Big Data & Analytics:

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1 ADVISORY Big Data & Analytics: turning conceptual thinking into powerful results

2 2013 KPMG N.V. 2 A key future challenge for CFOs You cannot have missed the buzz around Big Data & Analytics these days. Expectations about the potential of Big Data & Analytics have skyrocketed following the hype created by the tech industry. When one looks beyond the hype, there are serious opportunities to gain competitive advantage in many sectors. To successfully reap the benefits, executives should adopt a broad perspective on the value of data. For starters, Big Data & Analytics is (not only) about deep analysis of large amounts of data. The true power of Big Data & Analytics only comes to the surface when data from different sources internal and external, both structured and unstructured - is combined. This combination leads to fresh insights, enables the development of innovative products, creates new business models or may lead to substantially higher efficiency in processes. Moreover, Big Data & Analytics is not only about achieving higher business performance (and/or sales) but also about better ways to organise society. We have an almost infinite amount of information at our disposal about all conceivable topics and up to highly detailed levels. And yet, even now we still seem to be unable to control the cost of care, to manage the financial crisis or to solve environmental issues. For the first time in history we can actually look at the details of social interaction, instead of being limited to averages like market indicators or poll results. The effect of this change is profound: we may be able to predict and control market movements, political revolutions and the viability of business plans. In the coming years we will be discovering what this means for society at large. The Big Data & Analytics challenge is therefore not about collecting data, but more about translating data into the knowledge and insights that help to build a better society. The (social) value of this is both unprecedented and inevitable. A new generation will organise society in ways which are still barely conceivable. If we are able to deal properly with the flip side of this development such as privacy issues Big Data & Analytics will not be perceived as Big Brother, but as Big Value. Given this background, it is no wonder that CFOs acknowledge the potential of Big Data & Analytics. In our vision, CFOs should embrace Big Data & Analytics as a key concept to shape a finance function that creates value by making sure Key findings in our research are: CFOs have the ambition of playing a central role in setting up and maintaining Big Data & Analytics strategies. In their vision, the finance function not the IT department should be taking the lead in this field; CFOs believe in Big Data & Analytics potential to gain competitive advantage both in business terms as well as in creating a finance function that is fit for future purposes. CFOs also acknowledge however, that they do not have the proper knowledge and competencies at their disposal to achieve this; Surprisingly, CFOs hardly see any role for Big Data & Analytics in connecting the data of their own organisation with external sources, thereby missing the profound changes that Big Data & Analytics brings. organisations have better insights which support both operational and strategic decisions; a finance function which is thus more a shaper than a controller. The finance function should be inspired by experiences in other areas. Take for instance the knowledge in the medical world which doubles in volume and depth every few years. It s only a matter of time before technology also helps in making strategic decisions in a rapidly changing and complex environment, on the basis of (financial) data on markets, competitors, customers, prices, weather conditions, etc. Companies that do not embrace this technology will probably be out of business because of competitive disadvantage. In revolutionary times like these, missing out on the next game-changing development equals economic suicide. We have seen it with organisations that neglected the emergence of the Internet and we are likely to see it again with the emergence of a data-driven society. The finance function must ensure that the organisation is a front runner in this field. Finance experts can play a major role in transforming information into knowledge that leads to better decisions.

3 2013 KPMG N.V. 3 Introduction Just twenty years ago nobody dared to dream about being digitally inter-connected. Now on the other hand, and looking twenty years into the future, we can see that digital natives will be naturally immersed in data and information. Every day, the world creates the enormous amount of 2.5 quintillion bytes of data. Estimates say that 90 percent of the data in the world today has been created in the last two years alone. As a consequence, Big Data & Analytics is likely to become a key component of competition, underpinning new waves of productivity growth, innovation, and consumer surplus by 2020, as pinpointed by our study Six converging technology trends (2013). 1 In April 2013, KPMG Advisory conducted research involving the finance departments of 170 Dutch companies, to which one third of respondents were in the Chief financial officer position, as illustrated in Figure 1. The main objective of this research was to find out how financial experts perceive Big Data & Analytics in terms of the potential to gain Big Data & Analytics is about so much more than technology, resulting in business ownership rather than IT ownership. insights from large amounts of data (obtained from within and outside the organisation) with the aim of creating additional value. Big Data & Analytics contributes to changes in information and how this information is used to create value for customers and society. The study reveals that finance functions predominantly take the lead in this field, with the IT function involved to a lesser extent. Sander Klous, lead of the KPMG Data & Analytics, acknowledges that IT is not the natural habitat for the analysis and use of Big Data & Analytics: Big Data & Analytics is about so much more than technology, resulting in business ownership rather than IT ownership. The findings of this study are illustrated in three sections, namely: Big Data & Analytics awareness, Big Data & Analytics as a competitive driver Big Data & Analytics: a hot topic on the CFO agenda. Figure 1 Function within the company of respondents 7% 15% 13% 5% 24% 34% Chief financial officer (CFO) Finance director Controller (Concern-, Group-) Director accounting, reporting & control Manager operafons & finance Board member (eg. CEO, COO) Other (eg. Strategic advisor Manager business development) 1 Six converging technology trends (2013)

