Published : Nov. 6, 2013 - 19:29
Joseph Kern, CFO of IBM Korea
CFO means “chief financial officer.” But, increasingly, I think it has an even bigger meaning. At some top-performing finance organizations, the “F” from CFO is taking on the meaning of “future.”
The CFO is the person in most companies who is in the best position to harness the expanding flood of data that can be used to inform and drive corporate strategy. We can’t just be scorekeepers. We need to help the company score ― meaning discovering new revenue growth opportunities.
We need to understand how unstructured data, from call center records to warranty reports, can predict the future. We need to see how publicly available data such as credit card records and telephone-traffic logs can uncover new opportunities. Instead of shining a spotlight on the past to show how we arrived, we need to shine headlights on the future that tell us where to go.
CFOs have to collect and report the company’s sales and profits, of course. But that’s no longer our main job. We need to establish systems to acquire and use data on a wide range of items to guide the company’s strategic plan. The goal is to make sure the company is making decisions based on real data rather than the gut instinct of the HIPPO ― “highest-paid position” ― in the room.
At IBM, we try to use real data to make the right decisions. One of the most important things the company does to grow its business is make acquisitions. We make lots of them, most of which are pretty small relative to our revenue and market cap. In aggregate they have been a key part of our growth strategy and maintaining our technological leadership.
A few years ago, we asked our research department to look at up to 500 variables related to making acquisitions. They were able to pick out three to five variables for each acquired company that must go right for the acquisition to be successful. Today, knowing those variables is helping to shape the way we pick our acquisition targets and the way we integrate their operations. About 90 percent of our acquisitions are successful; nationally broad studies of merger and acquisition activity show that less than half of all acquisitions increase corporate value.
CFOs at other companies are using data to help plot their companies’ futures. When a consumer products giant wanted to expand in another geographic area for disposable diapers, it was the CFO who brought together procurement, manufacturing and product development people to come up with a plan to sell premium-priced products. At Pioneer West Virginia, a federal credit union, the CFO spearheaded a data-analytics approach to delinquent loans, creating an early warning system for counseling and loan restructuring that cut the delinquency rate by 95 percent.
One of the most important jobs for the CFO is to make sure that there is one version of the truth that is used across the company. That’s harder than it sounds. Over the years, many companies have developed silos of information built around particular marketing efforts or product lines. Acquisitions that have their own computer systems present an added challenge. Standardizing accounting worldwide is something every CFO has worked on. Standardizing the treatment of unstructured data is a new challenge, and it’s one that CFOs need to embrace.
Having common, integrated data isn’t just nice. It’s the key to making the company agile. If every new initiative requires converting and reconciling existing data for new purposes, it slows the company down dramatically ― thereby missing potential new opportunities in the marketplace.
CFOs need to work with their CIO counterparts to make that happen. According to a recent survey by IBM, 39 percent of CIOs ― the chief information officers, in charge of computer use at a company ― report to the CFO. Computer infrastructure has long been required for running supply chains and monitoring finances. The CFO has to make sure that the infrastructure is in place to assess future risks and look for future rewards.
A data analytics infrastructure isn’t just a “nice-to-have.” It has to be a priority. IBM’s recent studies show that companies that apply advanced analytics have 33 percent more revenue growth and 12 times more profit growth than companies that don’t.
The CFO can’t just sit back and report what happened to the company. We need to lean forward and use hard data to help predict the future for the company.
By Joseph Kern
The writer is chief financial officer and vice president of IBM Korea. The opinions reflected in the article are his own. ― Ed.