The Digital Transformation: A CFO’s Perspective

21 December 2015

 

In November we held the fourth PwC Finance Leaders’ Summit in London. During the two day event over 100 CFOs and finance leaders from across all industries looked at how advances in technology and digital are affecting the role of the Finance function and how it goes about its work.

The summit included a number of PwC and client speakers who shared how digital and technology developments impacted their businesses and finance functions. They spoke about the benefits the finance function had seen from the changes and how they had helped their finance teams become more relevant, improve their service provision across the organisation and drive business performance more widely. One such speaker was Jens Madrian, former CFO of one of the big 6 UK Energy utilities. In this blog we build upon Jens’ ideas to present a finance leaders perspective on digital transformation. Here are some of Jens’ thoughts:

The digital transformation: the CFO’s perspective

Just like the animal kingdom, it’s survival of the fittest out there. Every year, companies that were once household names go to the wall, others struggle to survive, whilst others still seem to make it big and every market sees a flood of new entrants. The evolutionary cycle is played out every day in the business world. Kodak, Blockbuster, Woolworths, Ryan Air all responded for better or worse to the Digital revolution, which is an example of a megatrend presenting opportunities for some, threats for others.

The organisations that thrive in this rapidly changing world will be radically different on the inside compared to the organisations we have seen in the 1990s and early 2000s. In particular, their Finance teams will, give the business a new competitive edge, driving insight and innovation quickly and responsively across the organisation. Finance teams have a crucial role to play in ensuring businesses grow and prosper in this rapidly changing environment. Here are some of the experiences of the change journey in Finance I made over the years:.

Life using a rear-view mirror

The Digital revolution has had an enormous impact on the way consumers buy, the way they select their energy providers, and in the loyalty they feel towards those providers. Having worked many years in operational leadership roles, I recognised Finance as having a laser focus on performance, but because measuring performance is largely a retrospective activity we have become very good at looking backwards, but less good at looking forwards. The past is concrete, the future is more blurred, and so the CFO must have an opinion on where the business is headed as compared to what those customers now want, then challenge the business in the right way to formulate a strategy in response.

Focus on innovation and growth

I’d like to share with you a boardroom experience I made at the moment we were evaluating and deciding our digital strategy. The business case for a digital transformation was well founded – streamlining processes and substantial cost reduction opportunities meant substantial Internal Rate of Return and short payback. I had rarely seen such a financial no-brainer, and yet something nagged at me. Like good finance professionals we were evaluating an investment with the mind set of, ‘I give the business money, when do I get my actual return?’

As a result, the business case, and therefore the whole transformation plan, is often limited to saving cost and driving efficiency rather than innovating and driving growth. When we re-focused as a team, we found we became very much more innovative about how to move from an efficient business to one that also truly engaged with its customers. This outside-in perspective has led to the organisation transforming its whole structure, values and culture, and in a short period of time, rather than simply opening up a new sales channel.

My reflection was profound for me. There was an issue with the underlying mind set existing in both Finance and the business - a mental model which I have seen in many other companies over the years. The business believes they need to formulate a strategy that would ‘get past’ Finance. Their thinking seems restricted whenever the initial conclusion is, ‘Finance won’t go for it’ and I now realise how debilitating this can be for any decision makers. How many ideas went unexplored because of this attitude? How often was the status quo protected in favour of action? Finance was complicit in this approach, of course, but we spotted our decision making bias early and rectified our thinking. This started to change the mind set across the whole organisation and allowed people to think more about innovation and the art of the possible rather than constraining these thoughts.

The result is that sustained digital investment has started to drive significant increases in customer satisfaction and created a higher customer and portfolio lifetime value, with some ways to go.

Changing the role of Finance

The Digital transformation has meant some other interesting changes. For example, the Finance teams play a much more active role in data governance, cyber security and data flow controls, investing in the right expertise to protect the company in the new world, and play the role of Steward.

Our role as efficiency driver has also changed. The digital transformation turns Finance to the insight engine for the business, giving informational support for strategic decisions along with business performance measurement and review. We need to pay more attention to generating and maintaining the quality of our data, because the better the data, the more efficiently we can use our budget to create returns through analysis and insight. As a consequence we can engage customers in the way they would like to be engaged by using this insight.

We have also changed our role of business partner too – we have become really plugged in to the business, ensuring the business doesn’t have different goals from finance or the wider business strategy. I have noticed that the best finance business partners possess one outstanding attribute – they are curious about how the business works, how it makes and keeps money and what the business is trying to do at a strategic level. This curiosity, and the ability to ask the right commercial and operational questions, is a fundamental attribute of a great finance business partner.

This all means that we also needed to grow new skills in finance, becoming conversant with new language and technical know-how so we can’t be fooled, so that we can challenge the business and hold them to account on their promises. This has been by far the most difficult thing to accomplish with people who have trained their whole careers in one discipline needing to stretch themselves in another. Only by stretching ourselves as finance professionals will we continued to add value and be relevant in the rapidly changing business world. Finance has so much to add but it needs to change to unlock this potential.

Jens’ words at the summit clearly resonated with a wide range of attendees. Historically finance has been seen by many in the organisation as a ‘scorekeeper’ and someone (as Jens says) to ‘get past’ to gain approval for any new or innovative business idea. But the skills possessed by the finance function can be central to ensuring business success, for example using their analytical skills to drive insight from huge structured and unstructured data pools. In many organisations there needs to be a change of mind set within finance in order to allow this to happen. It’s not all one sided though, the business needs to change its view of finance too and develop trust in them as business partners and providers of business insight. However, trust needs to be earned and this will only come through effective challenge and collaboration. Finance finds itself at a crossroads in many organisations at the present time and this can be an uneasy position. Finance needs to change both the skills it possesses and the way it operates but the potential for finance leaders is huge and exciting.

For more information about the Finance Leaders’ Summit please contact me directly.

Garie Walsh2Garie Walsh
Senior Manager, Finance Consulting
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