CFO corner: The CFO’s guide to data alchemy – seven axioms for turning gold into rhodium

The most precious metals have historically been rhodium, platinum, gold, ruthenium and iridium. These metals aren’t necessarily rare, but require highly specialized processes and equipment to be extracted, refined and used.

However, since we are now living in the age of digital technology, I don’t believe these are still the most precious materials on earth. There is currently a trend in extracting and using another invaluable resource. It’s called “data.” Data is the new gold, information from that data is the new platinum and actionable insight generated from that information is the new rhodium.

The role of the CFO

Data allows businesses to become more competitive, tap into new markets, better develop products and services and generally increase profits.

But just like ore, data alone is useless. It must be processed and shaped into something useful before it can add value to an enterprise. This transformation of data or “data alchemy” is often described as big data, Internet of Things, predictive analytics, machine learning and artificial intelligence.

Companies are turning to their C-level leaders to lead this operation, specifically, the CFO.

A CFO’s traditional role has been to focus on the end-state aspects of financials. But in today’s data-rich environment, CFOs are expected to understand and use data to predict, influence and ultimately shape financial results.

So how can modern CFOs turn data into actionable insights?

Here are seven axioms for CFOs keen on practising data alchemy:

Axiom 1: Look for data everywhere  

Data is everywhere. CFOs must step away from their general ledger lens and start analyzing all the data that exists outside of the chart of accounts. CFOs must also identify which data sources are essential for enterprise success. The data requirements for a project-based company, for instance, would require more in-depth insights into every project, past and present, and a software company would be more interested in data that helps to analyze new versus recurring revenues.

Most importantly, CFOs must be able to cross-compare multiple sources of micro and macro-level data to identify correlation and causation.

Axiom 2: Identify drivers of success

I often ask my clients, “beyond financials, what drives company success?” I’m often met with silence.

There are typically 15 to 20 non-financial metrics that encompass drivers of enterprise performance. CFOs must find what they are and how to ensure that data is continually collected, shared and used. If you are unsure or just starting your data journey, use this as a starting gate and go from there!

An example is a client who supplies OEM auto parts to major vehicle manufacturers. After analyzing data, they determined one of the most critical drivers of success was “on-time, in-full delivery.” Once the data on that single metric was collected and posted daily to the enterprise dashboard, the enterprise’s focus completely changed.

Axiom 3: Clean your data

Unfortunately, unless data is collected by systems without any human intervention, enterprises have to live with “dirty data.”

We’ve all heard the saying “garbage in, garbage out.” Whether the data was not consistently recorded, is missing or hasn’t been maintained, it will likely need some refining before it can be trusted for use. CFOs need to create a disciplined approach for ensuring that data is scrubbed clean and consistent across systems. Otherwise, insights will be derived from misleading and incorrect information – the fool’s gold of the data world.

Axiom 4: Unite islands of data

Very few companies have all their data available in one master repository. Internal data often exists in multiple business systems, and external data often arrives piecemeal. This “disconnected” data means we have to deal with “islands of data.”

The good news is that we now have cost-effective applications such as Microsoft Power BI that can pull data from multiple systems for reporting and analysis. It is also becoming more accessible and more common for companies to create their own centralized data warehouse/data marts/data lakes where data from various systems is extracted, transformed and loaded and then linked and analyzed.

CFOs have the responsibility to identify islands of data and initiate the centralization of data for use.

Axiom 5: Upgrade how you visualize and serve data

Data alone is essentially unreadable. It has to be refined, packaged and viewable from every angle to shine with insights. Most companies serve data in Excel at the cost of many administrative labour hours. I have seen very sophisticated Excel workbooks (sometimes 100-plus megabytes) that are elegantly designed with great charts and slicers as a medium to convert data into information/insights. If you have an Excel guru who updates spreadsheets regularly and stays with your organization indefinitely, Excel could be excellent. But Excel is not a scalable or sustainable form of data delivery.

It is the CFO’s role to invest in data visualization or business intelligence tools that allow for the intuitive display of historical information and lend sophisticated analysis that will help drive action for the future, either through real-time predictive analytics or ML/AI tools such as Microsoft Synapse.

Axiom 6: Drive accountability for data usage

If CFOs are tasked with ensuring data is clean, centralized, available and served up to decision-makers, then it is the responsibility of those decision-makers to use it. Here is where I go back to one of my favourite phrases: “Trust, but verify.”

Like any other investment, CFOs need to monitor the usage of this “data-to-insights” investment by key decision-makers. I typically recommend that companies start using their enterprise dashboards (data) as a wall of fame and shame for leaders and employ full transparency by kicking off monthly, quarterly and annual performance meetings with the dashboards displayed front and center for everyone. Then let decision-makers use the dashboards to elaborate on insights and actions that helped move the needle.

The only way to transform your data into results is to ensure leaders and decision-makers are making the most from it.

Axiom 7: Ensure security and governance at every turn

As a valuable resource, data must be protected and governed. There are immense benefits to becoming a data-driven enterprise, but there are also risks:

Data validity and ethics – ensure only valid data is used and reasonable insights are inferred. Suppose less-than-ethical behaviour is practised when reporting on data (i.e. fictitious data creation or impractical inferences are drawn). In that case, the enterprise is subject to severe reputational hits and possibly legal and financial penalties. CFOs need to outline strict and monitored data collection, storage and interpretation methods and ensure that all involved are held accountable for the highest standards of ethical behaviour.

Data security – prioritize data protection and privacy. Like any other precious resource, data is vulnerable to theft. When an enterprise starts to collect and mine data, there’s a risk that the data can be breached or accessed by external entities that exploit it for their benefit. Securing data requires significant investments in data protection software and governance. If not done correctly, it can have a permanent and negative impact on the enterprise.

CFOs should work with all leaders to weave data security policies and practices into every fabric of the enterprise, including employment agreements, IT SLAs and privacy policies. Many countries also highly regulate how and when data can be used. It is vital that data security compliance and data access regulations be put into place and continually monitored.

Data-driven, high-performance companies require CFOs to be at the forefront of understanding the business model and performance/value drivers of the enterprise that can’t be found in the chart of accounts or financial statements. It requires investment in not just data collection systems, but data analytics and visualization platforms.

CFOs are stepping up to lead the data-to-insight revolution and work with other leaders to build a solid foundation of data mining, refining and reporting that can transform already valuable information into invaluable insights for decision making.

Originally published in the Ottawa Business Journal

Vijay Jog is the founder and president of Corporate Renaissance Group (CRGroup), a Quisitive Company (QUIS) and Ottawa-based firm dedicated to transforming business management and performance. He has led CRGroup’s growth in areas of strategic finance, corporate performance and dashboards, strategy design and execution and helping clients bridge the gap between technology and finance. Dr. Jog consults with organizations around the world and is a leading author and speaker in the areas of corporate performance and the office of the CFO.

For additional resources, visit crgroup.com/model-cfo