Data management : The rise of the CDO : Heather McKenzie

THE CHIEF DATA OFFICER COMES OF AGE.

Heather McKenzie explains why the CDO not only needs grounding in technology but also a business background.

A decade ago, global bank Citi was one of the early pioneers of the concept of the chief data officer (CDO) in financial services. The bank was faced with siloed legacy systems and outdated processes – challenges that many firms still face today. However, the US bank’s move to appoint John Bottega, who is now chairman of the Board of Directors of the Enterprise Data Management (EDM) Council, did not open the floodgates. CDOs are still a rare breed in the financial services industry.

If anything, the problems Citi was seeking to address have only become worse for many financial firms. At the same time regulators are seeking greater awareness from firms of their risk profiles, which requires a deep understanding and control of data.

In a May 2015 report, The Role of the Chief Data Officer in Financial Services, consultancy Capgemini stated: “For many if not most financial institutions today, the concept of an end to end information management programme has been an elusive dream. This is especially true with multi-line and multinational entities where individual business units or lines of business routinely operate in silos with only a thin veneer of shared services and standards in place across the enterprise.”

There were only a few instances of financial institutions that have taken up the challenge of end-to-end information management, said Capgemini. These firms did have a common element in that they recognised the need for “a leader who is empowered to be the steward and champion of the enterprise’s information”. CDOs are emerging in the financial industry as those leaders, said the consultancy.

Consultancy PWC also has been mulling the emergence of the CDO, publishing a report in February 2015, Great expectations: The evolution of the chief data officer. Such an individual, said the firm, is charged with establishing and maintaining data governance, quality, architecture and analytics. This will enable firms to harness information to manage risk and create revenue generating opportunities. “Approached correctly, the CDO role can create business value, help manage firm-wide risk, reduce cost and drive innovation by leveraging information as an asset,” said PWC.

Sitting at the top table

Steve Young, a principal at London-based investment management consultancy Citisoft, says there is “a lot of noise and activity” around data management and discussions regarding CDOs, but none of it is consistent. “One of the challenges around data management in the investment management industry is that there is no common methodology across the industry,” he says. “We increasingly see variations in where CDOs sit within a firm and what their responsibilities are.”

In order to be effective, says Young, a CDO must “be on the top table” of a firm. If a CDO reports into an operations or technology board member it will be more difficult for him or her to operate in a way that will be effective. “One of the main characteristics of the CDO role is that it bridges technology and the business. In siloed organisations, there is no ‘natural fit’ for a CDO, which is one of the reasons the role is being created. It requires a new skill set and a new team to address the many issues that data management creates,” he adds.

Marty Williams, vice-president reference data product management at Interactive Data, agrees: “A CDO needs to be at the board level in order to drive the data strategy throughout an organisation.” This raises an interesting question for very large firms, he adds, as they have to decide whether or not to appoint one global CDO or an “office of the CDO” that may involve more than one individual role as CDOs are appointed for each business line.

While much of the impetus towards appointing a CDO is driven by regulation (particularly the requirement that firms have a strong understanding of data across the enterprise), the ability to reap opportunities from data is another factor.

Capgemini believes a CDO should act as a catalyst for a firm’s development and implementation of an effective and business value-driven information management programme. It identifies a number of services, methodologies and capabilities that are required to extract value from data. These include “harvesting knowledge” for the enterprise. Put simply this means gathering information from disparate sources in a methodical manner.

“Finance, risk, marketing, HR and other group functions that are responsible for integrating information at a company-wide level, must have the ability to both rationalise information feeds they receive and readily understand the full depth and breadth of information that is being provided through those feeds. The rationalisation and integration process cannot even begin, however, if these central groups lack clarity about the information entering their systems, including: where it came from, why it came in, and how it is to be used. It is the obligation of the CDO to serve as the firm’s central knowledge coordinator and be able to answer these and other similar questions,” said the report.

A CDO should also “operationalise” best practice in data governance and stewardship methodologies. This requires the implementation of a consistent data governance and stewardship programme – often a daunting challenge given the distributed nature of data within an organisation. Operationalising a company-wide data governance programme, said Capgemini, is not the same as defining an organisational structure for a governance programme. An internal consulting function is required to enable multiple lines of business and organisations to adopt a consistent set of methodologies and best practices for data governance and stewardship.

A CDO must also set standards for regulatory compliance, data security and data retention. Another important function is to establish processes, methodologies, tools and best practices for data issue management and resolution.

Reading between the lines

Data can tell a firm a great deal about its customer base and also where its risks are, says Williams. “Having that information at your fingertips is very valuable and more and more firms are finding there is opportunity to be mined within their data,” he says. Data science, data analytics and big data are all disciplines that are growing as a result of this, he adds.

Young says most buyside firms want to unlock the value of the data they hold but it is challenging. Data has been acquired and resides in different technology stacks and is used for very specific tasks. The value of the CDO is that he or she can take the data and use it to provide business value, by for example giving better data to front office functions in a timelier manner.

Both Young and Williams believe a CDO must have a hybrid set of skills, spanning not only the technology but also the business of the firm. To date, many CDOs have had strong technology expertise but lack business acumen. As Williams notes, “Business skills are very important because in order to reap benefit from data an individual needs to have strategic thinking and the ability to execute on the firm’s business plan.”

The ability to deliver a return on investment is also critical, but is challenging as increasingly the expectation of returns is over a shorter time span than previously.

Young warns that although data governance is an important aspect of data management, individuals who are good at data governance are not necessarily the best CDO candidates. “Firms have approached data management from a governance angle, mainly because regulators urged this. However, my view is that people good at data governance are all about control and often are not good communicators or visionaries. Vision and communication are strong factors in being a successful CDO.”

©BestExecution 2016
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