Big Data and the boardroom
Corporate boards have relied on “Big Data” since the advent of the adding machine. But this decision-making discipline based on quantitative, numeric information was mostly limited to the compilation, analysis and presentation of individual financial transactions. These transactions are historically rolled into a handful of leading indicators – the numbers we use to oversee a company – e.g., earnings per share, cash flows and inventory vs. sales.
Businesses today now collect billions of additional pieces of digital information on customers, processes, products, competitors and employees. Very few of these bits and bytes of information are significant on their own. But, if compiled in totality and analyzed with today’s powerful computing platforms, they provide vital new insights. As directors, how do we guide management to gather and analyze the data that will enable us to assess performance and make better decisions? How are our management teams incorporating predictive modeling and fact-driven decision-making into the business? What investment is required to make our companies “Big Data”-ready?
This focus on data was not an issue for most boards five years ago; however, today, almost all boardrooms in companies of all sizes have started looking at these questions. Corporate boards have always been tasked with managing risk and, with the advent of cyber security concerns, directors now pay much more attention. When you start looking at data from all angles, you think of new ways to use it not only to manage risk, but to increase profitability as well. Data is bigger than ever with the electronic presence of businesses, primarily through their own websites increasing dramatically in electronic commerce.
In addition to more data being generated by e-commerce, a veritable explosion in sensor data is occurring as well. For example: Just one engine on a jet flying across the country has enough sensors on board to churn out terabytes of data every hour of operation, capturing information ranging from fuel consumption at different altitudes to speeds and structural stress with different loads. Mechanical performance expressed with such numerics can drive the analytics that will inform everything from fuel mixtures and flight scheduling to how to design the next competitively superior engine.
On the consumer side, companies are capturing not just more transaction data, but monitoring what buyers and prospects do, where they go, and how they react to different input. Management is able to make accurate predictions on what customers are going to buy next, when they are going to do it and, perhaps more importantly, what might influence them to accelerate a purchasing decision.
Companies also use big data with employees. Even small companies are producing gigabytes of data every day on what employees are doing and how they spend their time. These practices are opening entirely new, and very controversial, areas of human resource management. What employee behaviors lead to advancement? Which ones lead to demotion and termination?
Few, if any, set formulas exist for using data like this, but boards of directors are, or should be, asking what should our company do with all this information. Most big data analytics are focused on increasing speed and productivity of business and manufacturing processes, and employee efficiencies in relation to productivity and reaction time in changing conditions.
Many companies that conduct business on the web are turning over business processes to algorithms that respond immediately to customer input, which allows some of the biggest technology powerhouses like Google and Facebook to benchmark and deliver customers everything from a better search experience to which ad to place in front of them at the right time. In just the last few years, Facebook has put big data advertising analytics into the hands of the smallest “mom and pop” family business.
Advertisers of all sizes are fine-tuning their market segmentation, and reaching customers they never knew were there. Marketers are becoming more like data scientists. Product designers are using big data derived from customer feedback and experience to plan their next products, and to make their existing products work better, do more and last longer.
Many boards of directors are learning for the first time how to obtain more information about their businesses, and how to use that to shape their decisions, determine the way they allocate budgets and resources, and establish the metrics used to judge overall performance in virtually every department and division of any size business. Directors of companies in almost every business category are asking how they can focus their business managers to think about obtaining more insight from available data. Boards are also asking themselves where does this responsibility lie, and how do you cause these new metrics and efficiencies to happen.
Not only must there be infrastructure and budgets to implement such initiatives, companies need to determine if this is a CIO or a CFO function. Is it a strategic initiative that can be directed by the board requiring C-suite involvement or the hiring of specialists, or is it more a tactical function that must be designed and implemented by line employees and technicians?
How does a board of directors deal with these issues? Who decides who has what access to a company’s data? A recent Stanford University study showed that nearly half of all companies are at least addressing these issues at the board level, up from almost zero a few years ago. They may be using new tools, but corporate boards still focus on their traditional areas of responsibility when it comes to using big data: how does their company make money, how can they improve their processes and reduce costs, and what can they adjust at the most granular level to achieve the highest performance?
Today’s corporate director must learn how to grasp and use these incredibly powerful analytic tools to drive the critical business decisions. The bottom line is this: if you’re not using big data to manage your business, you are probably throwing darts at the dartboard at best, and driving blind at worst.
To learn more about this evolving subject, go here for a NACD-Colorado program on Nov. 19.