Finance directors are no strangers to data. But that doesn’t mean they are ahead of the rest of the business in using and exploiting the benefits of big data and analytics.
Big data opens up a huge opportunity for the finance function, as it does for many other parts of the business. It ultimately presents the opportunity to reduce the time finance professionals have their noses stuck in issues of compliance and regulatory procedures and give them time to get stuck into more strategic exploits.
Big data analytics has many applications for finance professionals. For example, it can help improve credit risk assessment through its ability to factor in hundreds or thousands of indicators. Sales data analysis is another key area where finance can add value.
A 2014 IBM study, Pushing the Frontiers, found that analytical tools and technology had had a profound effect on the job of the Chief Finance Officer (CFO). The report identified a set of premium performers, which it called Performance Accelerators. One of the key reasons for their superior effectiveness was their use of data.
They were found to be far more effective at analysis, including forecasting supply chain financial data, as well as planning and predicting resource capacity. Industry and competitor analysis were also key skills in this group.
While 66% of the CFOs surveyed said they relied on spreadsheet and intuition for their work, 44% of the Performance Accelerators used internal and external data to inform their decisions.
Those high performers were able to convert those data insights into things such as acquisitions, divestitures, new business models. They’ve come a long way from simply balancing the books.
If that’s not enough of an incentive to use big data and analytics, there’s also the risk that doing nothing can damage the standing of financial directors in their organizations. The department that actively takes the lead on analytics and big data will gain a lot of traction in the boardroom.
Marketing, in particular, is a department that is quickly becoming more analytical in its use of data – if finance chooses to take a back seat, then marketing may well take the lead. That’s not to say it should be an internal competition with winners and losers, but no department wants their role to be diminished.
There’s little choice but to respond to the data deluge. IDG’s 2014 Enterprise Big Data survey reported that organizations were ramping up their big data initiatives. It found that 49% of the respondents were already embroiled or about to start big data projects. The respondents also expected the amount of data they would be dealing with to rise by 76% over the next 12 to 18 months, which could present challenges to finance executives.
Even though Financial Directors (may be used to dealing with data and metrics, using big data is still a daunting prospect, because of the scale, speed and sources of that data.
Analytics is the key to unlocking that data, but it’s important to realise that not all analytics are created equal. FDs will be most used to dealing with insights into what has already happened, but the power lies in predictive analytics, focusing on what will happen in the future. Beyond that there’s predictive analytics, providing insight into how organisations can actually make something happen.
So, where to start?
As ever, start with the business. Don’t be intimidated by the amount of data there is. Instead focus on what the business needs rather than what data resources are available. With a close eye on the strategic business goals, then you can come up with questions that answer some of those goals.
This importance of asking the right business-focused question cannot be over-stressed. Think about what happened in the Hitchiker’s Guide to the Galaxy. There the biggest supercomputer was asked the ultimate question about ‘life, the universe and everything’. The great computer after much deliberation came up with the answer 42. It’s a silly answer, but as the machine points out, what’s was really needed was a better question. In the same way, the key to getting the most out of analytics is to ask the right questions.
You also need to be crunching the right numbers and data, gathered from both internal and external sources.
Internal data should be easier to obtain, but the reality is that much of that information lives in department enclaves. Breaking down those data siloes is a priority for organizations that want to truly capitalize on the benefits big data and analytics can bring.
There’s a wealth of external data, including social media, company reports, the weather, or looking at the effect of different demographics on performance of individual stores. It’s important to be open to looking at how to use different, non-traditional types of data.
Ultimately, information is power and it can also be money. The data you uncover may actually have some value that can be sold.
Using big data and analytics presents a tremendous opportunity for finance directors to really impact the strategy and future growth of their company. It cannot be ignored.