CFOs and their companies are drowning in data.
In the not-too-distant future, companies will analyze these enormous datasets to better serve their customers, reduce costs, and even prevent emergencies. For now, though, they still are trying to separate the wheat from the chaff, executives said at Booth’s third annual CFO Forum.
“We’re just scratching the surface in terms of understanding all the data we’re collecting,” said Kathryn Mikells, ’94, CFO of home-security company The ADT Corporation.
Mikells joined more than 40 Booth alumni CFOs in returning to campus for the forum, held April 3 - 4 at Gleacher Center. The attendees, spanning a broad range of industries, included the CFOs of Honeywell International Inc., Oaktree Capital Management LP, The Walt Disney Co., 3M Co., and Archer Daniels Midland Co. They traded expertise and sought guidance from their peers and from Booth faculty on how to mine big data for insights they actually can put to work in their businesses.
During the forum, CFOs also discussed how they can add value to their companies and heard a provocative presentation by the Richard Thaler, Ralph and Dorothy Keller Distinguished Service Professor of Behavioral Science and Economics, on the collision of rational economic models and irrational human behavior.
Mikells opened the big-data panel discussion—a highlight of the forum—by explaining that ADT used to know only when a customer’s home alarm went off. Now, the company can see when customers are using their smartphones not just to activate alarms, but also to turn on their lights and change the temperature of their homes. The datasets have become so huge, “we don’t even have the ability to house them,” Mikells said, echoing the challenges many CFOs are facing.
Capturing the data and harnessing it is essential for the growth of the business, since the more often customers use their ADT systems, the more likely they are to renew the service, Mikells said. But ADT also has to figure out whether and how best to analyze certain information, such as customer home automations and video usage habits, while safeguarding privacy.
Panel moderator Robert Grossman, visiting professor of operations management at Chicago Booth and chief research informatics officer for the Division of Biological Sciences at the University of Chicago, suggested CFOs walk through their data centers with their CIOs and have them point out explicitly which racks of servers hold data that is analyzed to understand and improve their products, services, and operations and which hold data that is in fact never examined.
“Many so called ‘big data’ projects actually involve the data on only a fraction of a rack—not exactly big data,” Grossman said. “There’s a huge opportunity to transform what you do with your business data and not a lot of knowledge about how to do this.”
Panelist Michael Smiley, ’89, CFO of Zebra Technologies Corp., which helps companies maintain visibility to their supply chains through barcode, radio-frequency identification (RFID) and real-time locating technologies such as GPS tracking devices, explained that today many companies effectively use big data to better meet their customers’ needs and enhance their operations. For example, one customer uses Zebra’s technology to monitor its dairy herd, understand the herd’s ability to increase milk production and also to improve the health of the cows. Additionally, large enterprises use location technologies to better understand shoppers’ interests and to provide targeted coupons to drive product introductions. These applications are possible because of the availability and collection of important data.
The discussion struck a chord with the CFO audience. Several commented that having their staff read Moneyball, the bestselling book by Michael Lewis that showed how the Oakland Athletics transformed their baseball team using analytics, helped spark healthy internal discussions about how data can be used thoughtfully to improve a business or take it in a new direction.
The conversation on big data spilled over to a lunchtime panel on how CFOs add value to a company. CFOs should be thinking about how their companies will develop the infrastructure they need to support the data coming in, said panelist Janet Cooper, ’82, a board member of The Toro Co., the manufacturer of lawn mowers, snowblowers, and other products; Lennox International, a maker of climate control products; and MWH Global, a water resource engineering firm.
Cooper added that CFOs also need to act as strategic partners with their CEOs, get out of the office frequently to meet with line managers, communicate well, and direct an exceptional staff to oversee financial risk. Then she laughed. “I’ve just added a lot to your job description.”
Panelist Charles Cannon, ’82, CEO of JBT Corp., a manufacturer of food processing machinery and airport equipment, said he and his CFO are in constant dialogue. “For a smaller-cap company, it’s like a marriage,” he said. “We do not let a sliver of daylight show between us in terms of communication to the organization and to the board.”
To kick off the forum, behavioral economist Thaler sought to challenge widely held beliefs about efficient markets and rational expectations by giving contradictory evidence about how people actually make decisions. He invited the CFOs to participate in an experiment that asked them to solve a misleading math problem involving a length of railroad track, and provide a range of answers within a 90 percent confidence limit. The estimates were far off—more than half the group guessed the answer was five inches or less when the correct response was 29.6 feet.
According to Thaler, the responses demonstrated that even when our mental models are wildly inaccurate, people tend to be overconfident about what they know.
“‘Econs’ are the mythical creatures that inhabit economic models,” Thaler said. “Psychologists study humans.” When humans interact in markets, he said, the results don’t always conform to standard economic models. —Amy Merrick