Digital — should CFOs be bothered?
Clearly yes, digital business dramatically alters the business and business models in virtually every industry and by doing so, it changes the way CFOs will operate
Enterprises around the globe are faced with an increasingly dynamic business landscape with fierce competition among established players and new market entrants. A significant driver of this development are proliferating digital technologies and resulting business models which significantly alter the ways businesses interact with customers and which also provide cost-efficient, faster and more integrated ways to work together among employees and with business partners.
The exponential growth rates for digital devices such as tablets, smart phones and other devices, sensors and machines connected to the internet as well as the steady growth of digital platforms both in the B2C- and B2B-space are triggering opportunities and challenges for enterprises which receive top-level management attention.
Also CFOs and their teams are starting to reflect, what the impact of these technology and business environment developments means for their business and business models and if ignoring these is an option.
Digital — a topic not just for CIOs or CMOs but also for CFOs
Why should CFOs and their teams become involved in exploring, shaping and executing the options, digital holds in store for their enterprise?
In this blog, we put forth two expectations on developments, which underscore the critical relevance of digital for the CFO:
1. Digital business is a key source of future growth but implementing digital strategies for a majority of companies is still in its early stages
2. Digital will drive the evolution in the CFO domain and will enrich the position with a new set of responsibilities but also a with a new set of digital-ready processes, tools and required skills
Digital business is a key source of future growth but implementing digital strategies for a majority of companies is still in its early stages
The consensus among many research institutes and analysts is that there is a high awareness among C-level managers that „digital“ is important to their companies’ future and that almost all industries will be faced with growing disruption through digital. Action on this insight, however, is a slower process for many enterprises.
„In 2014 only one fifth of executives have integrated digital into the overall enterprise strategy.“
In the past years and even today, the primary area for digital activities centered around customer, customer-experience and digital marketing with CMOs at the center of the playing field. But more and more the digital activities eclipse the customer and marketing domain and leading enterprises start to adopt a holistic digital approach covering strategy, customer-centric approaches as well as digital ways to increase operational excellence both within the firm and within the larger eco-system, the firm operates in containing suppliers, business partners, and service providers. Eric Falque and Angus Ward note in their BearingPoint Institute report “Leap into the connected digital economy” that “we are in the midst of a remarkable digital age. Today’s web, social and mobile technologies, cloud computing and big data analytics are combining to deliver unprecedented and far-reaching impact on every aspect of our business and personal lives” (note 1).
Managers are starting to reflect strategically, which business models will help them best to address the opportunities and challenges of what Forrester analyst James McQuivey calls the “Digital Disruption” (note 2). He notes that a growing number of companies are adopting a digital disruptor’s mindset. Those who succeed in doing so will threaten incumbents in any given industry by providing new customer-centric products and services faster, cheaper and in higher quality enabled by digital technologies. “When companies adopt technology, they do old things in new ways; when companies internalize technology, they find disruptive new things to do. They become digital disruptors” (note 3).
Digital will drive the evolution in the CFO domain
As digital impacts business processes, business models and enterprise strategy for the enterprise at large, the CFO’s role, tool- and skill-set as well as CFO-domain processes and supporting technology is also changing.
The changing role and skill set of the CFO team in the digital age
An overview of recent surveys on “digital engagement” expectedly has marketing and IT as most active while CFOs currently show moderate to medium engagement. However, digital will impact the way CFOs and their teams operate in virtually all dimensions of their work ranging from questions such as:
· How do we measure value and performance e.g. of new emergent digital business models?
· Are we providing sufficient forward-looking analysis to the business fast enough?
· How will the role of the CFO team evolve?
· How can we provide business processes, which support today’s and tomorrows digital business?
· Which steps can we take to get our ERP and IT systems ready for the future?
· Which new skill sets do we need to bring into the team to meet new requirements such as providing predictive analytics, etc.?
As you see from the sample of questions above, emergent digital business activities and digital transformation projects will drive change and provide new opportunities for the CFO team.
The discussion about the evolving roles of CFOs dates back at least to the 1990s. While traditionally CFOs and their teams had a strong focus on accounting and reporting, finance and tax issues, gradually, partially driven by a slow convergence of American and European concepts, the CFO’s role added additional areas of responsibility such as performance reporting, risk management and business partnering, helping operational business and other non-finance overhead functions to better understand cost management and overall business performance, represented in the companies’ management information systems. Digital transformation will provide an additional impulse to push the evolution of the CFO role further supporting the quest to drive down cost for transactional tasks and to provide higher value services to business.
