Data & AI

Is your finance organisation future ready?

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I’ve got good news, and I’ve got bad news.

The good news is that the past decade’s technological leaps have enabled finance professionals to gain access to more data than they could have ever dreamt of.

The bad news: management toolkits have not kept up with the growth in volume and complexity we face today. As a result, we fail to make sense of it – or even worse, it confuses and disorients us. The reasons are twofold.

First, our brains aren’t evolved to deal with today’s complex organizational structures. Our grey matter is programmed to focus on a limited number of fundamental goals, like staying safe and warm, having enough to eat, caring for your family… Hence, we need to upgrade our brains, so they can deal with the intricacies of managing modern organizations. That is where today’s technology steps in.

Second, we are using out-of-date management models that prevent us from responding appropriately to today’s realities and that leave us blind to the technological capabilities available now. I’m talking about budgets, which are still at the heart of most large corporations. To understand why I believe that budgets and the mentality they foster are problematic, we need to understand where they come from.

Budgeting: the genesis… and the fall

Budgets were invented in the late 1920s to solve the problem of exercising control over large divisionalized businesses that had become too big for one person to manage. In those days of primitive communication, sparse data and non-existent electronic computation, budgets were conceived as a means of managing decentralization. What we’ve seen happen over the past 30 years or so, is that advances in technology have transformed a tool, originally conceived as a means of facilitating decentralized control, into a means of micromanaging many different elements of organizational performance.

Is this a good thing or a bad thing? Your opinion may depend on how comfortable you are with technocratic styles of management. However, in this era of big data we do have solid scientific reasons to believe that this outdated model is no longer viable. Evidence comes from nature – specifically from the way our brains work. This complex organ has evolved to act purposefully and quickly amidst a bombardment of data – much like what we see happen at modern businesses.

The reason why budgets are the culprit, is that they demand we pay attention to a large set of arbitrary and often trivial targets. In doing so, they constrain our ability to act, and distort our perception of the world. To our brains, that is counterintuitive, as they are programmed to focus on a small number of fundamental life goals.

The problem is the passive nature of our data processing model. We collect data, but then check that data against an arbitrary set of targets. The difference we call ‘performance’ – a word that makes us believe it is possible and sensible to mould the world exactly as we would like it to be. A huge amount of irrelevant and unactionable information overwhelms us in the process – but more importantly, we lose our ability to perceive the world the way it actually is and respond to it accordingly.

Let the data speak for itself

There is light at the end of the tunnel, though. Today’s data and measurement techniques allow us to let the superabundance of data speak for itself. Rather than letting our preconceived notions lead our reality, we can engage with it to reveal messages that would otherwise stay hidden in the heaps of data. This allows organizations to plan and act ‘on the fly’ – in response to reality, rather than guided by wishful thinking.

This requires a change in mentality, and in our ways of targeting and forecasting. I believe cognitive computing will play an increasingly important role in this new approach. Technologies like Watson already help organizations interact with data and move away from the traditional approach of passive data processing. By interrogating data sets on the basis of hypotheses, cognitive technologies mimic the process the brain goes through as we navigate the world. In doing so, Watson enables us to construct realistic models of the world, in line with our fundamental purposes, rather than legitimize our attempts at squeezing the business into a straightjacket of wishful thinking.

Want to learn more about how technology can help you make better financial decisions? Click here.

About Steve Morlidge
Dr. Steve Morlidge is a thought leader in performance and financial management and co-author of “Future Ready: How to Master Business Forecasting” and author of the white paper: “Financial Management in the Fourth Age”. Steve brings a wealth of practical experience to the table, with more than 25 years in senior management including a decade as financial controller of one of Unilever’s largest businesses. He is the author of “Future Ready: How to Master Business Forecasting”, released in 2010, and has also written several journal articles, and contributed to many other books and articles, including “Implementing Beyond Budgeting”, published by Wiley in 2009.

Director at Satori Partners Ltd

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