The alchemist in his lab turning common materials into valuable and rare elements
The alchemist in his lab turning common materials into valuable and rare elements

“Alchemy is taking something ordinary and turning it into something extraordinary, sometimes in a way that cannot be explained.”
― Kenneth Coombs, Tarot Alchemy: A Complete Analysis of the Major Arcana

Almost no-one talks about alchemy anymore1, except perhaps in a spiritual sense.  The notion of turning a base metal such as lead into gold may have held attraction in a society where all but a few lived lives of meager possessions and possibilities.  Today we endure a glut of physical possessions and our “gold” is represented by a bunch of zeros and ones in a bank or brokerage computer system somewhere.

Let’s spend a little time together thinking about an idea that people are talking about today, that is radically transforming our lives and the businesses we (sometimes) trust with our data.  Facebook, Amazon, Google, and Apple are household names of global companies that have modern-day alchemists, now called data scientists, at work spinning your data into their gold.  This blog will be the first of three that discuss

  • Why every CEO says they value data, yet they do nothing with it
  • How businesses and non-profits are turning data into gold, or streams of revenue
  • What is needed to get started spinning your organization’s data into gold, or revenue

As a much needed bonus, we’ll also be talking about what happens to those who hold onto the status quo.  Hint:  Don’t choose status quo as your data strategy.

Let’s begin.

There are a lot of C’s in the C-suite.  A few come to mind that are more familiar such as CEO, CFO, COO (Chief Executive Officer, Financial Officer, and Operations Officer respectively).  This trio owns the decisions that direct the activities of the organization, determine the sources and uses of funds and assets, and figure out how the organization will deliver its goods or services or both.

The CFO focuses on a measurable asset, in the US that is dollars, and a few key measures such as available cash, amounts owed to others, and amounts owed to the business.  As long as the business or non-profit has cash on hand and maintains a positive cash flow, there is no immediate danger of failure.  Accounting for physical and financial assets also happens.  The CFO knows the value of everything from Certificates of Deposit in the bank to the value of the desks and telephones used by the employees of the company.

In a for profit company the CFO will also measure the performance of the assets.  Using basic math other key measures such as ROI (Return on Investment), ROA (Return on Assets), or Return on Sales can be – and are – computed.  The Return is the profit of the organization expressed as a per cent of either the cash invested to produce that return, the value of the assets used to create that return, or even the amount of sales revenue needed to generate that return or profit.

Like player stats such as a baseball player’s batting average, these statistics are helpful comparisons when measuring how well your business is performing compared to others.  They also let us know when it may be better to invest our cash elsewhere or use our assets for other purposes.  In a like manner, a non-profit or not for profit company can divide the expected or actual impact (results) of its investment by the investment (expense associated with the results) in order to compute a not for profit ROI2.

A financial balance sheet showing assets such as cash, furniture, computers at values ranging from $500 to $2,500.  Another set of assets, data and information, appear outside the balance sheet with a value of $1,000,000.  A comment above those assets says "We're assets too!"

The problem with modern (or GAAP – Generally Accepted Accounting Principles) accounting is a focus on financial and physical assets only.  Information technologies are viewed as a cost of doing business.  Worse yet, data itself is assigned no value and no place on the balance sheet.  Data is invisible to the highest levels of management.

More recently, new titles have joined the C-suite, including the CIO and CTO.  Both the Chief Information Officer and Chief Technical Officer exert ownership over the systems, processes, technologies, and skills that collect, manage, protect, and distribute information throughout the organization.  Without an assigned value to data, however, the first priority is always insuring that data is managed to support daily operations.

This makes sense.  If data is not available to insure that products are shipped, clients or customers served, or operational reports created in a timely manner, the not for profit or business would not survive.  An emphasis on short-term results combined with regulatory requirements for protecting personal data combined with security threats ranging from ransomware to viruses means that more effort is made to lock down and protect the data we own.

This “protection” combined with the lack of use for data older than a few weeks or months results in obstacles to accessing data for tactical and strategic purposes.  Managers and executives often make intuitive or “gut” decisions in the absence of true insight.  In short, the data we have lets us look in the rear-view mirror to see what has happened but not through the windshield at what’s ahead of us.

Finally a new role is emerging, that of the Chief Data Officer or CDO.  This role reports to the CEO and is responsible for delivering strategic insights out of the data collected and owned by the organization.  Not every business or not for profit today has a CDO.  The title is less significant than the results delivered by this role. 

Organizations with a CDO invest in collecting data, not just for daily operations, but also to guide strategic decision-making in the future.  Should we open a new facility?  Is there a new base of clients that would benefit from our services or goods?  Have market, technology, or cultural changes impacted that demand for what we deliver or produce?

Placing a value on the strategic importance of data and the insights it reveals turns our data into gold.  A variety of factors from accounting standards to data security to daily operational demands have stopped us from valuing our data in the past.  As we’ll learn in the next part of this series, new technologies now make it possible to predict future events, outcomes, and behaviors.  The results of these analytics allow our businesses and not for profits to optimize those outcomes to the benefit of our customers and clients as well as to our own organizations.

Herb Hess
Data Scientist, Center4BI
herb.hess@center4bi.com

References

1              LeCun vs Rahimi: Has Machine Learning Become Alchemy? Medium.com
https://medium.com/@Synced/lecun-vs-rahimi-has-machine-learning-become-alchemy-21cb1557920d

2              Return on Investment. Not Just a For-Profit-Business Concept.  Kristen Jones, Manager
https://www.dhg.com/Portals/0/ResourceMedia/publications/Not-For-Profit_ROI_DHG-Views.pdf

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