30% or higher of each company’s businesses are unprofitable
According to Jonathan Brynes at the MIT Sloan School, “the most important issue facing most managers …is making more money from their existing businesses without costly new initiatives”. In Brynes’ cross industry research, he found that 30% or higher of each company’s businesses are unprofitable. Brynes claims these business losses are offset by what are “islands of high profitability”. The root cause of this issue is asserted to be the inability of current financial and management control systems to surface profitability problems and opportunities. Why is this the case? Byrnes believes that management budgetary guidance by its very nature assumes the continuation of the status quo. For this reason, the response to management asking for a revenue increase is to increase revenues for businesses that are profitable and unprofitable. Given this, “the areas of embedded unprofitability remain embedded and largely invisible”. At the same time to be completely fair, it should be recognized that it takes significant labor to accurately and completely put together a complete picture on direct and indirect costs.
The CFO needs to become the point person on profitability issues
Byrnes believes, nevertheless, that CFOs need to become the corporate point person for surfacing profitability issues. They, in fact, should act as the leader of a new and important role, the chief profitability officer. This may seem like an odd suggestion since virtually every CFO if asked would view profitability as a core element of their job. But Byrnes believes that CFOs need to move beyond broad, departmental performance measures and build profitability management processes into their companies’ core management activities. This task requires the CFO to determine two things.
- Which product lines, customers, segments, and channels are unprofitable so investments can be reduced or even eliminated?
- Which product lines, customers, segments, and channels are the most profitable so management can determine whether to expand investments and supporting operations?
Why didn’t portfolio management solve this problem?
Now as a strategy MBA, Byrnes’ suggestion leave me wondering why the analysis proposed by strategy consultants like Boston Consulting Group didn’t solve this problem a long time ago. After all portfolio analysis has at its core the notion that relative market share and growth rate will determine profitability and which businesses a firm should build share, hold share, harvest share, or divest share—i.e. reduce, eliminate, or expand investment. The truth is getting at these figures, especially profitability, is a time consuming effort.
KPMG finds 91% of CFOs are held back by financial and performance systems
As financial and business systems have become more complex, it has become harder and harder to holistically analyze customer and product profitability because the relevant data is spread over a myriad of systems, technologies, and locations. For this reason, 91% of CFO respondents in a recent KPMG survey said that they want to improve the quality of their financial and performance insight from the data they produce. An amazing 51% of these CFOs, also, admitted that the “collection, storage, and retrieval financial and performance data at their company is primarily a manual and/or spreadsheet-based exercise”. Think about it — a majority of these CFOs teams time is spent collecting financial data rather than actively managing corporate profitability.
How do we fix things?
What is needed is a solution that allows financial teams to proactively produce trustworthy financial data from each and every financial system and then reliably combine and aggregate the data coming from multiple financial systems. Having accomplished this, the solution needs to allow financial organizations to slice and dice net profitability for product lines and customers.
This approach would not only allow financial organizations to cut their financial operational costs but more importantly drive better business profitability by surfacing profitability gaps. At the same time, it would enable financial organizations to assist business units in making more informed customer and product line investment decisions. If a product line or business is narrowly profitable and lacks a broader strategic context or ability to increase profitability by growing market share, it is a candidate for investment reduction or elimination.
Strategic CFOs need to start asking questions of their business counterparts starting with their justification for their investment strategy. Key to doing this involves consolidating reliable profitability data across customers, products, channel partners, suppliers. This would eliminate the time spent searching for and manually reconciling data in different formats across multiple systems. It should deliver ready analysis across locations, applications, channels, and departments.
Some parting thoughts
Strategic CFOs tell us they are trying to seize the opportunity “to be a business person versus a bean counting historically oriented CPA”. I believe a key element of this is seizing the opportunity to become the firm’s chief profitability officer. To do this well, CFOs need dependable data that can be sliced and diced by business dimensions. Armed with this information, CFOs can determine the most and least profitability, businesses, product lines, and customers. As well, they can come to the business table with the perspective to help guide their company’s success.
Solution Brief: The Intelligent Data Platform
CFOs Discuss Their Technology Priorities
The CFO Viewpoint upon Data
How CFOs can change the conversation with their CIO?
