Financial data permeates every aspect of an organization, and while balanced scorecards and key performance indicators define nonfinancial metrics such as operational productivity, unit sales and staff turnover, the bottom line is that this operational data invariably translates into hard financial data at the end of the day. Of course, financial data is stock and trade for the CFO. However, the heavy reliance on financial data to drive business strategies is being substantially diluted by a more modern approach that relies on more timely and relevant data. This has been made possible by the broad uptake of technology, both from within and outside of the organization. To explore why this is so, and its impact on the role of the CFO, let's wind the clock back in time to the predigital age.
Modern IT departments have their origins in the processing of financial and other back-office data, the vast majority of which was based on available -- and therefore outdated -- data. The lag in time between that data and the subsequent strategic and managerial decisions that were made based on the information could take months, or even longer.
Fast forward to 2016. Contemporary businesses have become, for the most part, dependent on effective IT systems to define and support most business processes. Case in point: A number of retail outlets have systems that use real-time checkout activities -- both in the store or online -- that automatically trigger replenishment orders to suppliers. In this example, all operational -- and some strategic -- decisions would be driven by nonfinancial data.
Organizational adaptability hinges on a timely and appropriate response to change. Developing systems that use data from inside and outside the organization to help drive business processes can increase agility and transform enterprise strategic and operational decision making, and, in turn, enable companies to gain a competitive edge.
As part of this adaptability, it's important to consider including the practice of "feedforward" -- rather than solely relying on feedback -- to manage change. Feedforward looks ahead. It drives decisions based on a broader knowledge of the overall process that is context specific. Increasingly, the use of smart, predictive analytics based on near-real-time data drawn from multiple sources is driving a feedforward process. Yet many organizations continue to use feedback, which looks backward at historic data in an effort to drive future decisions.
What’s this got to do with your role as a CFO, I hear you ask? To help your organization gain a competitive edge and help lead it in building an adaptive capability, an imperative in today's business landscape, you need to become a CFO who understands the nonfinancial data as well as, if not better than, the financial data. In this way, you can become a leader who can help drive a more predictive approach to using data as a pathway to making the best decisions for your company.
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