4 2013 KPMG N.V. 4 Big Data Awareness Of the respondents, 68% indicated that their company does not incorporate Big Data & Analytics in their strategy to optimise internal processes and enhance decision-making (Figure 2). Currently, only one quarter use Big Data & Analytics to improve management information (Figure 3). 41% of respondents expect this to happen within 3 years (Figure 4). Roughly half of the respondents do not see the urgency of using the strategic value of Big Data & Analytics in their organisation, thus placing it beyond the 3-year timeline. Roughly half of the respondents do not see the urgency of using the strategic value of Big Data & Analytics in their organisation. Figure 2 Is Big Data & Analytics a strategic subject of your management team? Yes No 32% 68% 0% 10% 20% 30% 40% 50% 60% 70% 80% Figure 3 Are you using Big Data & Analytics to complete your management information? Yes 24% 32% No 76% 0% 10% 20% 30% 40% 50% 60% 70% 80% Figure 4 Are there plans to enrich your management information using Big Data & Analytics? Yes, within 1 year 13% Yes, within 2 years 17% Yes, within 3 years 11% No 46% I don t know 14% 0% 10% 20% 30% 40% 50% 60% 70% 80%

5 2013 KPMG N.V. 5 Although Big Data & Analytics is a well-known term, awareness of its importance seems to be hampered by uncertainty on the impact of this concept. Although almost 40% perceive Big Data & Analytics as an important strategic topic, more than half of the respondents do not have a clear opinion on the matter (Figure 5). Figure 5 How important do you think it is that Big Data & Analytics should be as part of your strategy? Very unimportant Unimportant Not important, not unimportant Important 2% 8% 37% 52% For instance, respondent organisations that do not possess in-house technical expertise do not see the urgency of Big Data & Analytics, nor do they have the capacity to implement this technology in their business strategy. Other challenges mentioned by our respondents include not having sufficiently relevant data, having insufficient data or poor quality data (Figure 7). Figure 7 Barriers organisations see when implementing strategies around Big Data & Analytics Respondents see broad opportunities for Big Data & Analytics, and especially see potential for improvement of risk management, the quality of service, incorporation of innovation in their offerings, and optimisation of the organisational costs (Figure 6). Very important 2% Figure 6 Reasons why organisations should have a strategy around Big Data & Analytics 0% 10% 20% 30% 40% 50% 60% No budget available Insufficient expertise in-house Other strategic goals more important Insufficient (IT) infrastructure Poor data quality Limiting governance structure 3% 20% 22% 24% 35% 45% As a concrete example of e.g. improvement of risk management with Big Data & Analytics, one can consider fraud detection and fraud prevention within institutions. Product and services innovation Improve customer service Optimising organisational costs Improve risk management 35% 41% 52% 54% Insufficient capacity No support within the organization Not enough data available Insufficient relevant data available 10% 18% 21% 35% Other 13% Other 8% 0% 10% 20% 30% 40% 50% 60% 0% 10% 20% 30% 40% 50% 60%

