Outside In: Big Data, but how to put them to good use?

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1 Outside In: Big Data, but how to put them to good use? Wim A Van der Stede CIMA Professor of Accounting and Financial Management London School of Economics 15TH JAARCONGRES VAN NBA-VRC UTRECHT 30 OCTOBER

2 Big question? Understanding what it takes for organisations to effectively use relevant information 15TH JAARCONGRES VAN NBA-VRC UTRECHT 30 OCTOBER

3 Big data! Companies are collecting more data than ever before. In the past they were kept in different systems that were unable to talk to each other, such as finance, human resources or customer management. Now [1] the systems are being linked, and [2] firms are using data-mining techniques to get a complete picture of their operations. * * The Economist,A different game (25 Feb 2010) 15TH JAARCONGRES VAN NBA-VRC UTRECHT 30 OCTOBER

4 re [1] systems and data quality Most CIOs admit that their data are of poor quality. In a study by IBM half the managers quizzed did not trust the information on which they had to base decisions. Many say that the technology meant to make sense of it often just produces more data. Instead of finding a needle in the haystack, they are making more hay. * * The Economist, A different game (25 Feb 2010) Design 15TH JAARCONGRES VAN NBA-VRC UTRECHT 30 OCTOBER

Many say that the technology meant to make sense of it often just produces more data.

5 re [1] cont. For the first time in our long-running Key Issues Study program, finance executives ranked improving the quality of data above creating a competitive cost structure as the number one priority. * * Hackett Group,2013 Finance Agenda (21 January 2013) 15TH JAARCONGRES VAN NBA-VRC UTRECHT 30 OCTOBER

executives ranked improving the quality of data above creating a competitive

6 re [2] - using data-mining techniques The problem with managers is that they are human. They have biases; they make mistakes. But with better tools, they can make better decisions. Software that crunches piles of information can spot things that may not be apparent to the naked eye. * * The Economist,Big data (6 April 2013) 15TH JAARCONGRES VAN NBA-VRC UTRECHT 30 OCTOBER

Software that crunches piles of information can spot things that may not be apparent to the

7 But... Torture the data long enough and they will confess to anything * Making the most of data is not easy How to make meaningful inferences? Use * The Economist, A different game (25 Feb 2010) 15TH JAARCONGRES VAN NBA-VRC UTRECHT 30 OCTOBER

8 Designed and used by humans How to have honest, unbiased discussions of information? How to encourage expansive, strategic thinking? 15TH JAARCONGRES VAN NBA-VRC UTRECHT 30 OCTOBER

9 eg, Johnson & Johnson profit 2 nd year plan forecast 5-10 year plans TH JAARCONGRES VAN NBA-VRC UTRECHT 30 OCTOBER

2005 2010 2001 2002 2003 2005 2010 2002 2003 2004 2005 2010 2003 2004 2005 2010

10 How to have honest, unbiased discussions of information? How to encourage expansive thinking? Requires a decoupling from any type of performance evaluation Debiasing will not happen without such decoupling Incentives ruin the strategic discussions 15TH JAARCONGRES VAN NBA-VRC UTRECHT 30 OCTOBER

Requires a decoupling from any type of performance evaluation Debiasing

11 Is the proliferation of data making them increasingly inaccessible? Required employee skills and training? How to extract nuggets of gold from among the dross? Use of analytics to help make organisations sense of their mountains of data? Role of data scientists, software programmers, consultants and business professionals? Are CIOs becoming more prominent in the C-suite? 15TH JAARCONGRES VAN NBA-VRC UTRECHT 30 OCTOBER

Use of analytics to help make organisations sense of their mountains of data?

12 Algorithms and big data are powerful tools. But they must be designed and used by humans. Wisely used, they can help. But because they are designed and used by humans, they can also go horribly wrong. eg, a case where the software rejected every one of many good applicants for a job because the firm in question had specified that they must have held a particular job title one that existed at no other company* * The Economist,Big data (6 April 2013) 15TH JAARCONGRES VAN NBA-VRC UTRECHT 30 OCTOBER

eg, a case where the software rejected every one of many good applicants for a job because the firm in question had specified

13 Big question, big data, big deal! During the financial crisis it became clear that banks and rating agencies had been relying on models which, although they required a vast amount of information to be fed in, failed to reflect financial risk in the real world. This was the first crisis to be sparked by big data and there will be more. * * The Economist,Data, data everywhere (25 Feb 2010) 15TH JAARCONGRES VAN NBA-VRC UTRECHT 30 OCTOBER

although they required a vast amount of information to be fed in, failed to reflect financial risk in the real

14 Outside In: Big Data, but how to put them to good use? Wim A Van der Stede CIMA Professor of Accounting and Financial Management London School of Economics 15TH JAARCONGRES VAN NBA-VRC UTRECHT 30 OCTOBER

DESIGNING EFFECTIVE REWARD SYSTEMS By Wim Van der Stede

DESIGNING EFFECTIVE REWARD SYSTEMS By Wim Van der Stede The attached article was published in the October 2009 issue, no.170, of Finance & Management, the monthly magazine of the ICAEW s Finance and Management