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How Compliance And Cost Reduction Are Funding Data Transformation

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by Randy Bean and Andrew Sohn

As much as Chief Information Officers (CIO) and Chief Data Officers (CDO) would like to be perceived as revenue generators and growth enablers within their organizations, the reality is that they control and account for a significant proportion of corporate expense.  At a moment when firms are embarking on data-driven transformation initiatives -- often in response to fears of disruption from AI and data-driven FinTech and big tech competitors -- legacy firms face a paradox. For these firms, data transformation efforts are largely being funded under the auspices of compliance and cost reduction mandates.   Although CIO’s and CDO’s aspire to be on the offensive in using data to drive revenue generation and business growth, it is defensive initiatives that are providing cover for forward-looking transformation ambitions.

How do technology and data leaders ensure that non-revenue generating data-driven transformation efforts receive the commitment and funding that are required to sustain these efforts? Today, there are two critical business imperatives that are impacting corporations and provide the impetus for data transformation initiatives. The first imperative is compliance and regulatory mandates. The second imperative is cost reduction. Paradoxically, it is these two defensive causes that are providing a CIO or CDO with the opportunity and mandate to embark on offensive data management and architectural transformational initiatives.

The Cost Reduction Impetus

When a company faces financial pressures which prompt cost reduction mandates, Information Technology is usually targeted to deliver significant cost savings. Unfortunately, it is too often transformational initiatives, such as data infrastructure and data architecture modernization efforts, that are among the first initiatives to be eliminated.  These data transformation initiatives deliver a multi-year impact, but often without an immediate and definable return on investment (ROI). The net result is that organizations too often respond with a short-term view that undercuts their long-term interests.

What is the first thing that a CIO considers when asked to reduce expenses?  Ideally, it would be to determine which systems and infrastructure they can eliminate along with the associated hardware, software, and personnel expenses.  They would also want to explore how best to replace inefficient technology assets with new assets that are not only less expensive to operate, but also provide greater business flexibility and agility.

Almost all IT organizations operate redundant systems which they would like to consolidate, legacy systems they would like to turn off, and outdated infrastructure that are widely recognized as costing too much to run.  Why then do so many organizations continue business as usual, finding elimination of redundancies extremely difficult to achieve? Perhaps the answer lies in the realization that undertaking these efforts requires investment and carries risk.  When asked to cut costs, technology leaders are too often forced to reduce or eliminate transformational initiatives with less measurable near-term outcomes. The consequence is that organizations frequently sideline transformational initiatives which will deliver long term, sustainable benefits to the company – albeit not immediately.

Why is it so hard to eliminate or consolidate systems? Why do banks continue to maintain multiple checking account systems? Why does an insurance company run several claim systems for the same product?  Of course, there are potential technical challenges, such as particular software not working on a new operating system.  And, there are always people issues, for example needing to train staff that are conversant in legacy environments to be effective with new systems and processes.  Among the most significant costs for any upgrade effort are data migration, untangling of embedded business logic, and the resulting data integration efforts.

What makes these data issues particularly challenging for companies is that they cannot be addressed by technology staff or outsourced contractors.  They require business subject matter experts in domains such as product, sales, finance, legal, and operations.  For example, when consolidating or migrating a system, decisions are required on items such as general ledger chart of accounts, customer account numbers, product identifiers, and operational processes.  It takes high-level support and funding to secure time and commitment from the corporate functions within which subject expertise resides.

The Compliance and Regulatory Impetus

The second data transformation opportunity is triggered when new or enhanced regulations are enacted, or an important external business partner requires a change.  Examples of some recent catalysts are the enactment of general data privacy regulations such as the General Data Protection Regulation (GDPR) and California Consumer Privacy Act (CCPA), changes to federal and state tax laws, Electronic Health Records Interoperability requirements, and banking regulations like the Basel Committee on Banking Supervision standard number 239 (BCBS 239).   In addition, when a firm belongs to an industry ecosystem, such as payments and medical claims processing, there are industry standards bodies that mandate changes to address new business requirements that must be satisfied. If you are a supplier to a market leading company like Walmart or Apple, there are evolving data and integration requirements expected of their partners.

GDPR, in particular, has been a significant lever for companies due to the potential for significant fines, such as those recently imposed on Marriott and British Airways. Any company doing business in the European Union (EU) or with EU citizens needs to be able to deal with customer data in a way that most companies were not previously capable of supporting.  Stringent data usage, retention, privacy and security measures are required as part of this regulation.  CCPA is a similar regulation, originated in California and being applied as a de facto model for US data compliance.  Developing the capabilities to satisfy these requirements is usually non-discretionary and involves significant business risk if not executed on time and effectually.

Yet, compliance and cost reduction can be a CIO and CDO’s best friend.  Leveraging funding and sponsorship of regulatory and cost reduction initiatives is enabling legacy firms to transform their data capabilities to achieve revenue generation and growth objectives. The window of opportunity is narrow however, as CIO’s and CDO’s must demonstrate quick wins resulting in measurable business outcomes -- to establish credibility, build momentum, and ensure lasting transformation, or the moment and opportunity will have been lost.

For organizations seeking to embark on a data-driven transformation, the guise of regulatory compliance and mandated cost savings is providing a cloak for driving long-term business value.

Andrew Sohn is a senior advisor and principal consultant with NewVantage Partners. He has led transformational data initiatives as a senior data and IT executive at Crawford & Company and Bank of America. Andy is a sought after speaking at Chief Data Officer and CIO industry events. You can follow him at @Molsonix.