Today’s technological world encompasses a whirlwind of big data – data governance, data analytics, data science, data protection, data architecture and data assets – which makes for a challenging and fast-changing business environment for financial institutions.
Within this fluctuating environment, with its multitude of change and heightened regulatory scrutiny, the role of the chief data officer (CDO) is becoming ever more important as financial services firms come under increasing pressure to implement a robust data management strategy.
This assertion is borne out by a May 2015 report from Capgemini Consulting and Efma, ‘Stewarding Data: Why Financial Services Firms Need a Chief Data Officer’, which reveals that 79 percent of financial institutions believe the ability to extract value from big data is crucial to their future success.
That said, and despite a June 2015 ‘Chief Data Officer (CDO) Forum Review’ stating that there has been “a marked increase” in the appointment of CDOs in the past two years, only a paltry 16 percent of financial services firms current have a CDO on the payroll, and those that do tend to have them focused on compliance matters rather than data analytics.
Yet there is consensus that having a CDO onboard to drive overall strategy and deliver data-driven innovation and growth through the monetisation of data is a key element in achieving success.
When all things are considered, it would appear that the time of the CDO has arrived.
The evolving role of the CDO
Clearly, the role of the CDO is rapidly gaining prominence. According to the CDO Forum Review, the American information technology research and advisory firm Gartner has predicted that 25 percent of large global organisations will have appointed a CDO by the end of 2015. With this in mind, and considering the burgeoning status and challenging nature of the role, it is but a short step to asking where the CDO should sit within the corporate hierarchy.
“For maximum impact, influence and success, a CDO should report to the CEO,” believes Adam Plom, production director at the Chief Data Officer Forum. “Although this can cause friction, data will drive the future success of all businesses, particularly financial services and, therefore, they need an advocate of their data – somebody to leverage their data to drive business.” Mr Plom’s concern as to the potential for friction throughout a hierarchy stems from his belief that a chief operating officer, chief marketing officer, chief financial officer and chief information officer may well resent a CDO rapidly ascending the corporate hierarchy.
“CDOs should be held in the same esteem and importance as CIOs, with both reporting to a COO even a CEO,” suggests Zhiwei Jiang, the global head of insights and data practice at Capgemini Financial Services. “The ultimate goal of a CDO is to drive business transformation and deliver business values. Within financial services that means delivering revenue growth, cost savings targets and meeting regulatory requirements.” Often, however, explains Mr Jiang, corporate structures can constrain the authority of the CDO office and limit the business value of CDO investments.
When first appointed, a CDO will often need to overcome myriad constraints imposed by an organisation’s existing corporate structure. It could be that there is a company-wide lack of understanding about the mechanics of the role. Or it may be that some harbour doubts over the validity of the position. It would seem, overall, that organisational alignment is certainly an issue for the CDO role.
One constraint, observes Jonathan Fairtlough, managing director of the cyber investigations practice at Kroll, is the lack of coordination caused by the silo effect – a common problem in organisations with multiple data sources and constituencies. “Each group seeks to maximise its own data structure and support. These legacy structures can inhibit the centralisation of data and processing functions needed to make the CDO position effective. Often this silo effect is tied in with privacy issues regarding data, particularly with the issues of privacy law and regulatory compliance,” he says.
For Mr Plom, difficulties integrating the CDO into the organisational structure are often down to misconceptions over the role and an understanding of what it is intended to achieve.“Many of the CDOs that we speak to suggest that to ensure the greatest chance of success, newly-appointed CDOs should spend as much time as possible speaking to all lines of the business at all levels. In doing so, they get to understand their needs, challenges and wants, and then begin to paint a picture as to how they can help. Much of the problem is communicating that a CDO is there to help, not hinder,” he adds.
Withstanding regulatory scrutiny
The responsibility for implementing a robust and effective big data strategy is the CDO’s raison d’être. In today’s highly regulated environment, financial institutions need their data to fully comply with a plethora of rules and regulations that are likely to become ever more acute.