6 2013 KPMG N.V. 6 Big Data & Analytics as a competitive driver Big Data & Analytics is perceived by 48% of the respondents as a driver for competitive advantage. The perceived characteristics of this advantage differ by organisational layer. This research focussed on three traditional organisational areas, namely strategic (organisation wide, five to 10 years horizon), tactical (business unit wide, three to four years horizon), and operational (operational units, zero to three years horizon). From a strategic angle, 44% of the respondents pinpointed superior decision-making (what we refer to as data-driven decision-making) as the main competitive advantage. Respondents see potential in basing strategic decisions on real-time insights, in light of the latest trends and developments in the market, with a transparent view of the competition s landscape. Additionally, respondents acknowledged that combining insights within the organisation with external sources may enhance their flexibility and speed to proactively respond to changes in the market. They also see value in extracting future trends and developments in the market by analysing data. On a tactical level, 17% of our respondents state that Big Data & Analytics leads to superior marketing ROI. By accurately profiling fast-changing customer-needs and measuring customer satisfaction, organisations can improve their overall quality of service and offer targeted propositions based on data insights. Respondents believe a data-driven organisation is powerful due to its flexibility to adapt its offerings to changing markets. Secondly, our respondents are confident that Big Data & Analytics insights lead to superior and reliable financial management reporting and controlling. We collected responses directly related to the implementation of strategic and tactical objectives and classified them as operational. About 10% of our respondents mentioned examples of business opportunities enabled by Big Data & Analytics, especially in the finance function. Most suggestions were related to the optimisation of information management with insights based on data, resulting in lower risks, higher accuracy and therefore better quality. Other statements mention insights beyond traditional measurements and interpretations, promising cheaper delivery and better pricing schemes when aligned with a transparent competitor s view. According to 16% of the respondents, better inventory control and compliance adds transparency to the organisational structures and optimises processes, leading to less bureaucracy and ineffectiveness. Respondents state that additional data sources have to be included in the analysis to achieve these benefits. These include external (non-financial) data, which are mainly unstructured and require innovative analysis methods to distil the necessary insights. One of the respondents stood out by proposing a solution to acquire external data streams: co-creation activities with other parties, not necessarily bound to a specific market sector. Clearly a forward-thinker, ahead of his peer group. Our respondents were aware of the challenges involved in leveraging the bold promises of Big Data & Analytics. Of the respondents, 49% pointed out that Big Data & Analytics already has an impact on both their business and their finance function. In mainly decentralised organisations, miscommunication might occur when unstructured data is included in the analysis. Another concern is the information overload disrupting people s day-to-day activities. Hence, educated choices are required to select data streams to be included in the analysis. Our respondents views on the skill set of a successful data scientist fit nicely with the description offered by Harvard Business Review: a hybrid of data hacker, analyst, communicator and trusted adviser 2. This involves investing in human capital. Such investments need to be supported by strong business cases and it is a challenge in itself to build a clear business case, since it can be difficult to quantify the benefits. Our respondents concluded that from a strategic angle, Big Data & Analytics is a hygiene factor that needs to work properly in order to perform. 2 CIO.com: Data Scientist Role is Clear Even If Job Description Isn t?

7 2013 KPMG N.V. 7 Big Data & Analytics; A hot Item on the CFO s agenda 53% of the respondents perceive Big Data & Analytics as mainly being the responsibility of the finance function. Furthermore, 69% (Figure 12) of respondents see a connection with the IT department as a technical facilitator of Big Data & Analytics, indicating the necessity of close collaboration between both departments. 73% (Figure 9) of participants indicated that they expect Big Data & Analytics to change their current routines, requiring them to enhance and add additional capabilities in order to make data-driven decision-making a Figure 8 Constructing and interpreting relevant insights from data perfectly suits the finance function Strongly disagree 1% success. Placing Big Data & Analytics in the finance domain is in line with the trend to transform finance functions from scorekeepers to value creators. The finance function is increasingly expected to find ways to proactively contribute to the success of the business and its competitive position. Respondents indicate that the need for business insights has risen much faster than finance departments ability to produce them. Big Data & Analytics can provide a tremendous boost in this respect: 1) Reporting will increasingly be aligned with business strategy; 2) Value drivers within the organisation will be measured more accurately; 3) Management focus will be on the issues that really matter; 4) Decision-making can be based on actual information instead of past performances. Figure 9 Do you think Big Data & Analytics will impact your role? Yes No Figure 10 Where in your organisation should Big Data & Analytics be embedded? IT Risk Marketing & sales R&D/innovations Finance 20% 19% 27% 0% 10% 20% 30% 40% 50% 60% 70% 80% 24% 31% 49% 73% Disagree Neutral Agree Strongly agree 14% 31% 48% 5% 0% 10% 20% 30% 40% 50% 60% As shown below (Figure 10), 49% of the respondents expect the finance function to become the orchestrator of internal and external data analysis within the next two years. Operations 22% Other 9% Nowhere 1% 1% I don t know 5% 0% 10% 20% 30% 40% 50% 60% 70% 80%