New type of CFO represents a potent CIO ally
Competing on Analytics
The Business Case for Better Data Connectivity
Recently, I had the opportunity to talk to a number of CFOs about their technology priorities. These discussions represent an opportunity for CIOs to hear what their most critical stakeholder considers important. The CFOs did not hesitate or need to think much about this question. They said three things make their priority list. They are better financial system reliability, better application integration, and better data security and governance. The top two match well with a recent KPMG study which found the biggest improvement finance executives want to see—cited by 91% of survey respondents—is in the quality of financial and performance insight obtained from the data they produce, followed closely by the finance and accounting organization’s ability to proactively analyze that information before it is stale or out of date”
CFOs want to know that their systems work and are reliable. They want the data collected from their systems to be analyzed in a timely fashion. Importantly, CFOs say they are worried not only about the timeliness of accounting and financial data. This is because they increasingly need to manage upward with information. For this reason, they want timely, accurate information produced for financial and business decision makers. Their goal is to drive out better enterprise decision making.
In manufacturing, for example, CFOs say they want data to span from the manufacturing systems to the distribution system. They want to be able to push a button and get a report. These CFOs complain today about the need to manually massage and integrate data from system after system before they get what they and their business decision makers want and need.
CFOs really feel the pain of systems not talking to each other. CFOs know firsthand that they have “disparate systems” and that too much manual integration is going on. For them, they see firsthand the difficulties in connecting data from the frontend to backend systems. They personally feel the large number of manual steps required to pull data. They want their consolidation of account information to be less manual and to be more timely. One CFO said that “he wants the integration of the right systems to provide the right information to be done so they have the right information to manage and make decisions at the right time”.
Data Security and Governance
CFOs, at the same time, say they have become more worried about data security and governance. Even though CFOs believe that security is the job of the CIO and their CISO, they have an important role to play in data governance. CFOs say they are really worried about getting hacked. One CFO told me that he needs to know that systems are always working properly. Security of data matters today to CFOs for two reasons. First, data has a clear material impact. Just take a look at the out of pocket and revenue losses coming from the breach at Target. Second, CFOs, which were already being audited for technology and system compliance, feel that their audit firms will be obligated to extend what they were doing in security and governance and go as a part of regular compliance audits. One CFO put it this way. “This is a whole new direction for us. Target scared a lot of folks and will be to many respects a watershed event for CFOs”.
So the message here is that CFOs prioritize three technology objectives for their CIOs– better IT reliability, better application integration, and improved data security and governance. Each of these represents an opportunity to make the CFOs life easier but more important to enable them to take on a more strategic role. The CFOs, that we talked to, want to become one of the top three decision makers in the enterprise. Fixing these things for CFOs will enable CIOs to build a closer CFO and business relationships.
Solution Brief: The Intelligent Data Platform
Solution Brief: Secure at Source
According to the Financial Executives Institute, CFOs say their second highest priority this year is to harness business intelligence and big data. Their highest priority is to improve cash flow and working capital efficiency and effectiveness. This means CFOs highest two priorities are centered around data. At roughly the same time, KPMG has found in their survey of CFOs that 91% want to improve the quality of their financial and performance insight obtained from the data that they produce. Even more amazing 51% of CFO admitted that “collecting, storing, and retrieving financial and performance data at their company is primarily accomplished through a manual and/or spreadsheet-based exercise”. From our interviews of CFOs, we believe this number is much higher.
Your question at this point—if you are not a CFO—should be how can this be the case? After all strategy consultants like Booz and Company, actively measure the degree of digitization and automation taking place in businesses by industry and these numbers year after year have shown a strong upward bias. How can the finance organization be digitized for data collection but still largely manual in its processes for putting together the figures that management and the market needs?
CFOs do not trust their data
In our interviews of CFOs, one CFO answered this question bluntly by saying “If the systems suck, then you cannot trust the numbers when you get them.” And this reality truly limits CFOs in how they respond to their top priorities. Things like management of the P&L, Expense Management, Compliance, and Regulatory all are impacted by the CFOs data problem. Instead of doing a better job at these issues, CFOs and their teams remain largely focused on “getting the numbers right”. And even worse, the answering of business questions like how much revenue is this customer providing or how profitable this customer is, involves manual pulls of data today from more than one system. And yes, similar data issues exist in financial services organizations which close the books nightly.
The CFOs, that I have talked to, admit without hesitation that data is a big issue for them. These CFOs say that they worry about data from the source and the ability to do meaningful financial or managerial analysis. They say they need to rely on data in order to report but as important they need it to help drive synergies across businesses. This matters because CFOs say they want to move from being just “bean counters” to being participants in the strategy of their enterprises.
