Big Data is the latest buzz phrase in business but what does it mean and why is an appreciation of Big Data so important for the office of the CFO and senior management decision-making? The notion of Big Data is not entirely new. After all, CFOs are accustomed to dealing with mounting volumes of information. But when does a lot of information become Big Data? For the most part, the finance function has not had to deal with the issues of Big Data – the volumes in most core financial applications are large but certainly not in the realms of terabytes, petabytes, or even greater. Big Data takes “large” to an entirely new level.
The statistics bandied around by Big Data cognoscenti are truly breathtaking. According to Gartner, the volume of worldwide information is growing annually at a minimum rate of 59 percent annually – or to put it another way, all of the world’s data in existence today will have doubled in less than two years. But Big Data is characterised by much more than just volume. The so-called three “Vs” of Big Data neatly sum up its characteristics: volume, velocity, and variety.
Variety is causing the growth in data volume
Nevertheless, volume is important. So what is driving the explosive growth in volume, especially when the world’s economy is hardly growing? The explanation lies not in an increase in transaction volumes but in a broadening of data sets – collecting more analysis about current data – plus the collection of entirely novel types of data. For example, in the accounting arena Solvency II requires insurers to hold information about counterparties and IFRS demands more-segmental analysis. Furthermore, environmental and sustainability reporting has forced some organisations to collect entirely new information, such as electricity meter readings and CO2 emissions. Hence, organisations are grappling with variety as well as volume. Added to the mix is the rampant growth of unstructured data such as commentary and other text-based information in social media, blogs, and Websites. The proliferation of mobile devices has added a new dimension, exacerbating the growth of Big Data as organisations and individuals find themselves able to interact with each other as well as corporate systems anytime and anywhere.
But what of velocity? Uncertain times create an insatiable appetite for information. Nervous regulators want to see information more frequently and management teams want to reforecast more often. So the speed with which information is demanded, delivered, and consumed is accelerating. But how do organisations rise above the challenge of Big Data?
Where Is the value in Big Data?
Perhaps it is time for businesses to consider a fourth “V” – the “value” of information since it is the value of the information that should drive the investment in Big Data rather than the collection of it, for its own sake. In fact, market commentators caution that the unfettered pursuit of Big Data will lead to difficulties in data collection, data transformation, data storage, and data analysis, potentially undermining established processes such as performance management that may not be able to cope with the manipulation of such large and unwieldy volumes.
Yet there is value in Big Data provided you know where to look and have deep enough pockets to fund the investment. Amazon and eBay probably know more about their customers than almost any other retailer by virtue of the masses of data they collect and analyse. Even in the office of the CFO there are signs that Big Data could turn into big insights. For example, the combination of unstructured social analytics and financial forecasting could lead to a new generation of forecasting techniques in which forecasts are informed by customer sentiment about products, customers, and campaigns. Where Big Data straddles multiple data sources can lead to enhanced competitiveness. The pharmaceutical, financial services, retail, and agricultural industries are already learning to master the implications of Big Data. But marshalling and tuning data on this scale requires specialised information discovery tools that can build effective database structures yet shield end users from complexity. The key to big advances from Big Data will be the ability to meld the ease of use of traditional business intelligence with the new technologies necessary to manage such large volumes.
A shortage of analytical skills
There are also concerns about the availability of skills to manage, analyse, and interpret Big Data. For example, the McKinsey Global Institute suggests that the United States alone faces a shortage of 140,000 to 190,000 people with deep analytical skills as well as 1.5 million managers and analysts to analyse Big Data and make decisions based on their findings. Added to which the Corporate Executive Board says that even as companies invest eight- and nine-figure sums to derive insight from information streaming in from suppliers and customers, less than 40 percent of employees have sufficiently mature processes and skills to do so.
Big Data is a phenomenon that the CFO cannot ignore. The broadening of information requirements and initiatives such as integrated reporting will entail the handling of more data sources and even more information. Big Data might not have arrived in the finance function just yet, but the writing is on the wall. This is a good time for CFOs to huddle with their CIOs to discuss and develop a strategy for managing and leveraging Big Data for competitive advantage.