The Download on Data

Data is and continues to be a game changer for organizations across the world. Data science is evolving at an incredible pace, providing opportunities for companies to develop new, or enhance existing, products and services, and streamline operations and employee experience. Unfortunately, breaches and abuses are occurring with alarming frequency, impacting people in very real ways, driving legislators to enact complicated regulations in an attempt to create boundaries.

The use of data—and related risks—are so significant for many companies that, increasingly, boards are taking an active role in understanding how data is being managed. Many boards, however, find themselves unsure of how to evaluate the plans presented to them, which may keep them from engaging in meaningful discussions with management. This is exacerbated when events like COVID-19 occur, which impact operations and, by extension, how data risk is managed.

The following questions are intended to raise awareness among board members around issues and opportunities related to data, so they can better discharge their duties to the companies they oversee.

How Is Data Being Used?

Depending on the industry, companies are finding exciting ways to take advantage of the innovations in data science. Three revolutions are taking place simultaneously:

• First, the range of data available to business is expanding at an increasing rate. This includes data now available because of the increase in number and sensitivity of “sensors” (cameras, sensors in appliances or in industrial systems, satellites, PCs, cell phones, etc.) all around us, and, increasingly, this data is available for license or purchase. Also, companies are now taking inventory and classifying their own data for various reasons, including reuse, monetization or disposition.
• Second, the tools and capabilities of data science are evolving at an astounding pace. This ranges from analytics and reporting, to cognitive and artificial intelligence—all dependent on large volumes of high-quality data.
• Third, technology tools continue to make quantum advances, including algorithms to analyze data and computing infrastructure—such as the cloud—to process and store data in ways that were unimaginable just a few years ago.

What Are the Opportunities?

Organizations continue to find innovative ways to leverage data to achieve objectives, and in the business world, companies are racing to leverage data to create a competitive edge. The opportunities range from:

• Using data to enhance existing products and services, adding data to improve how products work or service is delivered, whether it’s optimizing the way a device like an engine works by considering environmental conditions, accelerating the processing of loans or insurance claims, or improving the ability to diagnose and treat a problem.
• Creating new products and services that can only exist because of the ability to process large volumes of data. This includes most modern automation, whether a self-service, bot-enabled website or an automated phone attendant, or analyzing data to identify patterns (movements of people in a store or the spread of disease through a city) or an autonomous robot or car.
• Optimizing operations, whether through improved management reporting, being able to capitalize or monetize accumulated data on hand, or improving customer or employee experience through self-service automation.

Broadly, What Are the Risks?

As with embracing every new technology, there are risks that can impact the outcome, ranging from the mundane to catastrophic. Generally speaking, these include the following categories:

• False starts: Organizations rush in, hiring data scientists en-masse to go do “data stuff.” As a result, according to Gartner, upwards of 85% of data initiatives fail. To be fair, many ideas data teams come up with aren’t bad, they just aren’t beneficial to the organization or fail to materialize or achieve the promise they set out to.
• Bad or incomplete data: Organizations attempt to use data that turns out to be inaccurate or incomplete.
• Undetected errors in the processing or algorithms, leading to poor results.
• Breach, theft or unauthorized use of data: Many organizations are failing to comply with legal or contractual obligations surrounding use of the data—this is increasingly a risk as companies process and leverage personal data. Personal information is being stolen at a rate of 15 million records per day—and regulators are responding by enacting legislations aimed at addressing and holding companies accountable for failing to protect it.
• Brand risk: The world is getting more sensitive to missteps around the use data, including the consequences of breaches, and increasingly the ethics of data use—just because data can be used in a certain way, should it?

We Get Briefings on Cyber Risks—How Does This Fit?

Cyber risks are an important component of data risks, generally focused on outsiders gaining unauthorized access to, or stealing, data. These briefings usually don’t dig into the nature of the data itself, which would reveal whether data is being improperly processed or handled, or other inherent risks tied to the use of data.

What Are Data Compliance Risks?

Unlike cyber risks, data compliance risks focus on whether the use of data violates regulations, policy or contractual obligations. These risks are increasingly prominent, as organizations leverage employee or customer information, or data licensed from third parties, such as clients, data brokers or governments. The impact and consequences of these risks can be significant, since violating some regulations can result in fines of up 4% of annual revenues.

How Should Data Be Managed to Lessen Risk?

Companies should develop and implement data governance programs that include data stewardship, leadership (such as a chief data officer), connections to business leaders (to help steer the program), objectives, strategies, plans and tactics, as well as accountability and ethics. Initiatives should be managed like any other significant project and should be tracked to ensure the organization achieves a return on their investment.

How Should the Board of Directors Engage?

Boards should understand how management views data, from the perspective of both opportunity and risk. Is management assessing the transformative potential data has to benefit the company? Is management taking a balanced and measured approach to a data program, with qualified leaders, realistic expectations, proper investment and balance against risk?

Conclusion

Data has been called a new natural resource. While it’s not strictly accurate (it’s not new, and “natural resource” implies it’s fungible—which it isn’t), it is true that now companies can—and should—use data in ways never before possible to drive benefit, and should do so in full consideration of risk and obligations. Boards should ensure they have the right knowledge and resources at their disposal to engage management in ongoing thoughtful discussions, and this may include seeking outside advice as they get up to speed on the issue.

The future is going to look very different than today, and data is a catalyst to get there. Markets will reward companies that get it right.