CFO as a digital strategist and business partner
- The CFO’s business partner role will gain in importance. Understanding the changing dynamics of enterprise performance and enterprise value creation in the digital age requires a sound understanding of opportunities and costs associated with digital business. Companies explore additional revenue streams and growth areas while traditional business models — e.g. online media content vs. print — frequently are under pressure due to high competition and resulting pressure on price and margin, commoditization or simply shifting consumer or client preferences.
- Balancing traditional cost control roles with the emerging role as a „digital investor“, e.g. when gauging the value of investments in digital start-ups or other investments with digital focus. Look at kloeckner.i, the digital start-up of Klöckner steel trading group, which will help Klöckner push online-sales for steel products in the future.
- Today’s performance management needs to be modified to enable the CFO to take on a holistic view of the enterprise which employs digital to add or enhance customer experience, products or services, internal process agility or digitally-powered new business models.
CFO-processes and systems must be ready for digital business
- Processes in the CFO domain itself are transformed and made more efficient through digital. Both core finance processes such for transaction capture and reporting as well as what Gartner calls the „nexus of forces“4, i.e. social, mobile, analytical (big data-driven) and cloud technologies will provide a multitude of options to do the work of the CFO team better and more cost efficient.
- Processes are powered by technology and technology in the ERP and BI-space has much to offer to enable more digitally enabled business processes. In-memory computing, cloud, predictive analytics tools will become a focus of attention in a process which will become a paradigm shift in information technology. Dion Hinchcliffe’s presented a good overview of technology shifts offered through emergent technology in an interesting comparison of changes on http://zd.net/1GIaYQg .
- Next to the topics mentioned above, we expect significant developments in the area of digital-ready EPR-systems. Legacy systems need to be reviewed to identify areas, which need update to be ready for digital business. Integration of cloud/software-as-a-service options as well as in-memory computing will shape the investment discussions of the next three to five years, making enterprise systems ready to provide real-time analysis on financial and business data and a more process-driven architecture.
New skills for finance — being good at Excel and ERP was yesterday!
- New skills and competencies are required in the to provide the required levels of professional business partner support — these include skills for the CFO domain such as being able to leverage big data to glean insight for the business, to use mobile reporting but also skills employed in the broader enterprise context to be able to take part in the discussion on how to integrate digital into the enterprise strategy such as business model generation, methods for customer centricity such as journey mapping and others
What is ahead for the “digital CFO team”?
The areas touched upon in this blog are only a selection of key areas to illustrate the impact of digital on the CFO domain. Additional impulses can be expected as other functional or business departments start leveraging digital in the way they do business. Gradually digital ecosystems will emerge within and between enterprises.
Five actions for the CFO
For CFO teams the recommendation to start adoption of digital into their domain include these actions:
1. Evaluate their “digital CFO” positioning, requirements and opportunities. The annual planning process may be a good time to become involved if this has not already taken place. Running a workshop focusing on digital opportunities frequently is among the first activities.
2. Another good starting point is to become part of the team, which shapes the overall enterprise digital strategy. Set up interdisciplinary teams with representatives of business, IT and functional departments to explore digital business process and business model opportunities and available technological options.
3. Integrate discussions with business and IT which digital strategies are right ones for your company. Agree areas of focus and start experimenting with first pilot adoptions.
4. Work with business and IT to adopt guidelines and governance rules to strengthen a digital first mindset.
5. Based on these inputs, the CFO team can make decisions on the right mix digital processes and services to be provided to business. In the CFO team, create a roadmap for the development your digital future, looking at process options, new skills to be developed in the team and on actions toward a postmodern, digital ready ERP and BI-system.
As you can see, the evolution of the CFO team will most likely be a gradual process which will alter the ways of working, the scope of work and supporting technology.
As “digital for the CFO” contains a broad range of topics, we will continue to discuss other aspects in a series of upcoming articles, covering topics such as:
- The changing role and skill set of the CFO team in the digital age
- How value creation is changing in the digital age and what the CFO needs to know
- The impact, digital has on core CFO areas of responsibility such as planning, performance management and postmodern ERP systems which support digital business focusing on social (business), mobile, analytical and cloud (SMAC) tech options
- How new forms of social business collaboration become available and how the future of work in the CFO space might look like
Notes
(1) BearingPoint Institute # 5 “Leap into the connected digital economy”, October 2014
(2) Report: Digital Disruption: Unleashing the Next Wave of Innovation; James McQuivey, Forrester, web: http://de.slideshare.net/forrester/digital-disruptionbyjamesmcquivey
(3) James McQuivey, „Digital Disruption: Unleashing the Next Wave of Innovation, web: http://de.slideshare.net/forrester/digital-disruptionbyjamesmcquivey