This requirement to align their systems with stringent regulatory frameworks is a formidable task for financial institutions, believes Wah-Kwan Lin, a product associate and data scientist at Lavastorm Analytics. “It is not uncommon for financial institutions to be dependent on legacy and non-transparent data collection systems,” says Mr Lin. “Unfortunately, such a condition makes it highly probable for financial institutions to fail to properly record transactions and maintain audit trails in conformity with increasingly stringent regulations. Such shortcomings often manifest in millions of dollars’ worth of fines and compromised reputations associated with failures to adequately adhere to regulations.
“Financial institutions can narrow data shortfalls by appointing CDOs to implement robust, automated and holistic data management and processing systems. The ideal state would be for a financial institution to be operating with a system that can not only handle big data, but that can generate good data built on sources spread throughout a corporation while preserving clear data lineage – such as by unambiguously mapping out the source and path of disparate pieces of data – that satisfies regulators and auditors.”
Of course, the need to satisfy increasing regulatory scrutiny is precisely the reason why the CDO role is gaining in prominence, according to Mr Plom. “Increasing regulatory scrutiny is the original catalyst for the implementation of the CDO role,” he says. “With over $100bn worth of fines handed out to US financial institutions, and the implementation of further laws and regulations, it became apparent that organisations required somebody solely dedicated to their data and ensuring that it is properly governed and remains compliant.”
Optimising business performance
The CDO has now been designated as the new possessor of responsibility for big data and analytics within the organisational structure of a business. Furthermore, the decision as to when to introduce big data and analytics into the business mix is a crucial one – not only to establish integration as quickly as possible, but to enhance business performance and prospects.
In recent years, there has been great use of data analytics in the public sector and with retailers – but the financial services industry is lagging behind. “There are three different ways that an organisation can use data analytics,” explains Mr Jiang. “Firstly, to start analysing what data assets an organisation owns and what issues are arising. Secondly, to deliver business values, such as customer analytics and data quality improvements. And thirdly, to drive business transformations and change business models – the ultimate goal of data analytics.” He adds that optimum performance is reached through the combination of a data-centric culture, a robust data platform and talent that is not just limited to data architects, data modellers and data scientists.
Likewise, Mr Fairtlough is adamant about the impact that data analytics can have on the business dynamic. “Data is not simply a by-product of a business process – it is a mosaic of the life of the business. Looked at properly, it gives a view of the business and its customers. Used effectively, it can identify untapped needs, bottlenecks to productivity and pending market shifts. But recognise that just saying you want to use data analytics isn’t a guarantee of the value you’ll achieve. It has to be done right and with recognition of the need for appropriately protecting your data,” he says.
CDO: a fad or the future?
The CDO Forum Review has it that the CDO role will multiply exponentially across industry sectors over the next few years – a view shared by the Forum’s membership, which includes the likes of IBM, Gartner, Capgemini and Cloudera. However, in light of the apparent wealth of evidence that says the CDO role is here to stay, is there any substance at all to the charge that CDOs will ultimately amount to no more than a contemporary fad rather than a portent of the future? This seems unlikely.
“In the past 12 months, it has been estimated that the amount of global CDOs has almost doubled,” notes Mr Plom. “This will continue in all types of organisations, from multinational financial institutions to Silicon Valley tech start ups. Organisations everywhere are realising the value that CDOs can bring to their enterprise. There is certainly an argument that the CDO role could prove to be a fad, but I believe that to be unfounded.”
Anticipating a reckoning, Mr Jiang sees a clear divergence developing within financial services, between those who understand the true value of a CDO and those that do not. “Those that recognise the worth of a CDO are driving business changes and delivering business values, such as credit card companies and some regional banks,” he says. “Those who don’t are busy drawing data flow diagrams and struggling to implement business changes – these CDOs won’t last more than 18 months, unfortunately.”
Many observers believe the opportunities are endless and a successful CDO can transform a business with the help and support of their office or teams. “Some CDOs have even progressed into CEO roles, and in doing so the CDO role has remained within their organisation. By the end of this year, a quarter of large global organisations will have appointed a CDO. By 2016, that statistic will have undoubtedly increased,” says Mr Plom.
It seems inevitable that companies will increasingly become aware of the pains and burdens caused by misguided data practices, according to Mr Lin. “As a result, we should expect the role of CDO to become increasingly prevalent and pivotal across the coming months and years. So long as data remains critical to business success, CDOs will remain a role of great importance.”
© Financier Worldwide