Thursday, June 6, 2013

Big Data and the CFO - Part deux


In Part I of this post I talked about the growth rate of the Big Data wave and analysed the challenges and struggles that practitioners are experiencing in the big data world. You can read Part I here . . .

The CFO and Big Data

Whilst it is important to consider the data analytics opportunities for consumer buying behaviour, the CFO on the road to World Class Finance should consider that it is not the size of your data that matters, rather it is what you do with it and even more importantly, your focus on the 'odd-shaped' data. By ‘odd-shaped data’ I refer to data that describes unusual and unexpected events that occur within what we believe to be standard processes. 'Odd-Shaped' data is the unusual stuff, the knotty realities described in a data trail that paints the picture of where processes and activities don't go according to plan. This is the data that helps us understand what is really going on and how to simplify an standardise; to reduce cost and improve effectiveness and quality. I develop this theme below.

There is much discussion on the challenge of managing and processing the enormous volume of 'big data'. As I mentioned earlier, the key is intelligent filtering of the data that is relevant to address the problem at hand.

So how does data, big and/or odd-shaped, help us on the journey to World Class Finance where we operate at high levels of effectiveness with a total cost of finance approaching 0.5% of revenue?

The data for world class benchmarking is available today. We can use this to work out how close to the best practice we can get with our specific business, markets and products. We can establish at a high level what the processes and organisation need to look like. The key question that remains is 'How do we get there from here?'. This is where the 'shape' of the data comes in. We can get plenty of aggregate data to measure KPIs and other performance measures for benchmarking purposes. The critical application of data analytics is in identifying the realities of the current AS-IS processes. Whilst the aggregate data for KPI calculations is the summary of all the things 'that went right' expressed as a ratio or percentage, the data that helps us drive change is the smaller but much more informative filter of data that does NOT conform to best practice or even expected current practice. This data analytics approach that focuses on exceptions looks through a different lens. I describe this in my note Driving Process Excellence in Shared Services . . .

The role of (Big) Odd-Shaped Data in the Finance Function

Identifying 'what is going wrong' at a detailed level, in any organisation of scale, is only possible when using automated data analytics, either as software or a service. Transactional data in corporate ERP and financial systems is the closest proxy we have for the real activities that take place in our business. The closest, that is, assuming you can't sit and observe every process iteration across the business physically or by implanting a processor in every employee. It is not perfect, but it works. It allows us to build hypotheses on root causes, test the hypotheses and drive improvement actions that have rapid impact and tighten up our processes along the journey to best practice,. This data on 'what goes wrong' at transactional level is the 'odd-shaped data' we need. It is the lifeblood of continuous improvement.


The 'Odd-Shaped data', a much reduced set filtered from the 'Big Data' streams, tells us where we are leaking cash due to changes to payment terms, pricing and discounting and where we are wasting effort in redundant multi-touch activities or time-sapping sequences of events. It is important not to assume anything in these analytics. We have a tendency to believe the process we designed, documented, developed policies for, embedded controls in, educated and supported through online and other mechanisms actually works that way! The reality is that there are many routes through our processes. Attempts at simplification and standardisations have only gone so far as we know that different work groups in different regions or business units have their own ways of making the process, and supporting systems, work in the real business.

Monitoring for, identifying and analysing business exceptions helps finance management and process owners understand the real business process in all its variants. By analysing root causes, which can be behavioural (perhaps driven by performance indicators), practical (to make the process work) or educational (lack of knowledge), we can rapidly drive improvements where it matters most, to reduce cost, waste and effort as well as mitigate broader downstream risk.

If you want to learn more on the topic of exception analytics for the CFO, you can listen to my presentation here . . .

Food for (Finance) Thought . . .

Companies have been slow to bring analytics based decision making to their processes, especially in the finance function. CFO magazine published an interesting article that reviewed PwC's fifth Digital IQ survey of business leaders. The article interviews the survey author who shares some interesting conclusions including;
  • "Finance data is some of the most rigorously tracked and captured data in a business. Why not use that data to learn about the way the company spends its money?”
  • "Many companies are missing an opportunity to delve into the well-organized and meticulously reported company data generated by the finance department, a trove of information that could lead to more focused operational decision making"
  •  “There is a big opportunity that I don’t see a lot of companies taking advantage of - to combine the momentum around information analytics with the finance department.”
  • "The primary focus of data analytics has so far been on customer-facing Big Data projects that center on marketing and innovation, but there is much insight to be gleaned from exploring existing financial data. It’s an opportunity for finance and IT to look together at business processes, such as accounts receivable, employee compensation, or how a company uses third parties, and find out if any of those areas could be improved upon."
  •  "So much investment is put into making sure financials are the best they can be, but most companies right now are probably more focused on sexier, market-facing customer data.” The might be getting a bigger bang for the buck if they put more of those bucks into interpreting the value of financial data.

You can read the full CFO article here . . .

Every day our people are helping organisations find the business exceptions that hold back efficiency and effectiveness, that leak cash and effort like water from a sieve. We know now that business processes are optimised by analysing the 'odd-shaped data'. The good news is you don't even need to know about rugby . . .

I don't know the origin of the quote at the start of this post, but I do know it was Oscar Wilde who said "Rugby is a good occasion for keeping thirty bullies far from the centre of the city". I don't think he liked rugby . . .


Thanks for reading !

Dan

0 comments:

Post a Comment