(Gary Simon is chief executive of FSN Publishing Ltd. and leader of the FSN Modern Finance Forum for CFOs on LinkedIn.)
These days you would be hard-pressed to find an organisation that doesn’t track at least some non-financial data metrics, either to improve productivity (think supply chain monitoring) or to predict trends, such as monitoring webpage clicks on new merchandise to indicate likely product demand. It would be foolish to ignore the operational insight that can be gleaned from these sources, but at the same time, many CFOs are failing to fully embrace the breadth and depth of corporate insight to be had when non-financial data is absorbed into the culture of a company.
The largest body of non-financial data mined by most corporations is linked to sustainability goals, largely out of necessity to produce corporate social responsibility reports. In some cases, this has seeped into financial strategy through cost savings eked out of energy efficiencies, or other initiatives that are designed to save both the planet and the corporate purse. But this loose, ad hoc approach to using non-financial data is a serious under-utilisation of a very important resource. Organisations that make effective use of non-financial data gain an important competitive advantage, while those that don’t remain behind the curve.
Over half of CFOs and senior executives who make good use of non- financial data are able to forecast with 90-95 percent accuracy.
At least part of the problem is quantification. It took a long time for sustainability information to evolve into usable, quantifiable, and analysable data, and organisations looking to expand their non-financial data repertoire will find the same difficulty. Non-financial data can come from many different sources, including the Internet of Things, customer data, supplier data, consumer buying habits, and even sentiment analysis. The information is in different formats, held in different IT systems, and in many cases requires another layer of processing to extract into a usable format.
Organisations must also decide what is relevant to their business strategy. Data is growing exponentially and distilling everything would be a waste of resources. Instead, each organisation must decide what data best supports their strategic goals and business model. For example, companies that lease equipment may want to prioritise the Internet of Things, which would allow them to monitor their equipment, schedule timely maintenance, and maximise uptime. This would enable these organisations to forecast more accurately and budget accordingly.
For those executives who have already implemented non-financial data strategies, the benefits are clear. According to FSN research on Planning, Budgeting, and Forecasting, over half of CFOs and senior executives who make good use of non-financial data are able to forecast with 90-95 percent accuracy. This compares with 29 percent of respondents who have not increased their use of non-financial data in the last three years.
In addition, the report also found that responsiveness and accuracy are further enhanced by foresight. Finance professionals and forecasters who make better use of non-financial data are more than twice as likely to be able to forecast beyond a 12-month time-horizon compared with those that are not harnessing this resource effectively.
When everyone is working in a culture of data insight and foresight, real competitive transformation is possible.
An effective non-financial data strategy is a game changer in today’s highly competitive market, and organisations should be focused on building the foundations to support it. This means prioritising a central data repository for both financial and non-financial data, so that both sources of information can be used to inform strategic decision-making. By centralising data, organisations will be able to quickly see what is available, and decide what is most pertinent to their needs.
The centralisation of data also eliminates the functional silos that can form when departments fail to share their pertinent data with other parts of the business. This process of taking down barriers to communication and information sharing needs to be led by senior management, because when everyone is working in a culture of data insight and foresight, real competitive transformation is possible.