To succeed, CFOs say that they need timely, accurate data. However, they are the first to discuss how disparate systems get in their way. CFOs believe that making their lives easier starts with the systems that support them. What they believe is needed is real integration and consolidation of data. One CFO said what is needed this way, “we need the integration of the right systems to provide the right information so we can manage and make decisions at the right time”. CFOs clearly want to know that the accounting systems are working and reliable. At the same time, CFOs want, for example, a holistic view of customer. When asked why this isn’t a marketing activity, they say this is business issue that CFOs need to help manage. “We want to understand the customer across business units. It is a finance objective because finance is responsible for business metrics and there are gaps in business metrics around customer. How much cross sell opportunities is the business as a whole pursuing?”
Chief Profitability Officers?
Jonathan Brynes at the MIT Sloan School confirms this viewpoint is becoming a larger trend when he suggests that CFOs need to take on the function of “Chief Profitability Officers”. With this hat, CFOs, in his view, need to determine which product lines, customers, segments, and channels are the most and the least profitable. Once again, this requires that CFOs tackle their data problem to have relevant, holistic information.
CIOs remain responsible for data delivery
CFOs believe that CIOs remain responsible for how data is delivered. CFOs, say that they need to lead in creating validated data and reports. Clearly, if data delivery remains a manual process, then the CFO will be severely limited in their ability to adequately support their new and strategic charter. Yet CFOs when asked if they see data as a competitive advantage say that “every CFO would view data done well as a competitive advantage”. Some CFOs even suggest that data is the last competitive advantage. This fits really well with the view of Davenport in “Competing on Analytics”. The question is how soon will CIOs and CFOs work together to get the finance organization out of its mess of manually massaging and consolidating financial and business data.
Solution Brief: The Intelligent Data Platform
If you ask a CIO today about the importance of data to their enterprises, they will likely tell you about the need to “compete on analytics” and to enable faster business decisions. At the same time, CIOs believe they “need to provide the intelligence to make better business decisions”. One CIO said it was in fact their personal goal to get the business to a new place faster, to enable them to derive new business insights, and to get to the gold at the end of the rainbow”.
Similarly, another CIO said that Big Data and Analytics were her highest priorities. “We have so much knowledge locked up in the data, it is just huge. We need the data cleaning and analytics to pull this knowledge out of data”. At the same time the CIOs that we talked to see their organizations as “entering an era of ubiquitous computing where users want all data on any device when they need it.”
Why does faster, better data really matters to the enterprise?
So why does it matter? Thomas H. Davenport says, “at a time when firms in many industries offer similar products and use comparable technologies, business processes are among the last remaining points of differentiation.” A CIO that we have talked to concurred in saying, “today, we need to move from “management by exception to management by observation”. Derick Abell amplified upon this idea when he said in his book Managing with Dual Strategies “for control to be effective, data must be timely and provided at intervals that allow effective intervention”.
Davenport explains why timely data matters in this way “analytics competitors wring every last drop of value from those processes”. Given this, “they know what products their customers want, but they also know what prices those customers will pay, how many items each will buy in a lifetime, and what triggers will make people buy more. Like other companies, they know compensation costs and turnover rates, but they can also calculate how much personnel contribute to or detract from the bottom line and how salary levels relate to individuals’ performance. Like other companies, they know when inventories are running low, but they can also predict problems with demand and supply chains, to achieve low rates of inventory and high rates of perfect orders”.
What then prevents businesses from competing on analytics?
Moving to what Davenport imagines requires not just a visualizing tool. It involves fixing what is allying IT’s systems. One CIO suggested this process can be thought of like an athlete building the muscles they need to compete. He said that businesses really need the same thing. In his eyes, data cleaning, data security, data governance, and master data management represent the muscles to compete effectively on analytics. Unless you do these things, you cannot truly compete on analytics. At UMASS Memorial Health, for example, they “had four independent patient registration systems supporting the operations of their health system, with each of these having its own means of identifying patients, assigning medical record numbers, and recording patient care and encounter information”. As a result, “UMass lacked an accurate, reliable, and trustworthy picture of how many unique patients were being treated by its health system. In order to fix things, UMASS needed to “resolve patient, provider and encounter data quality problems across 11 source systems to allow aggregation and analysis of data”. Prior to fixing its data management system, this meant that “UMass lacked a top-down, comprehensive view of clinical and financial performance across its extended healthcare enterprise”.
UMASS demonstrates how IT needs to fix their data management in order to improve their organization’s information intelligence and drive real and substantial business advantage. Fixing data management clearly involves delivering the good data that business users can safely use to make business decisions. It, also, involves ensuring that data created is protected. CFOs that we have talked to say Target was a watershed event for them—something that they expect will receive more and more auditing attention.
Once our data is good and safe, we need to connect current data sources and new data sources. And this needs to not take as long as it did in the past. The delivery of data needs to happen fast enough that business problems can be recognized as they occur and be solved before they become systemic. For this reason, users need to get access to data when and where they it is needed.
