How data-driven is your finance team? How to build a data-driven culture

Data is a hot topic for modern organizations. From learning to properly collect, structure, and secure data to analyzing the available information to derive meaningful insights for their business, teams everywhere are looking for ways to capitalize on the benefits offered by a data-driven culture. 

This cultural shift doesn’t end with the finance team. Effective data analysis empowers finance leaders with the insights and information necessary to make well-informed decisions, optimize financial resources, manage risks effectively, and drive strategic growth. It is an essential tool in today's data-driven business landscape, enabling finance leaders to navigate complex challenges and unlock the full potential of their organizations.

The finance organization is transitioning from data consumers to data owners and drivers, reflecting the CFO's shift from a business management role to more of a business operations role. With company investments in data analytics and architecture, CFOs are increasingly asked to craft effective data strategies. To drive these changes, CFOs are broadening the scope of their finance teams to include data & analytics teams, aiming to break down information silos and effectively align the organization with its long-term strategic objectives.

The true meaning of a data-driven culture

Being a data-driven finance team means using data as a core part of your decision-making process rather than relying solely on intuition, experience, or traditional financial indicators. This transformation is a shift from a backward-looking role, reporting on what has happened, to a forward-looking role, forecasting future trends and providing strategic insights. It encourages curiosity, experimentation, and fact-based decision-making, paving the way for greater efficiency, innovation, and growth. 

For example, suppose a company is deciding whether to launch a new product line. In a traditional approach, the finance team might evaluate this decision based purely on historical financial data and their intuition or experience. They might look at the profits generated by existing products, the costs associated with launching a new product line, and consider the overall economic climate. They may also lean heavily on their previous experience with similar product launches.

While these factors are important, they don't provide a complete picture. They're based on past data and might not accurately predict future performance. They also don't account for factors outside the financial realm, such as customer behavior or market trends.

Data-driven finance teams would do the above and incorporate a wide range of additional data (preferably real-time data) into their decision-making process. In addition to financial data, they might analyze the following:

• Customer data: Customer behavior and preferences analysis could help predict demand for the new product. They might look at data from customer surveys, online behavior, or customer purchasing patterns.
• Market data: They could analyze market trends, competitive landscape, and industry growth projections to evaluate the potential success of the new product line.
• Operational data: They might analyze internal data on production capacity, supply chain efficiency, or time-to-market to assess whether the company is equipped to launch a new product.
• Predictive analytics: They could use advanced analytics to forecast the financial impact of the new product launch, considering various scenarios and their likelihood.

Evaluate your current state: How data-driven is your Finance team?

Finance teams' relationship with data can be both special and challenging. Finance seldom owns the data pipelines yet is invariably held accountable for data quality. Finance's data needs are of the highest fidelity, so it benefits Finance to actively participate in data structure and governance. 

For Finance teams seeking to create a data-driven culture, you must first assess your current state. Here are some key questions to ask:

1. Does your team regularly use data to make decisions, or are decisions often based on intuition or precedent? 
2. Do you have the right tools and technologies in place to collect, manage, and analyze data?
3. How data literate is your team? 
4. Are data and insights readily accessible to all team members? Are there silos blocking insights?
5. Is there a clear data governance structure in place?

A finance leader’s role in establishing a data-driven culture

Finance and Accounting teams are already seen as custodians of the organization's financial data. Leverage that knowledge to become a champion of data throughout the organization. Building a data-driven culture requires deliberate, consistent effort. 

Start with the following:

• Champion the value of data. Actively promote the importance and value of data in decision-making processes. Share examples and success stories where data-driven decisions have led to positive outcomes.
• Invest in data literacy training. Equip your team with the skills they need to understand and interpret data. This might involve formal training programs, workshops, or online courses.
• Lead the way with consistent data structure and good data hygiene. Ensure a consistent data structure across all databases and tools. This includes consistent naming conventions for dimensions and categories and consistent metric definitions. 
• Implement data management tools and systems. Invest in the right technologies to collect, store, process, and analyze data. Ensure these systems are user-friendly and meet the specific needs of your team. Leverage FP&A software tools that have built-in features for maintaining data hygiene and structure. These tools can automate many of the tasks involved in data hygiene and structure maintenance. 
• Establish clear data governance policies. Work cross-functionally to develop and communicate clear data usage, privacy, and management policies. This will build trust and ensure everyone understands how data should be handled.
• Integrate data into decision-making processes. Make data a central part of all decision-making processes. This might involve setting up regular data analysis sessions, incorporating data into meeting agendas, or using data to inform strategy discussions.
• Celebrate success. Recognize and reward the use of data in decision-making. This will encourage the continued use of data and reinforce its value.

Leading the charge toward a data-driven future

The shift to a data-driven culture creates new opportunities and competitive advantages. As you drive this cultural change, remember that integrating advanced data practices into your strategic arsenal can lead to new and improved business models, increased operational efficiencies, and better risk management. Promoting a data-centric culture can make your organization more resilient and adaptable to future changes.

This data-driven transformation also allows finance leaders to redefine their roles, expanding their influence and impact beyond traditional finance functions. You have the opportunity to become a strategic partner in your organization, harnessing the power of data to drive decisions, shape strategies, and spur innovation.