The data-driven business era
Since the turn of the century, the rise of social media, increasingly ubiquitous mobile devices, cloud computing, and a plethora of sensors that are linking physical objects to the ‘internet of things’, have all added an exponentially increasing volume of data that is available to business.
This data includes a mixture of structured internal data and typically unstructured external data, encompassing voice recordings, pricing data, images, social media posts, geo-location information, and far more. According to the Economist Intelligence Unit, at least six in ten companies now capture contact-centre data, including recorded conversations, staff messaging, syndicated third party data, such as weather or market information, and government data.
Just over half of those companies also collect machine-generated data. This so-called ‘big data’ all adds to the accounting and business information that companies already collect and analyse. Although data scientists and IT experts have particular definitions for big data, we simply use this term as shorthand for the massive increase in the volume of data now being used to garner new insights into business performance, opportunities and risks (see Big data defined).
When people talk about the latest trends in big data, a lot of the excitement focuses on new forms of unstructured data. Management accountants certainly need to be alert to developments in this area. However, for most business there is still vast untapped potential in the structured data captured on their systems (enterprise data). Both these areas are important, but usually it makes sense for management accountants to start by getting to grips with enterprise data first.
According to McKinsey & Company, the growth in big data will spark a new wave of “innovation, competition, and productivity” within business. As two prominent academics put it, “Using big data enables managers to decide on the basis of evidence rather than intuition. For that reason it has the potential to revolutionise management”.
Technology continues to change the rules of business. Building on the increased computerisation of the workplace that has been occurring since the late 1980s, companies are now in a digital age of business. The widespread adoption of enterprise resource planning (ERP ) systems, electronic point of sale (EPOS ), e-commerce and other internet-based systems has allowed more and more organisational data to be captured digitally.
Procter & Gamble (P&G) is one example of this trend in action, where the firm’s ongoing digitisation increasingly acts as ‘a source of competitive advantage’ – helping improve everything from product innovation by analysing real-time social media comments from clients, through to using tracking data to optimise retail store layouts. P&G’s experience is borne out by broader research.
Research from the Sloan School of Management shows that companies that use ‘data-directed decision-making’ achieve a 5-6% boost in productivity. These case studies show that the opportunities arising from big data are substantial. Against this backdrop, IT vendors are developing an ever-growing array of big data tools, ranging from new data analytics applications and executive dashboards to predictive analytics (see Jargon buster). Big data is now at the peak of Gartner’s hype cycle for emerging technologies. The hype cycle illustrates the stage of maturity in the adoption of new technologies. The pattern is for initial excitement about a new innovation to inflate expectations above its true potential, before a period of disillusionment when expectations aren’t met. Later, typically over a five to 10 year period, the technology’s real potential becomes clear as users achieve tangible benefits.
This suggests big data technology may be entering a period of disillusionment before its true value is fully understood.
Advances in technology, along with simpler and cheaper analytics and data visualisation tools, are opening up data opportunities for firms of all sizes. But, for most businesses, adapting to a data-driven business environment remains a work in progress. One report suggests that one in four companies has yet to tap most of their organisational data, while another 53% estimate they use only half of their valuable data.
Growing attention is being paid to new analytics techniques and tools, aimed at drawing new insights from data. However, few companies have the range of complementary skills required to translate these analytical insights into true commercial impact.
This is where management accountants hold a clear opportunity to deliver value. The advanced analytical techniques necessary to mine data, identify new correlations and developalgorithms to predict behaviours are in the domain of data scientists. But management accountants’ roles in producing financial accounts, and in the processes of budgeting, forecasting and performance management, put them in contact with every aspect of a business.
Contributing such information provides management accountants with an excellent overview of the business. They can therefore play an important role in ensuring that the analytical insights gained.