The Ascent of Digital – What does this mean for the CFO?

A series of articles looking at everyday challenges CFOs are facing and how finance functions can embrace the change and thrive on opportunity. The articles are written in collaboration with PwC, the ACCA and Jens Madrian - CFO, Reactive Technologies.

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Business is changing more rapidly than ever

Digital is reshaping the global economy and changing the face of today’s workplace. In PwC’s 20th Annual CEO survey 75% of business leaders expected advances in technology to significantly impact or perhaps even total reshape their business.

Four significant changes are shaping how businesses operate:

  • channels to market are being transformed,
  • traditional customer bases are eroding, and new ones are emerging,
  • product and service line profitability is dramatically shifting, and
  • barriers to entry are falling;

As a result of these factors, disruptive competitors are appearing from nowhere.

With increased risks and opportunities in the face of digital, many established businesses are pushed to innovate rapidly, rethink their vision and refocus on the capabilities core to the organisation. There is pressure to become more efficient, agile, forward looking and faster to adapt. Disruptive entrants into a market, in contrast, have an obvious advantage; they have no heritage and can quickly develop business models with no legacy challenges. They can scale quickly with processes that have been built first and foremost with the customer in mind.

This rapidly changing landscape for businesses means the pace at which organisations can grow or fail is faster than ever before and navigating through these changes to identify profitable growth opportunities is more important than ever.

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“Finance teams stand at the cusp of disruption and elimination unless they can harness the value of digital tools by integrating them into their processes. They also need to stay relevant by helping the business find profitable ways to grow.”

Asher Noor, Group CFO and Chief Investment Officer, AlTouq Group

Finance and CFOs are pivotal to ensuring success

For CFOs and their finance teams, the rapid pace of digital and technology development provides challenges, but also an entirely new starting point to reframe their role as central to helping the business capitalise on new opportunities.

Finance leaders that take the opportunity that digital provides and who seek to embrace the technology shift will reap the rewards - as will their organisations. Operational processes will become increasingly automated over the coming years and we may even get to the “lights out processing” goal that finance teams have set themselves for seemingly decades. The standardisation of processing through the use of emerging cloud technologies means that custom built systems won’t be the norm in the future and robotic process automation (“RPA”) and artificial intelligence (“AI”) will remove the majority of manual tasks from the finance team. We are already seeing leading finance teams adopt these technologies to dramatically reduce time spent sourcing and manipulating data.

As business models inflect to better serve customers, finance leaders need to entirely rethink how and where the business invests around its core capabilities to protect the future. They need to lead the business in driving the transformation of the end to end business processes that create most value for the organisation and its customers. Finance needs to become more “customer centric” and understand what key stakeholders need to enable them in turn to become more focused on the products and services they provide to their customers, how they provide them and at what price.

In this new business reality, CFOs must capture, measure, report and predict future performance in a much more agile manner to support better decision making and growth. Data quality is critical but so too is ensuring finance teams have the right skills and business understanding to challenge the organisations directions, analyse decision making and help identify future opportunities.

As such, digital demands an entire revolution of the CFO role, a different way of thinking, and a new way of operating that first and foremost thinks “customer”. This means finance operations increasingly move away from operational processing toward insight and analytics. For CFOs personally, it is important to appreciate the impact of these shifts. Today’s CFO needs to be a strategist, transformer and technology evangelist as well as the ultimate steward and leader of finance operations in the business; leading a team of dynamic professionals driven by the business strategy. Finance must use technology solutions to provide real operational insight.

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An example of what this may look like can be seen from a major international airline who has transformed the analytical capability of their finance team to be much more business focussed. Being able to analyse various aspects of route profitability including plane profitability, round trip profitability, passenger and class of service profitability and also analysing operational considerations such as route capacity, plane location and fuel demands moved finance from being an operational processing team to one which enabled decisions on future aircraft leasing plans and which routes to fly. Deciding which individual routes in future were likely to be unprofitable and could be cancelled could now take account of the impact on the total network - sometimes an apparently non-profitable local route would feed passengers to a profitable long-haul. Aircraft leasing decisions and configuration are expensive multi-year decisions and finance stepping into these decision making processes with forward looking analytics around passenger numbers transformed the organisations planning ability. Digital technologies, and particularly, cloud based planning and forecasting together with financial and non-financial modelling made this transformation of Finance’s role possible.

A similar approach has looked at the scarce resource of manufacturing capacity in the automotive industry. By incorporating data from purchasing, bills of materials, supply chain, marketing and sales, finance was able to model the cash and profitability of vehicle model and variant options in the production schedule. This enabled the organisation to understand which models and variants were valued most in each particular market thus driving production, marketing and pricing decisions to maximise the profitability of the specific models and variants sold in each market. Without this finance input, the organisation may have found itself needing to make expensive decisions around it’s production runs and also pricing it’s models sub-optimally for the markets it served.

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In both these cases Finance used technology as the key to pull together areas of the business that can often work in silos, and enable better operational and strategic decisions.


The digital opportunity

We believe the adoption of digital technologies is key to realising this new vision for CFOs. It is a crucial (but not the only) step. We see four emerging connected “pillars” of technology, the evolution of which will continue to revolutionise the business model and customer service. Finance teams need to be at the forefront of each:

  • Analytics: the explosion of data inside and outside the organisation to drive “big decision” and capitalise on “first move” opportunities, as well as rethinking KPIs and core processes.
  • Cloud: running the entire business from cloud, lowering cost, delivering enriched and more versatile data to serve better decision making.
  • Collaboration: digital tools and apps revolutionising how teams work together, co-creating solutions, sharing information across the entire enterprise to drive innovation and growth.
  • Robotic process automation (“RPA”): the adoption of virtual worker software to drive automation, reduce process costs, increase control and standardisation, and the greater opportunity longer term with Artificial Intelligence.

We saw from the above examples how the first two of these pillars have helped two finance teams add greater insight to a range of business decisions which would not have been possible without technology change. As an example of what is possible when you also add the second two, around collaboration and robotic process automation is shown by a Financial Services organisation who are using one of the new generation of flexible, cloud-based data analytics tools, to not only create an integrated detailed bottom up planning and forecasting model but also to create a strategic top down view.

The strategic model takes in a whole range of financial and non-financial key variables such as demand, fee rates, headcount etc and delivers projected outcomes over a 5 year period. The use of automation reduces the time take to compile these forecasts considerably as RPA cuts down the time to sources, reconcile and validate information used in compiling budgets. Collaboration tools then improve the finance teams to explore this information with the business online and real time rather than through the traditional cycles of issuing versions of the budget via email, meeting to discuss it or compiling and reflecting the input received from many disparate sources. The key benefit felt by the organisation and others who have implemented similar planning processes is that the time saved is refocused towards better business conversations rather than discussions of the accuracy of the data.

A fifth pillar has now emerged, as processing and data storage are increasingly taking place in the cloud - Cyber Security: finance needs to be quick to adopt tools and processes that drive a resilient cyber strategy as threats continue to change, recognising the increasing value of financial and non-financial data as key to creating competitive advantage and the role that finance plays as steward of this information.

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Finance needs not just smart tools but smart people too

Despite the examples given above, digital technologies alone are not the solution, they can only ever be the enabler. The change approach adopted when looking at technology and process transformation is critical to its success as is the impact that the changes will have on how people work, interact and behave. It’s the impact made by smart people supported by the use of smart tools that truly matters. Digital rewrites the talent strategy for finance functions and demands a rethink on how it attracts, develops, engages and retains the brightest and the best:

“Traditional finance teams will need to develop new collaborative working styles and integrate individuals with different talents and skills into their teams to be successful. Being conversant with new technologies and the business itself will be critical.”

Jamie Lyon, Head of Corporate Sector, Association of Chartered Certified Accountants (ACCA)

Culture

Digital requires a shift in culture reflected in different behaviours; finance must focus on supporting innovation, a measured approach to risk taking, collaborating with the business and having a much more entrepreneurial outlook. As data quality improves perhaps it is time to recognise that sometimes providing 100% accuracy on a figure versus 80% will not facilitate better decision making, especially if that accuracy comes at the cost of timeliness in reporting which may mean missed business opportunities.

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Roles

With the need to better serve customers, ever increasing access to rich data to enable this, and increasing opportunities to apply automation in traditional finance operations, the balance of roles in finance are pivoting towards insight generation and performance management. New roles in scenario planning, business model simulation and decision support are increasingly emerging yet this shift doesn’t marginalise the importance of more traditional stewardship and finance operational roles. Nearly every organisation we talk to is automating through the use of RPA to reduce the time take to process information. Traditional finance roles are transforming through this process and many organisation now see they don’t possess the skills within their teams that they will require going forward. This shortage of skills was another key concern raised by CEOs in PwC’s recent Global CEO Survey.

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Skills

Commercial insight and digital “know-how” are critical, as well as process reengineering, change management and data governance will be most prized as finance operations become increasingly analytical, judgement demanding and technology led; recruitment pools will need to expand and diversify into skills not traditionally associated with finance. (ACCA: Professional accountants - the future). Many finance teams have moved away from these skills over the last decade as they have focussed on cost and efficiency - perhaps there is now a risk that they lack this commercial edge and that is the skill-shortage the aforementioned CEOs were referring to?

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Career paths

As a result of the above traditional career paths in “finance” no longer exist; as enterprise functions transform and collaborate in the face of digital, the range of career opportunities becomes increasingly diverse, reflecting the broader skills of those in the organisation, and the needs of the business. (ACCA: Professional insights, Finance shared services careers: opportunity or end game?)

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Learning and engagement

In the face of digital, valued learning interventions in finance are transformed. The pace of change, technology transformation and virtual working places a new premium on activities such as reverse mentoring, secondments, inter-generational knowledge share and social media engagement strategies. (Professional accountants - the future: generation next)

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Key considerations

So what does all of this mean for finance within your organisation and for the development of the profession as a whole? Finance professionals need to begin thinking more about the business opportunities their organisation can capitalise upon and also the career opportunities presented to them by this digital transformation. Some of the questions we should be asking include:

  1. How will your business create future value and how can finance influence business decision making? Think carefully where you need to invest, understand which processes are key to creating value, and understand collaboratively with different functions how your current key processes need to transform across the business to drive future growth.
  2. What is the role of different technologies across the organisation and also across the finance function in order to better support the business? Where do you need to invest in new technologies, what is the current fit with existing technologies, how can you leverage technologies to transform the key processes that deliver most value, deliver insight and better decision making.
  3. Is the quality of your data a source of competitive advantage and do you as finance professional understand how best to use it to drive insight? Better data enables better decision making and is critical to creating competitive advantage in the digital age. How effective is the data governance in your organisation and have you established the right teams, structure and collaborative forums within the organisation to analyse, critique and gain value from the data you hold?
  4. Consider the implications of digital for finance talent - not merely in the area of technology knowledge or know-how but also around analytical thinking, collaboration and commercial skills? Rethink the culture, mind-set and skills you need in the future finance team. Look beyond traditional recruitment requirements to bring in new talents and new skills fit for digital. Review career paths in finance to ensure they are future proof for the changing needs of finance and the business. Examine carefully the interventions you need to develop your future finance workforce with the appropriate capabilities.

“CEOs are turning to CFOs for help and guidance around where profitable growth opportunities lie and where the organisation should focus on in these challenging and fast changing times. Finance should deliver enhanced visibility around performance and create forward looking analytics around strategy to help businesses thrive.”

Jens Madrian, CFO, Reactive Technologies

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Brian J Furness
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Andrew McCorkell
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