With data management fixed, data intelligence is needed so that business users can make sense out of things faster. Business users need to be able to search and find data. They need self-service so they can combine existing and new unstructured data sources to test data interrelationship hypothesis. This means the ability to assemble data from different sources at different times. Simply put this is all about data orchestration without having any preconceived process. And lastly, they need the intelligence to automatically sense and respond to changes as new data becomes collected.
Some parting thoughts
The next question may be whether competing upon data actual pay business dividends. Alvin Toffler says “Tiny insights can yield huge outputs”. In other words, the payoff can be huge. And those that do so will increasingly have the “right to win” against their competitors as you use information to wring every last drop of value from your business processes.
Solution Brief: The Intelligent Data Platform
As adjunct university faculty, I get to talk to students about how business strategy increasingly depends upon understanding how to leverage information. To make discussion more concrete, I share with students the work of Alvin Toffler. In The Third Wave, Toffler asserts that we live in a world where competition will increasingly take place upon the currency and usability of information.
In a recent interview, Toffler said that “given the acceleration of change; companies, individuals, and governments base many of their daily decisions on obsoledge—knowledge whose shelf life has expired.” He continues by stating that “companies everywhere are trying to put a price on certain forms of intellectual property. But if…knowledge is at the core of the money economy, than we need to understand knowledge much better than we do now. And tiny insights can yield huge outputs”.
Driving better information management in the information age
To me, this drives to three salient conclusions for information age businesses:
- Information needs to drive further down organizations because top decision makers do not have the background to respond at the pace of change.
- Information needs to be available faster which means that we need to reducing the processing time for structure and unstructured information sources.
- Information needs to be available when the organization is ready for it. For multinational enterprises this means “Always On” 24/7 across multiple time zones on any device.
Effective managers today are effective managers of people and information
Effective managers today are effective managers of information. Because processing may take too much time, Toffler’s remarks suggest to me we need to consider human information—the ideas and communications we share every day—within the mix of getting access to the right information when it is needed and where it is needed. Now more than ever is the time for enterprises to ensure their decision makers have the timely information to make better business decisions when they are relevant. This means that unstructured data, a non-trivial majority of business information, needs to be made available to business users and related to existing structured sources of data.
Derick Abell says that “for (management) control to be effective, data must be timely and provided at interval that allows effective intervention”. Today this is a problem for most information businesses. As I see it, information optimization is the basis of powering the enterprise through “Third Wave” business competition. Organizations that have the “right to win” will have as a core capability better-than-class access to current information for decision makers.
Putting in place a winning information management strategy
If you talk to CIOs today, they will tell you that they are currently facing 4 major information age challenges.
- Mobility—Enabling their users to view data anytime, anyplace, and any device
- Information Trust—Making data dependable enough for business decisions as well as governing data across all business systems.
- Competing on Analytics—Getting information to business users fast enough to avoid Toffler’s Obsoledge.
- New and Big Data Sources—Connecting existing data to new value added sources of data.
Some information age
Lots of things, however, get in the way of delivering on the promises of the Information Age. Our current data architecture is siloed, fragile, and built upon layer after layer of spaghetti code integrations. Think about what is involved just to cobble together data on a company’s supply chain. A morass of structured data systems have vendor and transaction records locked up in application databases and data warehouses all over the extended enterprise. So it is not amazing that enterprises struggle to put together current, relevant data to run their businesses upon. Functions like finance depend largely upon manual extracts being massaged and integrated in spreadsheets because of concern over the quality of data being provided by financial systems. Some information age!
How do we connect to new sources of data?
At the same time, many are trying today to extend the information architecture to add social media data, mobile location data, and even machine data. Much of this data is not put together in the same way as data in an application database or data warehouse. However, being able to relate this data to existing data sources can yield significant benefits. Think about the potential benefit of being able to relate social interactions and mobile location data to sales data or to relate machine data to compliance data.
A big problem is many of these new data types potentially have even more data quality gaps than historical structured data systems. Often the signal to noise for this data can be very low for this reason. But this data can be invaluable to business decision making. For this reason, this data needs to be cleaned up and related to older data sources. Finally, it needs to be provided to business users in whatever manner they want to consume it.
How then do we fix the Information Age?
Enabling the kind of Information Age that Toffler imagined requires two things. Enterprises fix their data management and enable the information intelligence needed to drive real business competitive advantage. Fixing data management involves delivering good data that business users can safely make decisions from. It, also, involves ensuring that data once created is protected. CFOs that we have talked to say Target was a watershed event for them—something that they expect will receive more and more auditing attention.
