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There is scope within most develop relationships that prove relatively
stable over time. This results from the
businesses to significantly reduction of volatility resultant from
changes in mix of business types.
improve forecasting capability. company may analyse the propensity of
By way of example, an insurance
customers to renew their policies (see the
chart “Example Insurance Renewal
Propensity Rates”). It could just look at the
overall propensity to renew (A). However,
recognition of numerical relationships. Predictability it could drill down further to analyse by
The processes of identifying and tracking Disruptive factors, such as terrorism, the customer’s age at policy inception
the strategic themes are critical in extreme weather events, or even client (B), renewal year (C), or both (D). The
developing an improved understanding of empowerment, can apply unpredictable increase in variability of propensity
how intellectual capital creates value. By pressures on the business, which will rates as you drill down highlights the
incorporating all strategic themes within need to be managed. The challenge for amount of variance introduced by using
one model, the synergistic benefits finance is to identify and master the top-level assumptions.
that can come from improvements in predictable aspects of business, freeing up As models mature, it may become
multiple drivers are more easily identified time and resources to focus on managing relevant to consider adopting algorithmic
and kept realistic. the unpredictable. approaches. However, the potential
The value of some metrics that measure Customer behaviours drive the actions increase in complexity and cost needs to
the relationships will effectively be required from the business. Therefore, be justified by a corresponding increase in
determined by business rules such as price finance needs to develop predictive forecast accuracy and the derived benefits.
lists, standard process timings, and staff analysis skills to determine how The workings and implications of any
costs by pay band. Others will be customers have behaved and may behave algorithm need to be fully understood to
determined by the likely behaviours of in the future under various scenarios. prevent “black box” situations — where
different customers or customer groups, In my experience, drilling down to “what is happening” is understood but not
such as the propensity to renew or analyse business dynamics at greater “why” it is happening. This is likely to
likelihood to pay within credit terms. levels of granularity provides insight to impede analysis on how to change

Example strategic theme

Supplier
Digital Provide technical
Develop customer development expertise
lifetime value model
Employee
Analyse to identify methods for
profitability enhancement

Investment phase Design product variation Intellectual
Innovation
capital
for underperforming,
Process but significant, segment
Develop and deliver
new product variation
Proposition
Promote and migrate
target customers to new
product variation
Customer
Gain customer satisfaction
Financial
Return phase and build loyalty with Improve customer lifetime value Financial
new product variant
through improved profit margins
and improved customer retention capital

10 I FM MAGAZINE I April 2022
Example strategic theme