Editor’s note: The following is a guest post by Brian Foster, managing vice president at Gartner.
It’s hard not to pick up a business publication these days without reading a breathless pronouncement about opportunities for AI to unlock the value of corporate data assets. As a result, most organizations are coming to a realization: they need AI-ready data.
While AI might be “sexy,” the unglamorous work of implementing — and funding — effective data governance and developing effective AI management practices is definitely not.
Most organizations today have a data & analytics (D&A) organization, frequently headed by a chief data officer or more recently, a chief data and analytics officer. These functions first started to appear in financial services firms after the financial meltdown of 2008 with the goal of ensuring data integrity and protection and establishing common data infrastructure.
Over time, these functions have proliferated — about 85% of large organizations have some form of senior data and analytics leader today. Also, the nature of these roles has evolved, from one much more focused on data protection, to one also focused on enhancing their organization’s ability to use data for business value creation.
Interestingly, while these organizations have expanded in scope, they have historically struggled to justify their budgets and investments. Because they’re typically chartered as a support function with budget allocated centrally, it’s very difficult to separate the direct value created by D&A and the general value created by business initiatives.
Finding real value
D&A leaders frequently face a classic support function challenge: organizations know there is business value there, but it’s hard to prove it directly.
Consider a professional athlete: what is the value of a professional basketball player’s left arm or leg? I’m sure Lloyd's of London can come up with some dollar value. But what if our professional basketball player lost the use of that arm or leg? What’s the stand-alone value of that arm or leg now?
The same can be said for investments in support functions like D&A.
Recently, Gartner set out to measure the specific financial impact of D&A activities, such as data governance or data management. We also wanted to understand if there were specific D&A practices that accelerated or hindered business value creation.
Our analysis showed investments in D&A practice have an impact. In fact, we see that organizations with more mature D&A practices actually see up to a 30% improvement in their core measures of firm financial performance.
But the most interesting finding was one that highlighted how NOT to go about trying to justify value. It turns out that the practice of creating an ROI model to justify D&A investments actually showed a significant negative impact on firm performance. We called this problem “death by ROI.”
This didn’t make a whole lot of sense to us at first. But after digging deeper, and talking to several successful practitioners, we found that focusing ROI calculations on individual D&A investments is a little bit like obsessing about the value of the professional basketball player’s left hand: It’s not about the hand, it’s about the whole.
Because of the narrow ROI lens, these organizations are likely not seeing investments that have broader business benefits. While our results were specific to the D&A practice, it’s safe to assume any similar support function could encounter this same trap.
To avoid the “death by ROI” trap, Gartner recommends focusing on two key practices:
Don’t draw your lines: blur them
It’s easy for functional leaders to fall into the trap of wanting to clarify what they own and what they don’t and to seek out the portion of value creation directly attributable to their function. However, leading organizations tend to focus on blurring lines between their function and others.
Brita Andercheck is the chief data officer for the City of Dallas. Over a period of several years, she transformed her function from a transactional reporting organization to one geared toward strategic enablement of the city’s many departments.
Andercheck accomplished this by building up consultative and advisory skills in her data team, diagnosing underlying issues behind data requests and then identifying creative new ways to use information to achieve departmental goals.
The executive emphasized partnership and blurring the lines between her department and those it supports, highlighting that victory for her is when her partners think of her as an extension of their own team.
The ROI to company goals
Leaders should focus on the goals that matter to the organization and put all ROI conversations in that light. Marcelo Zottolo is the senior executive responsible for D&A at Lee Health, one of the largest public health systems in the United States.
When he came into the role in 2018, the hospital had to pay nearly $7 million in health regulatory fines for failing to meet certain health outcome benchmarks. In response, the D&A team pivoted to helping department leaders achieve these targets — tracking their progress while clarifying variables in their business that mattered to organizational success.
By 2023, fines were down to less than $1 million. In the process, the D&A function evolved from “reporting information” to providing leaders with actionable guidance to help them hit CEO-mandated goals.
It’s important to note that avoiding the “death by ROI” problem does not mean organizations should abandon efforts at measuring the business value enabled by D&A or any other support function. The most effective leaders are able to shift the framework of their value assessment conversations grounded in the whole, rather than the parts.
