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The Answer Is Not Always More Analysis!

The Answer Is Not Always More Analysis!

At the Business Partnering Institute, we often hear from business partners, despite them having presented a clear-cut analysis of performance with some straightforward recommendations, that these are not accepted and the business partner is asked to do more analysis. There can be multiple factors leading to this i.e. the business partner has little credibility to his or her name, the business stakeholder’s department is currently not performing so to buy time (s)he diverts your attention with further analysis, etc. However, as a business partner, you should work out when to stand firm and insist that the analysis at hand is good enough to make decisions on and when to accept that more analysis is needed. If you don’t know this there’s a high likelihood that value will be destroyed while you work on creating further transparency with endless analyses.

Here’s how to quickly decide if more analysis is needed

In simple terms, there are two scenarios to consider.

  1. Your analysis is part of an on-going performance dialogue where you’re following up on actions from an agreed initiative. In this case, you must ensure an agreement when deciding on actions what level of analysis is needed as what you’re trying to test is if the actions have the desired impact. You should not accept having to do further analysis in this scenario.
  2. You bring up new insights on a certain topic that has not previously been discussed and which your stakeholders were unaware of. In this case, you’ve not had any chance to align with your stakeholders on what is needed for them to accept your insights and hence them asking for more analysis is a natural step. It might not change the situation or any future outcomes but likely it’s what’s needed for them to decide. In this scenario, you should accept to do more analysis if nothing else than for building the relationship with your stakeholders.

Can you please elaborate with an example?

Are our cost increases covered by the contract or not?

Absolutely we can share an example and in this case of a situation where more analysis was needed which helped drive a better outcome. The example is from the time Anders was a Finance Manager and had looked into the relationship between cost and revenue on one of the commercial contracts.

Situation: Back in 2010 to 2014 when the oil price was at its highest the resources in the drilling industry were scarce and salary costs were on the rise.

Complication: Contracts signed before the current boom in the industry didn’t necessarily cater to these cost increases with similar increases in revenue which led to an erosion of margins.

Key question: How could we ensure that we were covered with escalation clauses in our drilling contracts so that the margins wouldn’t erode?

Anders had first presented his conclusions i.e. that we were currently seeing margins erode and questioning whether we were adequately covered through our contracts at a board meeting in the company where the CEO and COO were present albeit without the CCO who was responsible for the commercial contracts. This created quite the stir when the CEO conveyed these conclusions to the CCO.

Business Partnering tip #6: Never bring up any surprising insights that can negatively impact the reputation of work done by any of your business stakeholders without consulting them first. Make sure you float these conclusions with the stakeholder(s) 1:1 before bringing it to the public. Anders learned this somewhat the hard way on this one even the CCO was not one of his main stakeholders.

The reaction of the CCO was to ask for more analysis to prove the point. So, together with Commercial, we did some regression analysis comparing rates at which contracts had been signed with the index we used to regulate our labour cost element in the contract. The conclusion showed, not surprisingly, that for a long contract you could accept a lower multiplier on the index vs. a short contract where you were more vulnerable to volatility in the market. Transferring the results to the contract in question showed that the multiplier we had in the contract was in the grey zone but also that the contract had likely started at an unlucky time just when resources had started to become scarce. So, while under normal circumstances the multiplier could be just enough to keep margins from eroding, in this case, it was not high enough.

Luckily, we had already tried to implement these conclusions into new contracts negotiated and signed destined for the same area and managed to increase the multipliers significantly. So, in hindsight, the initial analysis was good enough to make decisions on but not to keep stakeholders properly in the loop on what was going on, on the ground.

Business Partnering tip #7: Always ensure that your analysis results in actions even if you’re asked to go back and do more analysis the first time around. If you float the initial conclusions with the right stakeholders they might still decide to act on them. In this case, it was the local commercial representative who used the insights from the initial analysis to negotiate better contracts for the new drilling rigs.

Oh, and by the way, due to these insights and negotiating better deals on the new contracts we managed to secure a 5 mUSD upside vs. the original contract. That’s another tangible impact for the “Value Creation Series! What tips do you have for successful Business Partnering and would you be willing to share your story? Then write in the comments or reach out to Anders at anders@businesspartneringinstitute.org.

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If you would like a direct dialogue about how you can improve business partnering in your organisation, please contact us on:

Contact@businesspartneringinstitute.org

Telephone: +45 29170298.

 

 

 

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