We need at the same time to build the connection between old data sources and new data sources. And this needs to not take as long as in the past to connect data. Delivery needs to happen faster so business problems can be recognized and solved more quickly. Users need to get access to data when and where they need it.
With data management fixed, data intelligence needs to provide business users the ability to make sense out of things they find in the data. Business users need as well to be able to search and find data. They, also, need self-service so they can combine existing and new unstructured data sources to test data interrelationship hypothesis. This means the ability to assemble data and put it together and do it from different sources at different times. Simply put this is about data orchestration without any preconceived process. And lastly, business users need the intelligence to automatically sense and respond to changes as new data is collecting.
Tiny insights can yield huge outputs
Obviously, there is a cost to solving our information age issues, but it is important to remember what Toffler says. “Tiny insights can yield huge outputs”. In other words, the payoff is huge for shaking off the shackles of our early information age business architecture. And those that do this will increasingly have the “right to win” against their competitors as they use information to wring every last drop of value from their business processes.
Solution Brief: The Intelligent Data Platform
The CIO Challenged
If you ask a CIO today about their challenges, several things would clearly make the list. CIOs that I know personally are feeling a bit of Future Shock. They say that things are changing a lot faster these days than they did in the past. One CIO said to me in exasperation, “things are changing every 18 months”. Given this, I recently sat down with CIOs from several different industries to get their perspectives on how the CIO role is changing and the challenges they feel in their role as CIO. This post will focus upon the latter.
The healthcare CIO participating said that CIOs need to manage four large mega trends simultaneously—mobile, cloud, social, and big data. At the same time in healthcare, they have the added complexity of Meaning Use, ICT 10, and HL7. For these reasons, this CIO worries about keeping the IT lights on while at the same time helping the business to expand. This CIO sees healthcare is clearly entering an era of ubiquitous computing with the iPad becoming the rounding and vitals instrument of choice. This links mobility, integration, and compliance around a standard like HL7. HL7 provides this CIO with a framework for exchanging, integrating, sharing, and retrieving of electronic health information. Like other CIOs that we talked to, our healthcare CIO says he needs to understand his enterprises business better in order to be a better partner.
Our next CIO is from the insurance. He sees CIOs in general being challenged to move from being a builder of stuff to an orchestrator of business services. This CIO sees cloud and loosely oriented partnerships bringing vendor management to the forefront. At the same time, he feels challenged to provide application integration in a service oriented manner. He says that IT organizations need today to orchestrate across IT regardless of device. As well, he believes that IT organizations need to stitch together an IT that is fungible and support service oriented architecture. At the same time, he says that his business users “believe that data is strategic but they need it provided to them in a way that creates predictive capabilities and drives top line revenue”. We and our business customers know that we need to fix our mutual data problems in order to use data better. This CIO said believes that he needs to fix his enterprise’s data hygiene first in order to improve business outcomes.
The Manufacturing CIO participating said that CIOs have an opportunity to create informative analytics and help the business find value. However, this CIO worries that CEOs and CFOs are about to start complaining to their IT organizations that the information garnered from Big Data and Business Intelligence does not really make them more money. He claims, to make more money, IT organizations need to connect the dots between their transactional systems, BI systems, and the planning systems. More specifically, they need to convert insight into action. To do this, the business needs to be enabled to be more proactive and to cut the time it takes to execute. This means that IT needs to enable the enterprise to generate value different than its competitors. This CIO worries, therefore, about IT’s ability to drive flexibility and agility. We need to respond to the rate of change and be able to prototype faster at the same time as we cut the cost of failure. This CIO claims that CIOs needs to more actively manage the information lifecycle even though the business may own the data. Lastly, this CIO says that IT organizations need to be more forward looking. We need to be looking at things cross discipline. We need to be looking for new business insights. We have piles and piles of data from which to draw interesting insights from. How do you connect and create new business insights?
Getting the CFOs to understand that technology is not a cost center was really important to our 4th CIO. We need to get everyone to understand that IT isn’t separate from the business. At the same time, we need to get business leaders to understand technology better. There is a real West Coast vs. East Coast split regarding business technology literacy. We need business leaders to start asking for digital services that support their product and service offerings. And this is all about data. “Think about it. What we do in IT is all about the intake of data, storing data, processing data, and analyzing data. And we need to provide the intelligence to make better decisions. Competing with analytics is what we need to enable. Like an athlete that needs muscles—data needs cleaning, security, mastering, and governance to enable the business to compete with analytics”.
