It’s easy to have the wrong priorities, focus on the latest technology trend, the next big thing – and what bubbles up into the mainstream press, when implementing a data strategy. In this episode host, Jason Foster, talks about what’s actually important to focus on to ensure your data strategy delivers real value.
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One of the biggest mistakes is to focus on your company’s top line: revenue. Oh the allure of revenue! It’s easy to focus on the revenue number as it’s the biggest one on the P&L and it hasn’t yet been reduced by the various business costs and expenses. It’s an impressive sounding number too “we’ve grown our revenue by x% this year” can sound great. Also, it’s relatively easy to understand as it’s money into the business, it’s transactional, so there are minimal calculations to do.
It is however, a vanity metric because it doesn’t come with any context. That context being
If you made £1m but it cost you £1.5m do so, then you’ve made a loss and have no money to reinvest in the business to drive growth. Revenue growth is important of course as its the way you will create more value in the business in the future, assuming subsequent profits.
To that end the saying continues, profit is sanity. Profit is essentially what is left once you’ve subtracted all the various costs and expenses of the business. Profit is a much better indicator of the health of a business; and is more commonly used to gauge the valuation of a business. It’s a much better indicator of financial performance. Generating profits is what keeps you sane.
The problem with profit though, is it isn’t actually real until it’s turned into actual money.
So on paper you might have sold £1m of services and products, and it may have cost you £300k to deliver that revenue. Leaving you £700k of profit on paper. However, the actual receipt of that money is what’s important. Depending on payment terms and when money actually arrives that profit is just on paper.
That’s where this saying ends. With saying cash is reality. Actual physical money in the bank, and more importantly the flow of real cash into the business (not on paper revenue or profits), is what really makes or breaks a business. The money is there, you can see it, you can spend it, you can pay your staff, you can buy more stock, you can invest in growth. It’s the peace of mind required to keep a business grounded in reality.
A positive cash flow is a really powerful indicator of a healthy business as it shows that you can generate revenue, collect the money, pay your costs and expenses and still be left with money. Cash is the lifeblood of the business.
So it goes like this…
Like revenue there is an allure surrounding Artificial Intelligence (or any other latest technology solution). It’s the big one. It’s what people talk about and crave because it sounds impressive. “Yes we applied AI to that problem” “we’ve bought a platform that’s AI driven” “our software is an AI Driven platform for fixing the business”.
To be at the forefront of innovation can be very important for you or your business and that innovation in, and of, itself can support your ambitions. It might attract funding, budgets, great talent. And whilst that is great, in those instances you are essentially using it as a vanity tool. Look, vanity works in the same way making revenue works; but like revenue, AI on its own is only part of the picture and needs context.
So continuing the analogy data is therefore sanity. More accurately, good clean trusted data is sanity. Without this your AI, analytics and insights are nothing. The lifeblood of your organisation is data. It’s the horizontal that cuts across the end-to-end value chain of your business. It gets created in every transaction and interaction that your customers, employees, partners and stakeholders have with you.
Data, when done right, is the sanity of your business. It allows you to manage processes, operate effectively, interact with customers, assess financial performance (remember revenue, profit cash?). It has the power to transform the business. Looking after it well ensures you don’t break regulatory or other legal obligations; knowing you’re on top of data will keep you sane for sure.
But here’s the thing. Data is nothing really. Like profit, it doesn’t give you anything until its turned into value. You could have the best data, the best data pipelines, platform, people to manage it and model it, but without actions being taken or change being made its just data sat in systems.
That’s where my saying ends: business outcomes are reality. Actual business improvement through the application of data, analytics and AI.
Data products that guide decision making, and people making quicker decisions – more right, more often – to improve
Thats reality. And it’s not always positive – I can find plenty of people that are impressed with the AI created and the data held by Facebook, but I can find as many (if not more) people who judge the outcomes of that ecosystem at scale to be detrimental, if not disastrous, for the world.
What happens as an outcome to your data strategy is what really matters, what really drives improvement; and like cash really is the lifeblood of the business.