INSIGHTS
The key to successful commercial modelling
Business evolution demands the ability to understand, adapt, and strategically plan.
“Commercial modelling is a powerful tool that goes beyond crunching numbers. It’s about empowering businesses with insights that drive growth and harnessing resilience to drive this positive change”. Steve Adnitt, Head of Commercial and Financial Modelling, discusses the five most common pitfalls of developing and implementing successful commercial modelling for growth. In this article, we explore how you can improve commercial performance with commercial modelling.
1. Inadequate data and augmentation
The bedrock of effective commercial modelling lies in the quality of data. It’s not just about having vast amounts of data; it’s about having accurate, reliable, and up-to-date information. This quality foundation is necessary for any analysis or projection to avoid errors and improve commercial performance through meaningful commercial modelling.
Where gaps exist, we always advocate for a collaborative approach to explore strategies that enhance data quality. This may involve implementing additional data validation checks, incorporating external data sources, or developing statistical models to impute missing values. Balancing industry knowledge and modelling expertise creates a more resilient foundation for modelling.
2. Understanding commercial history
In our experience, commercial models fail because they often pay too little attention to market indicators or atypical events that distort trend outcomes. During the pandemic, many businesses experienced significant changes in their growth patterns. Many expected this to continue, failing to return to standard patterns, to see changes in consumer demand due to time-shift impacts, or to increase costs in their models.
Understanding a business’s historical context is akin to having a roadmap that guides it through different seasons. Seasonality, market trends, and business cycles are pivotal in shaping outcomes. Analysing data history provides insights and links between business drivers. This historical perspective informs current strategies and helps anticipate and plan for future challenges. Notably, organisations seeking to improve commercial performance through commercial modelling will benefit from a deep understanding of the past and its influence on future projections.
3. Aligning business drivers with operational impact
Effective commercial modelling requires a profound understanding of business operations and key drivers. This involves comprehensively analysing internal processes, supply chain dynamics, and customer behaviour. Modelling should reflect the intricacies of your business reality and align with and support your operational imperatives. While every business has its complexities, the challenge is recognising how vital operational factors are to achieving its goals. An imbalance in detail and complexity can make models unwieldy and fail to deliver outcomes that benefit the business. To improve commercial performance through commercial modelling, businesses must carefully align these drivers with operational realities.
4. Missing change point and sensitivity considerations
Underestimating or overestimating the time it takes to effect change often arises from new products, shifts in consumer preferences, or technological advancements—sometimes simultaneously. Adapting commercial modelling to accurately reflect and accommodate change ensures the changing profile can be supported within the organisation from a cost, resource, and operational perspective. We often add a sensitivity analysis overlay to offer another dimension of insight; this one is often overlooked when costing change. In summary, organisations aiming to improve commercial performance through commercial modelling need to proactively account for these variables.
5. Failing to summarise outcomes holistically
In the rush to generate numbers that validate an already decided path, we find that organisations often miss the task of creating a concise summary of outcomes to bridge data and decision-making. We prefer to generate scenario summaries to assess decisions and outcomes. This offers greater transparency and improved decision-making by showing the whole picture, not just the elements that support our desired course.
Supporting sustainable growth
Commercial modelling should be a powerful tool for driving growth, resilience, and adaptability. It should inform and position sustainable business success by focusing on data quality, historical context, operational alignment, strategic change points, sensitivity analysis, and the acknowledgment of long-term imperatives. In conclusion, those seeking to improve commercial performance through commercial modelling should approach these factors holistically to achieve lasting impact.
At Emmet Consulting, we understand the intricacies of commercial modelling, and we are committed to helping businesses unlock their full potential. Our expertise extends beyond numbers – we see ourselves as partners in navigating the complexities of today’s business landscape. For further information on commercial modelling, see here https://www.emmetconsulting.com/emmetconsulting/b2b-consulting-services/commercial-financial-modelling/