As companies expand their tech stacks and generate ever larger quantities of data, a considerable risk is constantly on the rise: data fragmentation. Regardless of a company’s size, the structure of its finance team, or the technology they use, managing data fragmentation is a persistent challenge within the finance function.
Data fragmentation can manifest in several ways. On one hand there’s fragmentation due to multiple points of data capture—where various teams or departments access information in differing formats or from disparate sources. On the other hand, there’s fragmentation “in the use or application of data,” where stakeholders may interpret the same source data differently, leading to conflicting definitions and utilization (what is “Sales”?). The latter type of fragmentation can be particularly challenging, as it not only creates confusion, but also indicates duplication of effort when aggregating and processing data across multiple teams.
Many CFOs we’ve spoken with share these frustrations. They often observe their organizations dealing with multiple sources of “truth,” conflicting dialogues, and duplicating work to cobble together all stakeholders’ information flow needs. What’s the solution? Creating a strong data culture, led by Finance.
Community Insights: Finance Leading the Charge
Finance plays a central role in bridging the gap between raw data and the insights that drive business decisions. As such, CFOs are best positioned to take the bull by the horns and wrestle data definitions and utilization to the ground. Here’s how they are leading the way:
- Consensus Forcing: Finance can no longer just build consensus; it must enforce it. Debate is healthy, but do it once, and get to the master set of data definitions (master data management, or MDM, for those who want to get formal about it). Forcing consistency across the board eliminates unnecessary confusion and maximizes the value of related dialogue.
- Making Data a Habit: It’s one thing to solve data fragmentation, but if nobody uses the data, what’s the point? To make the most of your data, it must become part of the organizational routine. Finance teams must encourage a consistent rhythm for reviewing data and establish a culture where data is used in decision-making. This means that Finance should not only be providing information but participating in the dialogue and offering the finance lens throughout the organization.
- Centralize Streamlined Data Processes: Even with the best intentions, data can still end up fragmented. When that happens, the solution is solid and consistent processes. With reporting process building and workflow automation skills becoming hallmarks of the finance function, centralizing efforts inside Finance often makes the most sense compared to skillsets within other functions or departments. Finance should “own the fragmentation, defragment once, and share everywhere.”
During a recent CFO Alliance roundtable event, we were discussing the components of strong data cultures, with one CFO highlighting the importance of timeliness. While we tend to focus primarily on accuracy, waiting for 100% of the data or for that final reconciliation scrub can be the difference between having something that is truly actionable vs. stale. Finance must find the process sweet spot where data, its form, and frequency of distribution enable maximum impact on decision-making. Often more art than science, this is one reason why finance is a people sport!
First Water Applications: FP&A Investments Yield Big Returns
Let’s explore the journey of one of our clients, a multi-generation family-owned manufacturing company that had been recently acquired by a PE firm. The family had treated accounting and finance as cost centers, never making direct investments into FP&A. As a result, different departments self-served from the company’s systems, leading to a lack of consistency in nomenclature and metrics.
The fallout was significant. Confusion arose over what constituted “Sales,” with various departments using different interpretations: gross sales, sales net of discounts, sales net of returns, sales net of defects, total net sales—all labeled as “Sales.” This fragmentation led to distinct reporting processes for each department, which created confusion when consolidating reporting for the management team.
To address these issues, we worked with the company to develop clarity around metric definitions and built a centralized reporting process that could feed all departmental needs. The result was over 2,500 annual team hours eliminated from reporting preparation, and newly developed stakeholder reporting packages for departments, management, and PE sponsor updated through a single process.
Particularly for organizations and teams in transition, building consistency and efficiency in core metrics and reporting builds significant momentum for alignment and more effective decision-making.
Takeaways
Data fragmentation might seem daunting, but with the right mentality and skillsets, finance teams can bring clarity to the chaos. By enforcing consistency, streamlining processes, balancing detail with speed, and fostering a habit of data-driven decision-making, organizations can conquer fragmentation and establish a strong, unified data culture.
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First Water Finance (FWF) is a finance solutions platform supporting finance leaders, business owners, and capital partners through FP&A, Corporate Finance, and Community. FWF has supported over 100 management teams and sponsors, concentrated in emerging and mid-market enterprises, professionalizing and accelerating the finance function in pursuit of growth, acquisition, and/or sale objectives.