top executives from more than 25 global financial services companies probed deep into their analytic practices in order to gain insight into the drivers of performance excellence and to chart future directions for analytic investment.  

The study revealed that executives faced a shared challenge: There are very few current methodologies to help banks answer questions like these—even though competitive use of analytic resources is seen as increasingly crucial for growth and performance.

“Many of our clients wanted to look more closely at this aspect of their business and came to Fair Isaac for help,” says Frank Rohde, director of Enterprise Decision Management for Fair Isaac. “What we discovered in talking to leaders from both business and analytic units is that unlike most investments—from manufacturing to software—there have been few or no industry standards for measuring the return on investments in analytic resources.”

“As we became aware of this, we realized that a key aim in this undertaking would be to establish a strong, common lexicon that companies can use to determine how to allocate resources for maximum competitive strength as they move forward,” says Lori Sherer, vice president of Enterprise Decision Management.

Competitive superiority more important than efficiency

The dearth of metrics for evaluating competitive performance was one of the most surprising findings of the study. “The reason for this may be that the payback on analytics has been so high that companies are not as concerned with costs and efficiencies,” says Rohde. “But there’s another issue here. Are you optimizing analytic resources for opportunity? For example, are you building an analytic solution that will focus on a $10 million opportunity instead of a $1 million opportunity?”

Better ways to evaluate investment opportunities would give executives the clout they need to drive important projects within their companies. “Our project prioritization is driven by ROI,” said one. “When we ask for resources, we are often in competition with other areas of the institution. If we could prove the analytic project will provide sufficient ROI, we could get the resources we needed.”

One executive participant stated, “We need a more systematic way to prioritize between projects, extra head count, new tools and methodology.” Another said, “If we could understand our specific performance gap, it would help us target our future capabilities.”

Executives almost universally expressed analytic goals that will yield competitive superiority, rather than efficiency. In the study, senior executives said priorities are to create more effective models, to build distinctive analytical groups with strong analytical and business skills, and to improve the ability to understand consumer behavior in new segments or new business offerings.

Executives from companies that were ranked as strong analytic performers and average analytic performers expressed the importance of key areas in building analytic strength. 

Human capital at a premium

Overwhelmingly, business leaders expressed the importance of leveraging their analytic talent pool. One put it in terms of “pushing the analytic envelope in order to reach parity with the competition.”  “I need to bring leading-edge skills into my team to show them next-generation performance,” said another.

In seeking ways to do this, three areas were identified as key.

• Automate routine tasks. A common observation was that all too often, analysts were doing routine, repetitive tasks that could be automated. They saw help from the kinds of cutting-edge tools that Fair Isaac has developed—such as Data Spiders and Fair Isaac Blaze Advisor, which help automate previously labor-intensive processes. Executives overseeing analytic units looked closely at specific ways to accomplish this (Figure 2).
  
  
• Encourage innovation. Executives deemed innovative analytic teams as one of the greatest drivers of analytic superiority. Automation was seen as key in accomplishing this. “If analysts are freed from doing mundane tasks, they are freer to innovate and create new value from analytics, which drives competitiveness,” was a frequently stated observation.
  
  Access to an ongoing research and development stream, such as that provided by Fair Isaac, was also viewed as a way to accelerate the innovation of their company’s analytic projects.
  
  
• Focus analytic resources closer to the business. Closing the gap between business and analytical teams was viewed as a key area of analytic leverage. Developing ROI metrics to measure the business effectiveness of analytic efforts was seen as a means of reaching the goal. “Sometimes modelers keep trying to improve the KS statistic and don’t know when to stop,” said one executive respondent. “Too often we run from campaign to campaign never thinking of how we affect the portfolio a year later,” said another.
  
  Analytic methodologies need to be developed with business impacts in mind, executives said. “There is a recognition that analytics and business needs should fit hand-in-glove,” says Rohde. Solutions such as Fair Isaac’s Strategy Science, which empowers business units in employing analytics in strategy creation, were seen as aids in accomplishing this goal.

Executives asked to rank importance of future investments (from 0 to 100%) expressed three top priorities for increases: Better data management techniques; automation of data feeds; and automation of report generation.

Discovering key opportunities

Fair Isaac’s key goal in this project has been to establish benchmarks and best practices by which banks can measure their own analytic performance and identify key areas for opportunity. Our new EDM Diagnostics offering (see sidebar) “will help companies to understand where they are at currently in terms of analytic performance and to discover key opportunities to leverage analytic resources to maximize competitive performance,” says Rohde.

“A key takeaway of this important study,” says Sherer, “was a much deeper understanding of the needs and requirements—from both the perspective of the business stakeholders and analytic stakeholders. Ultimately, this gives us a better understanding of the current state of affairs of the typical analytic organization.”