Our broadcast CIO is focused on the explosion of Big Data. “I need to get my management team exposed to Big Data Analysis. I need as well to get the resources to do this well”. We need for example to get the business answers to its questions around customer behavior. From an integration perspective, this CIO said that she needs to get service based technology deployed. At the same time, she said I need to be able to have business apps for my business and consumer users to subscribe. This CIO said that speed to clients from integrated systems is a big issue. We need today to connect everything together.
CIOs as whole feel are feeling challenged
CIOs regardless of industry feel challenged. They feel challenged by changes coming at them in general and in industry specific mandates and standards. They clearly need to move faster and to move from organizations that are about getting the internals of IT running well to organizations that can absorb new technology models, scale up and down in “Internet time”, and flex seamlessly to support business model innovation. For more information, see the related links below:
When you talk to CIOs today, you strongly get the feeling that that the CIO role is about to change. One CIO said to me that the CIO is the midst of “a sea state change”. Recently, I got to talk with a half a dozen CIOs on what is most important to their role and how they see the role as a whole changing over the next few years. Their answers were thought provoking and worthy of broader discussion.
CIOs say it is becoming less and less common for the CIO to come up through the technical ranks. One CIO said it used to common for one to become a CIO after being a CTO but this has changed. More and more business people are becoming CIOs. The CIO role today is “more about understanding the business than to understanding technology. It is more about business alignment than technology alignment”. This need for better business alignment led one CIO to say that consulting is a great starting point for a future IT leader. Consulting provides a future IT leader with the following: 1) vertical expertise; 2) technical expertise; and 3) systems integration expertise. Another CIO suggested that the CIO role sometimes is being used these days as a rotational position for a future business leader. “It provides these leaders with technical skills that they will need in their career.” Regardless, it is increasingly clear that business expertise versus technical expertise is much more important.
How will the CIO role change?
CIOs, in general, believe that their role will change in the next five years. One CIO insisted that CIOs are going to continue to be incredibly important to their enterprises. However, he said that CIOs have the opportunity to create analytics that guide the business in finding value. For CIOs to do this, they need to connect the dots between transactional systems, BI, and the planning systems. They need to convert data into action. This means they need to enable the business to be proactive and cut the time it takes for them to execute. CIOs need in his view to enable their enterprises to generate differentiated value than competitors.
Another CIO sees the CIOs becoming the orchestrator vs. the builder of business services. This CIO said that “building stuff is now really table stakes”. Cloud and loosely oriented partnerships is bringing vendor management to the forefront. Agreeing with this point of view, a third CIO says that she sees CIOs moving from an IT role into a business role. She went onto say that “CIOs need to understand the business better and be able to partner better with the business. They need to understand the role for IT better and this includes understanding their firm’s business models better”.
A final CIO suggests something even more radical. He believes that the CIO role will disappear altogether or morph into something new. This CIO claims CIOs have the opportunity to become the chief digital officer or the COO. After all, the CIO is about implementing business processes.
For more technical CIOs, this CIO sees them reverting into CTOs but he worries at the same time about the importance of hardware and platform issues with the increasing importance of cloud—this type of role is going to become less and less relevant. This same CIO says that, in passing, CIOs screwed up a golden opportunity 10 years ago. At this time, CIOs one by one clawed their way to the table and separated themselves from the CFO. However, once they were at the table, they did not change their game. They continued to talk bits and bytes versus business issues. And one by one, they are being returned to the CFO to manage.
So change is inevitable. CIOs need to change their game or be changed by external forces. So let’s start the debate right now. How do you see the CIO role changing? Express your opinion. Let’s see where you and the above CIOs agree and more importantly where you differ?
Several years ago, I got to participate in one of the first neural net conferences. At the time, I thought it was amazing just to be there. There were chip and software vendors galore. Many even claimed to be the next Intel or the next Microsoft. Years later I joined a complex event processing vendor. Again, I felt the same sense of excitement. In both cases, the market participants moved from large horizontal market plays to smaller and more vertical solutions.
Now to be clear, it is not my goal today to pop anyone’s big data balloon. But as I have gotten more excited about big data, I have gotten more and more an eerie sense of deja vu. The fact is the more that I dig into big data and hear customer’s stories about what they are trying to do with big data; the more I have concern about the similarities between big data and neural nets and complex event processing.
Clearly, big data does offer some interesting new features. And big data does take advantage of other market trends including virtualization and cloud. By doing so, big data achieves new orders of scalability than traditional business intelligence processing and storage. At the same time, big data offers the potential for lowering cost but I should take a moment to stress the word potential. The reason I do this is that while a myriad of processing approaches have been developed, no standard has yet emerged. And early adopters complain about having a difficulty in hiring big data map reduce programmers. And just like neural nets, the programing that needs to be done is turning out to be application specific.