8 2013 KPMG N.V. 8 Furthermore, 82% (Figure 11) of respondents believe that Big Data & Analytics will result in more valuable business insights. Business increasingly requires the finance function to incorporate non-financial data in their reporting, broadening the scope of information that has to be analysed; and to provide broader insights for decision-making. Reporting on both financial and non-financial parameters results in enhanced insights into what is actually happening in the business. Additionally, Big Data & Analyticsdriven reporting can supply these broader insights and help discover trends and knowledge which could not be discovered before. Increased quality and accuracy in reporting will directly impact on organisational budgeting and forecasting activities. Timely decision-making is essential in order not to lose competitiveness. Big Data & Analytics enables more accurate forecasts and budgets, thus radically changing the way the finance function operates. Respondents see a shift in the role of the CFO and the finance function. The new finance expert thinks differently, acts faster, and is not a scorekeeper who tracks past performances. The new finance expert uses real-time information to give the business new and undiscovered insights that serve as the foundation of value creation. The benefits discussed are renowned, though these do not come without challenges. Datadriven decision-making and Big Data & Analytics by the finance function require organisational change, cross-departmental collaboration, legal considerations, and development of specific analytical capabilities. The broader data scope needed in Big Data & Analytics and the use of multiple internal and external data sources increase the challenge of guaranteeing data reliability, consistency and completeness. Figure 11 Do you believe that you will gain insights by combining internal sources of information with external sources? Yes No 18% 82% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Figuur 12 IT will facilitate the technology and finance will analyse the data Strongly disagree Disagree Neutral Agree 1% 13% Strongly agree 10% 17% The broader scope and data input also challenge an organisation to reconsider their data governance models as data governance becomes more complex. Legal and ethical boundaries are often underestimated in Big Data 59% 0% 10% 20% 30% 40% 50% 60% 70% & Analytics. Laws and regulations on data privacy are often complex and not transparent and failure to comply may severely damage reputations. Organisations should therefore thoroughly consider the ethical impact on society. 80%

9 2013 KPMG N.V. 9 Conclusions Converting data into valuable knowledge for the business will continue to be a key feature of any finance function that has the ambition of being a value creator. Big Data & Analytics, if used properly, can serve as a valuable means to transform finance experts from scorekeepers to value creators. Respondents to this study seemed to be aware of the potential. They were able to look beyond the hype and indicated that the need for business insights has risen much faster than finance departments ability to produce them. Big Data & Analytics can provide a tremendous boost in this respect. Nearly half of the respondents expect the finance function to become the orchestrator of internal and external data analysis within the next two years. Having said that, many organisations lack the capabilities to act. More than one third of the respondents currently do not believe that they have the right capabilities in-house to analyse Big Data & Analytics. Therefore Big Data & Analytics will require finance function members to develop advanced analytical capabilities to provide insights that impact on the organisations broader context. That may be quite a challenge but also offers rewarding potential: organisations which benefit from Big Data & Analytics will have a competitive edge when it comes to better and faster business decisions.

10 2013 KPMG N.V. 10 purposes all at the right time and in the right situation.to help clients gain that clarity, we use our industry understanding to identify the right data and apply the right analytics to give organisations actionable insights. services including finance transformation, controls optimisation, regulatory compliance, policies and procedures, shared services, inter-company assistance, chart of accounts assistance and more. About KPMG KPMG provides audit, tax and advisory services. We work for a wide range of clients: major domestic and international companies, medium-sized companies, non-profit organisations and government institutions. The complicated problems faced by our clients require a multi-disciplinary approach that helps them to create order out of complexity. Our professionals excel in their own specialist fields while also working closely together to provide the added value that enables our clients to excel. In doing so, we draw from a rich source of knowledge and experience gained in diverse organisations and markets. Data & Analytics Success in our data-driven economy is as much about learning and using what you don t know as it is about acting on what you do know. Businesses need the clarity that comes from an organisational capability to leverage data in many forms, from many places, through many methods and for a variety of We believe that success isn t just about having the right technology; it s about having the right people who can use that technology to create actionable insights. That s why our approach melds the technical depth of data scientists with the operational and industry insights of business people. Across industries, geographies and functions, our Data & Analytics services are geared towards making data relevant, to drive measurable business value. We advise clients on how to consume, produce and govern complex information by using the right mix of historical, current and predictive analytics. In short we strive to play a central role and be a driving force in the Big Data ecosystem with our motto: Better life and better business. Financial Management Financial Management teams provide financial management We can help our firms clients to align their finance organisations with the strategies and needs of their businesses to realise and sustain value over the long term. KPMG s deep capabilities in the core drivers of change process, organisation, information technology and risk and control can help organisations transform their finance capabilities to drive business value across the enterprise while seeking to ensure the integrity of the processes and information delivered to key stakeholders. Financial Management teams serve our firms leading clients in all industries. Our professionals bring extensive experience and work collaboratively with clients.

11 2013 KPMG N.V. 11 Contact Sander Klous Senior manager and team leader KPMG Data & Analytics E: Fred van der Waa Partner KPMG Financial Management E: KPMG Advisory N.V., registered with the trade register in the Netherlands under number , is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Co-operative ( KPMG International ), a Swiss entity. All rights reserved. Printed in the Netherlands. The KPMG name, logo and cutting through complexity are registered trademarks of KPMG International.