Open Framework, Information Management Strategy & Collaborative Governance | Data & Social Methodology - MIKE2.0 Methodology
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Information is the new accounting

From MIKE2.0 Methodology

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In the past forty years, computing has penetrated business to such an extent that it is almost impossible to imagine a successful business that isn’t built upon a successful information technology strategy. Despite the tight coupling of business activity and technology there is often very little understanding by executives of what’s really happening inside their business and the way that information has become the blood in their veins.

The first assumption that many make is that all aspects of information relate to IT and it is simply something for the techies to worry about. Imagine if modern accounting was an invention of the past decade. Given the heavy use of computer technology, it’s very likely that the entire discipline would be regarded as part of IT.

Have a think about the amount of non-ledger information that your company relies on. Business leaders are rapidly changing their view of information from seeing it as a tool to monitor their business to thinking of it as being the business. Information exists in every product, service and activity in every corner of your business. It is stored in documents, databases, spreadsheets, applications and the heads of the staff that run the business. It is potentially one of, if not the, largest asset held by any organisation.

The trouble is, this already vast and growing quantity of information has only appeared in a little over a decade and has been entirely enabled as a result of new computer technology. No wonder many businesses treat information as a problem for the IT department to sort out. But is that really the right place to drive strategic decisions?

CIO, CFO or COO who really owns the data?

Most Chief Information Officers (CIOs) have ambitions of making the “I” in their title more than just an aspiration, but there is a strong argument that such a change is actually too much of a deviation from the facilities and operational management roles that make up the majority of their roles today.

Many organisations are beginning to introduce the role of Chief Data Officer (CDO) to take responsibility for non-ledger data across the enterprise. The CDO typically doesn’t sit in IT, but rather has an operational alignment with the COO or CFO.

Most organisations that have a CDO have done so to provide a layer of governance over data and compliance activities, the most common of which has been Basel II risk activities in the financial services sector. Like their IT cousins, the CDO may find it a substantial stretch to move from an operations role to elevating information to an executive topic.

That leaves two “big table” roles: the Chief Financial Officer and the Chief Operating Officer. Depending on personalities both have the ability to leverage the huge mass of information held.

The growth of information has taken place at the same time as significant advances in information management (IM) techniques. Most IM practitioners agree that successful organisations leverage the principles of information economics and monetise information in a way that drives positive behaviours.

With lines of business being measured by individual ledgers, it is important that the information asset that they hold on behalf of the company is reflected both on the balance sheet but also in the transactions that they perform. It is only in this way that organisations can really reward and encourage the sharing of customer, product or other information in a way that benefits the whole business.

Just as importantly, this linkage helps drive a reconciliation of non-ledger data with items that are more traditionally governed to the satisfaction of the board. As more non-ledger data finds its way into external reporting, this is becoming critical. Businesses only need to consider the requirement to combine production and other activity data with financial metrics to support carbon reporting to understand the importance of combining ledger and non-ledger data.

Clearly champions are needed for the role of information in the business and these people need to be involved in the governance, transformation and operations of every part of the business. They need to be part CFO, COO and CIO. They also need to be involved in every major operational and strategic decision that the organisation makes. By understanding the business as a whole as well as the role that complex data plays, they can show that information is the right tool to use to design the ideal business model that maximises shareholder value.

Changing Business Models

Historically, business has been heavily decentralised. A very good example is the banking industry where a bank branch manager in the 1970s and 1980s had considerable executive authority and prestige. The advent of centralised information has allowed head-office to take over the day-to-day running, approval and review of transactions, ultimately leading to today’s branch manager generally having a greatly reduced role and responsibility.

Access to complex information covering all aspects of business has coincided with a seismic shift to centralised power and control. Examples of this can be seen in almost every industry sector from retail through manufacturing, logistics, telecommunications and financial services. Of course, one of the problems of this approach is the ability for small head-office errors to be magnified many times. Where an error in the ledger at a single branch is limited to that small part of the business, a similar error made at head office affects the whole business and can easily represent a material proportion of the entire company’s financial results.

The success or failure of every business can be directly tied to their successful use of complex information. Many leaders understand that information is complex and many businesses have lost a great deal of money through an inability to steer a course through that complexity. At the same time, leaders are beginning to understand that oversimplifying the information, while creating a streamlined business, erodes the sophistication and competitiveness of most business models. The winner finds the right balance, understands how to make information a tool for change and elevates its management to the same level of focus as financial accounting.

Conclusion

Robin Morgan, a feminist writer, once said that “information is power”. Armed for the first time with masses of information, head-office business executives have wielded previously unimaginable power, taking over not only broad strategy but the minutia of transaction review and approval. Morgan’s hypothesis was that those armed with information are tempted to conceal it from others and use it to exercise control. Many staff in large organisations today regularly complain about their access to information and the lack of discretion they are permitted in the fulfilment of their jobs. The excuse most commonly given for the concealment of information is market regulation (such as the prohibition of insider trading) or commercial sensitivities (such as those used by government to avoid disclosing dealings with the private sector).

It is worth considering whether information is hidden from wider view, due to a lack of confidence in its quality. This is particularly relevant if published results are derived from the detail and there could be a genuine fear that independent analysis (even within their own ranks) of the data could yield different and challenging results.

Every organisation needs to ask itself whether it is using information to create the most dynamic, responsive and adaptable enterprise possible. It is useful to ask questions such as:

  • Is information available to everyone who can use it?
  • Does the centralisation or decentralisation model used support the flow of information from shop floor to the board?
  • Are individuals in the business always willing to share detailed data (and what is driving this behaviour)?

If the answer to any of these questions is no then it is worth considering changing the status quo for the benefit of everyone in the business. Creating a champion for information and rewarding the appropriate use of complex data are two of the most important steps any management team came make.

Realising that information is one of the key enablers of business success means that organisational strategy should make access to this information one of its key principles. Today non-ledger information is as fundamental, if not more so, to business than the traditional financial measures. For this reason it won’t be long before executives and boards recognise that information is the new accounting.

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