more-arw search

Why CFOs Shouldn’t Ignore Big Data

“Big data” is all the rage. It has been for a couple of years now as tech giants and consulting firms have truly embraced the term and use it to persuade companies that they need to harness all the information they have at their fingerprints but don’t have the wherewithal to fully process it and make sense of it all.

As more companies do become capable of catching up to the technology that is available and can put resources behind the effort, the results can be transformative, according to Virginia Rometty, chief executive at IBM. In a recent column for The Economist, she predicted 2014 will be “the year of the smarter enterprise,” where such companies “will make decisions by capturing data and applying predictive analytics, rather than just relying on past experience.”

For finance chiefs who largely have had to rely on past experience to make the type of forecasts and budgeting decisions on which their business is run, this concept can certainly catch one’s attention. However, it’s sometimes easier to do nothing when either a new concept is misunderstood, is interpreted as just another buzzword, or seems too new. James Flaws, CFO of Corning, for example, told the Wall Street Journal the high-tech conglomerate is holding back from investing in big data for its own business strategy for now. “Maybe the next CFO of Corning will be much younger and more aggressive about doing this,” he said.

As it is, a quarter of CIOs in the U.K. by Computer Services Corp. claimed their CFO doesn’t even know what big data is (although the CFOs in the survey disputed the finding, with only 3 percent admitting they are fuzzy on the term). And some CFOs are leaving the big data strategy to others in the organization; they are rarely the driving force behind such an effort, according to a study done earlier this year by the IBM Institute for Business Value.

Those CFOs who consider how their company can improve their data analytics do stand to potentially improve their own department’s performance as well as raise their prominence within their company. “It’s good to be skeptical about the sometimes overblown statements you get from vendors and technology advocates, but there’s a large kernel of truth to most of the positives,” says Robert Kugel, senior vice president and research director at advisory services firm Ventana Research, who will be speaking at ProformaTECH, Proformative’s corporate finance technology conference, on February 13, 2014, in Las Vegas.

 

Big Data Can Lead to Big Changes

For an easy example, consider the fact that the retail industry is sitting on a massive supply of data that just keeps growing by the minute, from all the social media posts, loyalty cards, website shopping carts, browsing activities on mobile devices, and every other customer touch point that exists. Every transaction – even those that don’t result in a purchase – give some data nugget that could be used as part of a pattern-finding mission to figure out how certain segments of customers will behave during certain times of the year and under certain conditions. But the potential of big data does not just lie with the marketing department tasked with providing the right coupon at the right moment. The finance department can take advantage of the information as well.

In a recent blog post, Kugel wrote that finance teams can lean on big data analytics to improve their forecasting and give themselves alerts when possible problems occur. Accounts receivable, for instance, could set up triggers for when a customer that normally follows a particular payment pattern is behind and provide the company with an alert to look into the matter, or on a larger scale, pinpoint clients that keep missing their payments. “It can be used to create more timely alerts when issues or opportunities arise,” Kugel told Proformative.com. “So, rather than waiting until a month-end review happens, the company can begin to address a problem weeks ahead of when they would be doing it today.”

Another potential benefit of, at the very least, thinking about big data is CFOs can actually get better numbers at their disposal than they have now, which could greatly improve the finance departments’ ability to forecast accurately and improve their scenario planning, according to Drew Carter, a managing director in the applied analytics groups at advisory firm AlixPartners.

A frequent issue that arises at companies is that no one is stepping back and looking at the business’ overall data strategy. The marketing department may have its own separate database of valuable customer information, for example, that no one else knows about or the company may lack the analytics expertise to do much with it. Even large companies that can afford to staff up on data analysts may not be structured to have those analysts working together, sharing information, and collaborating, so potential realizations that could lead to cost savings do get lost.

Operating in a data-driven role to begin with, CFOs could in some respects move their company in the right direction by questioning whether someone or a particular department should fill in the gaps. In the short term, at least, they should wonder whether their own department should take a new approach. “The CFO’s perspective could be, how can I take forward-thinking analytics to drive better decision-making,” Carter suggests, such as with acquisitions, real estate transactions, and the like.

 

Ask the Right Questions

Here’s the part about big data that vendors tend to leave out: Just because you’re sitting on a mountain of data doesn’t mean it’s all worth something. But it is worth questioning. “[The concept of] big data is very valuable, and I don’t think any financial or business person ought to ignore it,” says James Lin, a 2014 ProformaTECH speaker and CFO of GuideStar, which provides information on nonprofits to foundations and consultants.

While finance chiefs should be paying attention, as the tools and techniques for sifting through information continue to evolve around big data, they also need to be careful in their approach. Don’t conduct analysis just to do analysis – you’ll just end up with more data. “The point is not to pursue all big data but pursue more data that in general is more valuable,” Lin says.

 

Sarah Johnson is a business writer in Boston.

To learn more about how finance practitioners can better use big data or see the full list of speakers and topics at this year’s ProformaTECH, which will be held at the Venetian in Las Vegas on Thursday, February 13, 2014, go to www.Proformatech.com.

Products and Companies: