The North Star of financial judgment is well-organized data

Last Friday, the Labor Department's jobs report sent shockwaves through the market. The Dow closed down 1.5%, while the Nasdaq suffered its worst day since January 2022. This market volatility, triggered by unexpected economic data, highlights a crucial truth in today's financial landscape: the power of data to shape our economic reality.

Readers, of course, are familiar with the headline news. The monthly employment report by the Department’s Bureau of Labor Statistics (BLS) of 142,000 new jobs in August, was less cheery than most economists expected. It followed other recent news that the U.S. economy had produced 818,000 fewer jobs than originally estimated. Then too, the markets swooned.

In an era of extreme market unpredictability, data and the associated tools to manage it are becoming crucial instruments of financial stability. 

The New Reality of Market Volatility

For many, the above are financial stories. But for me, the dog that didn’t bark is the data story. Why do we get these numbers so wrong, when we know how sensitive markets have become to data? Game engine Unity Software blew $5 billion off its market cap in 2022, as it tried to work around an Apple privacy update. Equifax botched the credit reports sought by millions of unlucky loan applicants that same year, briefly erasing nearly a half billion dollars of market cap. I could go on. Samsung’s “fat-finger error” handing out $100 billion in shares in 2018. Uber and Lyft’s short-change of drivers settled last year for $318 million.

In such a tumultuous environment, comprehensive and well-organized data is clearly the North Star for financial decision-makers. Yet the sheer volume of data available presents its own challenge, sabotaging even established, high-reputation players. 

Large financial institutions, in particular, are susceptible to data fragmentation. Valuable information scatters across various departments, systems, and databases. And the costs of a compliance failure are clearly enormous. 

The Time-Honored Tradition of Data Governance

Success and failure with data ultimately comes down to data governance, and the fact that data is a powerful asset, but only when it’s used diligently and expertly. 

A data catalog isn’t an entirely new utility, nor is its transformative power. Friar Luca Pacioli (1447-1517) invented what we now know as “double-entry bookkeeping” a half millennia ago. Pacioli’s system to accurately account for debits and credit in the books of merchants and governments transformed the economies of the late Middle Ages, birthed the world’s first stock exchange in Amsterdam, and nurtured an explosion of prosperity that ushered in the Renaissance. I referenced Pacioli’s foundational work earlier this year in anticipation of what I’ve forecasted as our Renaissance 2.0 in the new age of AI and after attending the TED2024 conference (and recapping it in that article). Pacioli’s revolutionary invention was the earliest form of a data catalog and, in some ways, a knowledge graph, our foundational technologies as data.world. It is not an exaggeration to say that his data tool fueled capitalism.

“The rise and metamorphosis of double-entry bookkeeping…enabled capitalism to flourish, so changing the economies of the world forever….[Additionally] over several centuries it grew into a sophisticated system of numbers which in the twenty-first century governs the global economy,” wrote economic historian Jane Gleeson-White.

As guardians of the current global economy, financial institutions need to do that again. And their mechanism for doing it is the data catalog. 

For instance, when faced with unexpected economic indicators like the recent jobs report, a bank using a data catalog will quickly assess its exposure to affected sectors, analyze historical patterns, and make informed decisions about portfolio adjustments.

Implementing a Data-First Strategy

To adopt data catalogs and cultivate a data-centric culture, financial institutions should take the following steps:

1. Assess current data management practices
2. Invest in modern data catalog technology
3. Develop clear data governance policies
4. Train staff on data literacy and catalog usage
5. Encourage cross-departmental data sharing
6. Continuously refine and update the catalog

Leadership is the primary champion of data governance, and therefore the primary drivers of this transformation. 

As market volatility becomes the norm rather than the exception, it’s on financial institutions to adapt to survive. Data catalogs are today’s most powerful vehicle for leveraging the vast amounts of information at our disposal.

Will you stay well-equipped to navigate market turbulence, make informed decisions, and maintain stability in the face of uncertainty? The future of finance belongs to those who can harness data’s power. 

In the words of author and financier (and data.world investor) Zachary Karabell, a modern-day Pacioli, “The headline unemployment rate or underemployment rate as calculated by the BLS has little impact on the fate of a staffing agency in Omaha. What LinkedIn does will have far greater impact than the leading indicators.”

A Data-Driven Call to Action for Financial Institutions

It's time for financial institutions to embrace the data revolution and build the infrastructure needed to thrive in our data-rich world. In other words, we’re still using rough measures designed in another century to measure our progress. What we should be doing is tapping into the ongoing data revolution. 

Certainly there are other tools, led by AI, that will be part of our emerging new data-driven era (and we are indeed pioneering there with our AI Context Engine) – a topic for another day. But in the meantime, we shouldn’t tie ourselves to outmoded ways of managing data, of inaccurate jobs reports or billion-dollar data errors. The data catalog and knowledge graph are the start of what I’ve called the “brain” of the enterprise.  

As Pacioli’s invention foreshadowed today’s data management principles – establishing relationships between assets, liabilities, and equity – a data catalog is the next link in the chain of the time-honored tradition of taking the data, sifting through it for meaning, and using it to make quick-witted decisions for the greater good of the organization. 

Demo our data governance platform - we would love to help you adapt.