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.
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 having accurate, reliable, and up-to-date information. This quality foundation is necessary for any analysis or projection to avoid error.
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 the modelling process.
2. Understanding commercial history
In our experience, commercial models fail because they often need to pay more attention to market indicators or atypical events that work to distort trend outcomes. Take the pandemic; many businesses experienced significant changes in growth patterns. Many expected this to continue, failing to return to standard patterns, building changes in consumer demand due to time shift impacts, or increasing 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 linkage between business drivers. This historical perspective informs current strategies and helps anticipate and plan for future challenges.
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, aligning with and supporting your operational imperatives. While every business has its complexities, the challenge is knowing how vital the operational factors are to achieving the goal. An imbalance in detail and complexity can make models unwieldy and fail to deliver outcomes that benefit the business.
4. Missing change point and sensitivity considerations
Underestimating or overestimating the time it takes to effect change is one of the biggest watchouts when modelling change in your business. Change can present itself in many guises—sometimes simultaneously—such as introducing new products, shifting consumer preferences, or technological advancement. Adapting commercial modelling to reflect and accommodate the change accurately ensures the changing profile can be supported in the organisation from a cost, resource, or operational perspective. We often add a sensitivity analysis overlay to offer another dimension of insight; this one is often overlooked when costing change.
5. Failing to summarise outcomes holistically
In the rush to generate numbers that validate an already-decided path, we find 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 as we see the entire 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 acknowledging long-term imperatives.
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.