Finance managers are being drawn into increasing amounts of data analysis from sources across the business – including non-financial information. Tom Herbert looks at steps they can take to tackle this new ‘chief data officer’ role.
The recent explosion of business data has been interpreted in many different ways. Back in 2012 proponents of big data declared data ‘the new oil’, while in 2016 Amazon’s senior principal scientist Neil Lawrence backdated the data revolution to Newcomen’s 18th century coal engine – enormous potential but inefficient and impractical.
Whatever the discerning finance chief’s fossil fuel analogy of choice, there’s no getting away from the fact that for many businesses it’s full steam ahead in the data race – whether they like it or not.
While any finance function worth its salt is well placed to analyse the rich financial data created by improved software tools, another factor in play is the introduction of non-financial KPIs to the company scorecard.
Today’s finance manager is increasingly faced with incorporating a wide range of measures, from supply chain data to customer satisfaction, into their planning, forecasting and reporting, as these metrics are seen as providing a more accurate, long-term view of an organisation’s future.
According to a recent study from Adaptive Insights, 76% of CFOs surveyed reported that their teams are currently tracking some form of non-financial KPI, while a surprising 45% of CFOs reported that they currently fulfil the role of chief data officer in their organisation.
And it’s not just multinationals that are getting in on the data act. In a recent AccountingWEB case study the finance director of craft brewers Fourpure outlined how he built measures like production yields and keg ratio into his KPIs to improve efficiency across the business.
This shift presents a number of new challenges to the traditional role of the finance manager, and AccountingWEB spoke to finance managers and experts to see what steps to take to prepare for the transition to a chief data officer role.
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Align and communicate
According to Adaptive Insights founder Rob Hull, getting buy-in and alignment from key players is crucial to the successful incorporation of data.
“It’s about making sure that the metrics you’re measuring are the ones that each of the various areas of the business agree are important, relevant and actionable”, said Hull. “This means collaboration; making sure finance is working with operational leaders throughout the business.”
Keep it manageable
As the core set of traditional financial measures move to incorporate a broader set of operational KPIs, one of the key challenges is to keep things manageable and ensure any additional metrics don’t become white noise.
While the consensus is to choose a small number of metrics on which to focus, there are various ways of achieving this. iZettle CFO Stewart Roberts recommends starting off with different streams of data, keeping a careful eye on the ones you go back to and then dropping off the ones where you’re “just wasting your time.”
Adaptive Insights’ Rob Hull advises not overdoing it, starting with a small handful to keep it very defined before expanding into other areas.
While traditional finance measures such as revenue, cash flow and profitability have remained fairly constant over the years, this does not always ring true for non-financial KPIs. According to Rob Hull to make the most of your data you must be adaptable around the metrics and measures themselves.
“These may change over time and certain KPIs may no longer be as relevant”, said Hull. “You may have identified something you thought was relevant, but it turns out to be not as effective as you thought, so focus and be willing to change. Constantly evaluate the value of the metrics you’re tracking.”
Consider separating the data function
Stewart Roberts told AccountingWEB earlier this year how they had tackled their data challenge.
“About 12 months ago we decided there was a whole area of data analytics and financial control that could help the business as a whole, not just the finance department.
“So we pulled out those two areas and they now have their own life – they are a service department supplying information to the finance team, but also to all operational parts of the business, including marketing, proposition and product.
“This has helped us realise how important data is; although finding the right numbers is hit and miss at first I would urge anyone not to use that as an excuse to wait.”
Brush up on your skills
A constant refrain is the impact of new technology, and subsequently new ways of working and new data metrics, on the skills and mindset of the modern finance worker.
While many finance managers are excited about the ability to empower their employees with good information, it also requires a degree of investment in training, both in terms of data analysis and manipulation, or softer skills such as communication or presentation for dealing with stakeholders in other areas of the business.
Have you found non-financial data creeping onto your scorecard? What measures have you taken to adapt to this?