What can CFOs learn from the taxman’s use of data?

20th February 2019

The data revolution has turned internal company information into a competitive resource. But as non-financial data goes mainstream, external data is the next frontier.

 

It’s a tough market out there. Companies are playing catch-up with tech-savvy start-ups who are turning whole industries upside down. To stay in the game, organisations need insight. Back in the day, financial data was the only source of insight, but today internal non-financial data is increasingly used to generate more accurate, insightful plans and forecasts. Soon even that will no longer be enough to maintain a competitive edge though.

 

 

 

 

External data, about competitors, industries and companies of similar size or type is the next data tranche that will drive more insight. Where corporate systems allow companies to integrate internal non-financial data into their plans and models today, so external data can also be easily accessed and integrated to give companies the best competitive edge in their market. 

Corporates can learn a lot from the initiatives spearheaded by HMRC in the UK. Their “Making Tax Digital” program is a prime example of how organisations are harvesting external data to drive insight through data analysis, comparing industry, company size, company type and other variables to detect patterns in tax-paying behaviour and see who’s paying the right amount of tax. 

This example of aggressively using external data sources through automated systems is a salient lesson to corporates. Like the tax man, companies have access to competitor data in the public domain, which they can and should use to their advantage, to benchmark their performance as well as find patterns in industry outperformance which can be replicated. 

Computerised accounts and in particular the requirement to report in XBRL, the global framework for reporting business information, is easy pickings. These reports are already standardised and can be analysed quickly and easily with the right algorithm. Like the tax man, companies can analyse their own industry, company size, company type and other relevant data parameters to build up an external picture that is just as focussed as the internal one. 

For more in depth competitor analysis, leaver interviews and news articles can also provide nuanced detail and a competitive edge. With the advances in natural language processing, even this can be done, at least partially, without time consuming human intervention. 

Who’s in charge? 

As data becomes such a critical part of the success of a business, it needs its own curator. Internal non-financial data from marketing, operations, supply chain and human resources needs to be collected, collated, stored and managed. And the office of finance with the CFO at its head is increasingly seen as the logical data leader. They’re already in charge of financial data, planning and forecasting. When that process is widened to include non-financial data it makes sense to centralise it under the auspices of finance. 

Which means external non-financial data should also be channelled through the finance centre so it can be used effectively and incorporated into operational resources and reporting. 

Some organisations are nowhere near this stage. Many are struggling to incorporate smatterings of internal non-financial data into their planning processes, grappling with the diverse formats and multiple inputs. Those that get left behind will find it hard to compete at the top of their industry, because at the top are companies willing, and able, to consume both internal and external sources of non-financial data, and utilise it to their advantage. 

The taxman does it all the time, building scenarios based on standardised datasets. The information companies need is in the public domain and it’s a rich seam to mine. If you haven’t started, it’s time to get digging. 

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