With this said, it should be clear that big data does offer the potential to test datasets and to discover new and sometimes unexpected data relationship. This is a real positive thing. However, like its predecessors, this work is application specific and the data that is being related is truly of differing quality and detail. This means that the best that big data can do as a technology movement is discover potential data relationship. Once this is done, meaning can only be created by establishing detailed data relationships and dealing with the varying quality of data sets within the big data cluster.
Big Data will become small for management analysis
This means that big data must become small in order to really solve customer problems. Judith Hurwitz puts it this way, “big data analysis is really about small data. Small data, therefore, is the product of big data analysis. Big data will become small so that it is easier to comprehend”. What is “more necessary than ever is the capability to analyze the right data in a timely enough fashion to make decisions and take actions”. Judith says that in the end what is needed is quality data that is consistent, accurate, reliable, complete, timely, reasonable, and valid. The critical point is whether you use map reduce processing or traditional BI means, you shouldn’t throw out your data integration and quality tools. As big data becomes smaller, these will in reality become increasingly important.
So how does Judith see big data evolving? Judith sees big data propelling a lot of new small data. Judith believes that, “getting the right perspective on data quality can be very challenging in the world of big data. With a majority of big data sources, you need to assume that you are working with data that is not clean”. Judith says that we need to accept the fact that a lot of noise will exist in data. It is by searching and pattern matching that you will be able to find some sparks of truth in the midst of some very dirty data”. Judith suggests, therefore, a two phase approach—1) look for patterns in big data without concern for data quality; and 2) after you locate your patterns, applying the same data quality standards that have been applied to traditional data sources.
For this reason, I believe that history will to a degree repeat itself. Clearly, the big data emperor does have his clothes on, but big data will become smaller and more vertical. Big data will become about relationship discovery and small data will become about quality analysis of data sources. In sum, this means that small data analysis is focused and provides the data for business decision making and big data analysis is broad and is about discovering what data potentially relates to what data. I know this is a bit of different from the hype but it is realistic and makes sense. Remember, in the end, you will still need what business intelligence has refined.
Business leaders share with Fortune Magazine their view of Big Data
Fortune Magazine recently asked a number of business leaders about what Big Data means to them. These leaders provide three great stories for the meaning of Big Data. Phil McAveety at Starwood Hotels talked about their oldest hotel having a tunnel between the general manager’s office and the front desk. This way the general manager could see and hear new arrivals and greet each like an old friend. Phil sees Big Data as a 21st century version of this tunnel. It enables us to know our guests and send them offers that matter to them. Jamie Miller at GE says Big Data is being about transforming how they service their customers while simplifying the way they run their company. Finally, Ellen Richey at VISA says that big data holds the promise of making new connections between disperse bits of information creating value.
Everyone is doing it but nobody really knows why?
I find all of these definitions interesting, but they are all very different and application specific. This isn’t encouraging. The message from Gartner is even less so. They find that “everyone is doing it but nobody really knows why”. According to Matt Asay, “the gravitational pull of Big Data is now so strong that even people who haven’t a clue as to what it’s all about report that they are running Big Data projects”. Gartner found in their research that 64% of enterprises surveyed say they’re deploying or planning to deploy Big Data projects. The problem is that 56% of those surveyed are struggling trying to determine how to get value out of big data, and 23% of those surveyed are struggling at how to define Big Data. Hopefully, none of the latter are being counted in the 64%. . Regardless, Gartner believes that the number of companies with Big Data projects is only going to increase. The question is how many of projects are just a recast of an existing BI project in order to secure funding or approval. No one will ever know.
Managing the hype phase of Big Data
One CIO that we talked to worries about this hype phase of Big Data. He says the opportunity is to inform analytics and guiding and finding business value. However, worries whether past IT mistakes will repeat themselves. This CIO believes that IT has gone through three waves. IT has grown from homegrown systems to ERP to Business Intelligence/Big Data. ERP was supposed to solve all the problems of the homegrown solutions but it did not provide anything more than information on transactions. You could not understand what is going on out there with ERP. BI and Big Data is trying to go after this. However, this CIO worries that CEOs/CFOs will soon start complaining that the information garnered does not make the business more money. He worries that CEOs and CFOs will start effectively singing the Who song, “We won’t get fooled again.”
