Chief Data Officer: do not manage finance, manage trust.
Acknowledge that trust is more powerful than numbers, and make finance your ally.
Why you need to make finance play for you
As a Chief Data Officer, finance can sometimes feel like an obstacle to your ambitions. When you are deeply convinced of the ROI, it is frustrating to see how much energy you need to justify your investments.
Your data scientists need room for exploration. Your teams need to grow faster to meet the digital ambitions of the CEO. Your Data lab needs to fail nine times to succeed once. Who knows what will be the cloud computing bill at the end of the month? Uncertainty in inherent to a Data organization. This uncertainty might be acceptable given the expected returns, but it makes your CFO nervous. At the same time, the CEO always pushes you to deliver faster. Isn’t that cruel ?
My personal financial rollercoaster ride
In Data Science Manager life, financial control has often been a source of frustration. It brought extreme highs and equally extreme lows. Once, I raised 2M€ with a single powerpoint slide. Another time I had to gather my team before the scrum board to announce they needed to find a new mission. Our million euro demand forecast algorithm project was stopped overnight. There was no more financing for this project we’ve worked so hard on anymore.
I know I am not the only manager in Data strapped in this emotional roller coaster. Luckily, my Executive MBA gave me some new tools to better navigate between high expectations from the management and financial control constraints. This article describes how I believe CDOs could think about finance in order to turn it to their advantage.
Do not think in terms of financial systems. Think in terms of trust.
Finance might seem very technical and quantitative to outsiders. But in essence, it is a just tool to create trust between the company’s managers and their investors.
Finance is a tool to create trust between the company and its investors.
To illustrate this, consider the case of Elizabeth’s Holmes, the founder of Theranos. In her early thirties, her company was so successful she made it to Time magazine’s “100 most influential people”. After a scandal revealing her revolutionary technology were a bunch of lies, she found a new spot in Fortune’s “19 most disappointing leaders”. Forbes cut its estimate of her net worth from $4.5 billion to zero overnight.
When you are in this kind of crisis of trust, no financial statements or financial auditors will save you. Now we understand the goal of finance is to create trust with your investors. Let’s examine the two ingredients required for this: transparency and performance.
Create transparency
The CDO should build the data financial control system around three pillars.
The first pillar is to upgrade data from a cost center to an investment center. If you want digital and data to drive the company, you cannot act as a support function following passively the “real” business units. Rather, you want to manage your data projects like an investment center. You want to pull the whole value chain towards value creation. It means you want to define your KPIs centered around value creation rather than on development cost efficiency.
The second pillar is to have business unit co-own the control system. Instead of setting up a financial system independently, you want the business teams to build the system with you so that they can trust it as much as you do. If you don’t get any resistance from your partner business units in the process, you probably did not get their true commitment and you can expect it to backfire later.
The third pillar is to enforce best financial control practices. The level of financial sophistication you will need will depend on your business. Maybe you don’t need to use the net present value rule to assess all your projects. Still, make sure you know the last best practices and create a discussion around it with your financial and business teams. This is a useful approach to create discussion. The healthy conflict that it will generate will seal commitment from your stakeholders.
Prove yourself
Once you have established transparency, you need to show healthy and consistent performance.
Performance, in financial terms, means crossing the “wall” of expected returns. Your capital providers had many investment opportunities before them but they invested in your company because they expect a superior return on their money given the associated risks.
This level of expected return can be thought of as a “wall”. Corporate managers try to climb this wall and get across it. Investors will bet on those managers they believe are the strongest candidates to cross the wall. Because the challenge is high, they prefer to bet on those managers who seem to have a plan and report clearly on it. This is the transparency I described in the previous paragraph. They also prefer to bet on managers who have a consistent track record of crossing the wall. This is performance consistency, and this is why it is important as a CDO to show this history of success.
This idea of wall comes with various implications:
- The level of the wall does not only measure profit and loss statements performance. It could include other valuable elements like ESG initiatives or promising data projects in the pipeline. In the case of a listed company, the increase in share price participates to expected return. This increase in share price arises not only from top and bottom line growth, but also from the financial story the company tells. For example, while ESG is a growing part of this story, most CFOs today complain that all ESG efforts and results are not reflected by investors valuation. As a CDO, you can tell sexy stories about some of your data use cases, but make sure your CFO knows how to leverage them for financial communication. You could start by asking your CFO what kind of stories she thinks would most likely be valued by investors.
- It’s not only about you and the wall. It’s about your competitors ability to cross the wall also. What are your competitors doing data-wise ? What AI models did they push to production ? Do not only think about what you achieved or plan to do, but what your competitors are doing in contrast. If you are not watching your competitors, your investors surely are.
- You will need a strong sponsor (ideally at the executive committee) for each one of your main projects. This sponsor will provide healthy challenge and in return help introduce the value story to the board room.
Takeaway: trust is more powerful than numbers
When Microsoft acquired LinkedIn, they paid a mind blowing $26 billion for a valuation everybody estimated at $16 bilion.
This illustrates on crucial lesson: Numbers are merely a starting point for discussion. At the end of the day, it’s the trust you build with your stakeholders that make a difference. Use numbers and systems as an opportunity to demonstrate your willingness to deeply engage with your stakeholders, understand their needs. In other words, use finance to be a team player and a leader. Create transparency, then demonstrate performance.
Use finance as an instrument to create trust.
About me
Hi, I am a Data Science Manager and an Executive MBA student. I study how Chief Data Officers can leverage the best practices of Tech and Business Management to lead their companies through successful transformation.
Originally published at https://www.linkedin.com.
