Caught in the eye of a perfect digital storm
The challenge for CFOs
Lack of understanding
Among the finance leaders we surveyed, 58% said that they need to build their understanding of digital, smart technologies and sophisticated data analytics in order to deliver against their critical strategic priorities.
On the one hand, digitization offers the opportunity for new business models and revenue streams. But on the other hand, digitization makes the organization vulnerable to competition from new players and agile incumbents and creates exposure to new risk.
- Changing business models create opportunities for new products and services and recurring revenue streams.
- Technology is helping to transform operations, reduce operational expenditure and support more flexible, scalable systems and processes.
- Finance leaders must completely re-evaluate their underlying assumptions regarding business models, pricing, revenue streams and the related financial models.
- Cyber threats are on the rise. As part of their risk agenda, CFOs must work with the CIO to establish a governance framework for quantifying digital risks, prioritizing and protecting digital assets, and mediating across functional and technology silos to create an integrated approach that drives value creation.
“With financial communication, the world has changed,” says Jacques Tierny, CFO at Gemalto, a world leader in digital security “In a tech company, the investors know the business deeply. They have talked with suppliers, they have talked with clients, and so on in the eco-system. They know if there is a threat to the business and they are able to criticize our strategy and contribute interesting points. What these guys tell me is very helpful for my operational colleagues. It’s not only preaching to investors, but listening and coming back home with the message.”
To help their organizations profit from digital opportunities, finance leaders like Jacques Tierny are using a traditional finance skill: striking a balance between innovation-led growth and prudent risk management. They are collaborating with colleagues to develop their understanding of how the technological landscape is evolving and what strategic investments are needed to encourage and enable innovation and support the business’s growth. Many CFOs are not there yet.
In our research, 58% of finance leaders say that they “need to build their understanding of digital, smart technologies and sophisticated data analytics” in order to deliver against their critical strategic priorities. This is a priority across all sectors, with finance leaders in markets such as media and entertainment and automotive particularly focused on this area (Chart 1).
“Historically, most risk management processes have not been data-rich. As we move into the new world of technology that enables us to get data much more quickly, I believe data-driven insight will play a very important part in making better risk-based decisions quicker,” says Jonathan Blackmore, EMEIA Risk Leader, EY.
“This is because you can use data from multiple sources either to look for trends or predict potential risk events. In the future, that will be a key trend, because there is so much information available that you can begin to correlate different data sources to build up patterns and trends.”
Chart 1: Building digital know-how is a priority across sectors
Critical digital knowledge for the future: blockchain and robotics process automation
For finance leaders, it will be critical that they build their understanding of two disruptive technologies: blockchain and robotics process automation (RPA).
Blockchain, which underpinned bitcoin, allows data to be exchanged via a decentralized ledger that is extremely difficult to tamper with, as a shared network of computers around the world verifies it. It could fundamentally change the role of the finance function in areas such as corporate reporting, where it could transform the speed of reporting and theoretically allow transactions to be recorded and logged in real time, helping to provide greater transparency and trust in a company’s financial accounts.
RPA has been gaining momentum and can reduce the need for people to perform back-office processes. As well as being extremely accurate, software robots are estimated to cost one-third the price of an offshore full-time employee (FTE) and as little as one-fifth the price of an onshore FTE. It has significant implications for how finance functions perform rules-driven, transactional processes. It will also dramatically change the training ground for junior finance professionals.
The CFO’s role in digital readiness
They must also play a key role in building the organization’s readiness and confidence to act and react with urgency.
Effective finance leaders must:
- Understand the organization’s ability to deliver on its digital strategy. CFOs need to assess their organization’s current digital maturity and understand its key priorities, enterprise-wide digital budget and investments. That way, they can play a key role in helping to make coordinated and focused investment in areas that create real value.
- Build the organization’s confidence and capability to navigate the digital economy. CFOs must prepare their organizations for digital disruptions and help give them the confidence to handle them. Issues to tackle include global tax implications for how goods and services are sold, where companies base their operations, robotics, the accelerated globalization of the world economy and disruptive new competitors.
The digitally savvy drive growth
Digital offers enormous opportunities for organizations to enter new markets, transform existing products and introduce new business and delivery models. And finance leaders who are focused on growth seem to be embracing digital faster than the rest.
Our research shows that finance leaders whose number one priority over the next five years is to drive growth are more likely to be seeking to build their understanding of digital technologies than those who are focused on organizational transformation, cost efficiency or risk management (Chart 2).
However, it’s important for finance leaders to understand that digital is not just important for the growth it can bring, but also for its potential cost efficiencies through operational transformation. Even if driving growth is not top of your agenda, digital should be.