This CIO believes that to make more money, Big Data needs to connect the dots between transactional systems, BI, and planning systems. It needs to convert data into business value. This means Big Data is not just another silo of data, but needs to be connected and correlated to the rest of your data landscape to make it actionable. To do this, he says it needs to be proactive and cut the time to execution. It needs to enable the enterprise to generate value different than competitors. This, he believes mean that it needs to orchestrate activities so they maximize profit or increase customer satisfaction. You need to get to the point where it is sense and response. Transactional systems, BI, and planning systems need to provide intelligence to allow managers to optimize business processes execution. According to Judith Hurwitz, optimization is about establishing the correlation between streams of information and matching the resulting pattern with defined behaviors such as mitigating a threat or seizing an opportunity.”
Don’t leave your CEO and CFO with a sense of deja vu
In sum, Big Data needs to go further in generating enough value to not leave your CEO and CFO with a sense of deja vu. The question is do you agree? Do you personally have a good handle on what Big Data is? And lastly, do you fear a day when the value generated needs to be attested to?
Recently, I had the opportunity to interview half dozen CIOs and half dozen CFOs. Kind of like a marriage therapist, I got to see each party’s story about the relationship. CFOs, in particular, felt that the quality of the relationship could impact their businesses’ success. Armed with this knowledge, I wanted to see if I could help each leader build a better working relationship. Previously, I let CIO’s know about the emergence and significance of the strategic CFO. In today’s post, l will start by sharing the CIOs perspective on the CFO relationship and then I will discuss how CFOs can build better CIO relationships.
CIOs feel under the gun these days!
If you don’t know, CIOs feel under the gun these days. CIOs see their enterprises demanding ubiquitous computing. Users want to use their apps and expect corporate apps to look like their personal apps such as Facebook. They want to bring their own preferred devices. Most of all, , they want all their data on any device when they need it. This means CIOs are trying to manage a changing technical landscape of mobile, cloud, social, and big data. These are all vying for both dollars and attention. As a result, CIOs see their role in a sea change. Today, they need to focus less on building things and more on managing vendors. CIOs say that they need to 1) better connect what IT is doing to support the business strategy; 2) improve technical orchestration; and 3) improve process excellence. This is a big and growing charter.
CIOs see the CFO conversation being just about the numbers
CIOs worry that you don’t understand how many things are now being run by IT and that historical percentages of revenue may no longer appropriate. Think about healthcare, which used to be a complete laggard in technology but today it is having everything digitalized. Even a digital thermometer plugs into an iPad so it directly communicates with a patient record. The world has clearly changed. And CIOs worry that you view IT as merely a cost center and that you do not see the value generated through IT investment or the asset that information provides to business decision makers. However, the good news is that I believe that a different type of discussion is possible. And that CFOs have the opportunity to play an important role in helping to shape the value that CIOs deliver to the business.
CFOs should share their experience and business knowledge
CFOs that I talked to said that they believe the CFO/CIO relationship needs to be complimentary and that the roles have the most concentric rings. These CFOs believe that the stronger the relationship the better it is for their business. One area that you can help the CIO is in sharing your knowledge of the business and business needs. CIOs are trying to get closer to the business and you can help build this linkage and to support requests that come out of this process. Clearly, an aligned CFO can be “one of the biggest advocates of the CIO”. Given this, make sure that you are on your CIOs Investment Committee.
Tell your CIO about your data pains
CFOs need to be good customers too. CFOs that I talked to told me that they know their business has “a data issue”. They worry about the integrity of data from the source. CFOs see their role as relying increasingly on timely, accurate data. They, also, know they have disparate systems and too much manual stuff going on in the back office. For them, integration needs to exist from the frontend to the backend. Their teams personally feel the large number of manual steps.
For this reasons, CFOs, we talked to, believe that the integration of data is a big issue whether they are in a small or large business. Have you talked to your CIO about data integration or quality projects to change the ugliness that you have to live with day in day out? It will make you and the business more efficient. One CFO was blunt here saying “making life easier is all about the systems. If the systems suck then you cannot trust the numbers when you get them. You want to access the numbers easily, timely, and accurately. You want to make easier to forecast so you can set expectations with the business and externally”.
At the same time, CFOs that I talked to worried about the quality of financial and business data analysis. Once he had data, he worried about being able to analyze information effectively. Increasingly, CFOs say that they need to help drive synergies across their businesses. At the same time, CFOs increasingly need to manage upward with information. They want information for decision makers so they can make better decisions.
Changing the CIO Dialog
So it is clear that CFOs like you see data as a competitive advantage in particular financial data. The question is, as your unofficial therapist, why aren’t you having a discussion with your CIO not just about the numbers or financial justification for this or that system and instead, asking about the+ integration investment that can make your integration problems go away.