In the age of rapid advances in data science and artificial intelligence, many organizations still struggle to incorporate advanced analytics capabilities into their business models. True incorporation requires bold decisions about reorganizing the business to make analytics a key component of strategy. Here we present the case of Grupo Financiero Banorte (GFNorte), a large Mexican financial group, where the analytics transformation has been a success story. This case came to light when one of us, Jose Murillo, GFNorte’s chief analytics officer, presented it to a graduating class of the Queen’s College analytics program, where the rest of us learned about it. (Disclosure: Jose is long GFNorte; the rest of us do not have GFNorte holdings.)
GFNorte recently established a Central Analytics Business Unit (ABU) with the mandate to convert information into profits at a rate of 10X cost and to lead the adoption of a customer-centric approach within the organization. The results significantly exceeded expectations: In its first year the ABU yielded profits 46X its costs, in the second year 106X (equivalent to $275 million of net income), and during its third year it is on course to produce 200X. These results, along with other transformational initiatives, have contributed to GFNorte leapfrogging its competitors within three years to attain second place in profit generation (up from fourth) in the Mexican financial system.
Why did GFNorte’s analytics investment pay off when so many others’ do not? We believe GFNorte did at least six things right that enabled its transformation into an analytically enhanced organization.
Targets and accountability.
The ABU was set up as a centralized profit center with ambitious targets and with direct reporting to the chief operations officer; most often, similar units are organized as cost centers with no specific targets. This setup fosters focus on high-yield projects, actionable analytics, and speed of execution.
Support from the top.
GFNorte’s ABU was established with the sponsorship of top management that empowered it to start working with some business lines of the financial group and offered it strong backing from support departments. Furthermore, the delivery of extraordinary short-term results provided credibility to the ABU, giving it legitimacy and encouraging other business lines to explore the analytics potential to deliver profits and overcome hurdles.
Incentive scheme alignment.
Two main traits distinguish GFNorte’s ABU incentive scheme. First, it fosters a partnership with the business lines. The returns generated by ABU’s analytics projects accrue to the departments, who do not contribute to the cost of the ABU. That way, if ABU projects have high profits relative to the costs, the departments they work with have an easier time meeting annual targets. Second, the ABU team is paid using variable compensation, based on projects that have been fully implemented and based on their ROI.
Rigorous assessment of results.
The contribution of analytics is always measured and in some cases is reviewed by the accounting department since the profits derived from ABU projects sustain the company’s transformative investments in IT and data. There are two types of analytics projects: (1) income generating, and (2) cost-abating.
Continue reading the full article at https://hbr.org/2018/01/how-one-company-made-its-analytics-investment-pay-off
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