Finance in the Digital Age

The face of the finance function is changing every day but do we really understand what this means in reality? I love to mentor young professionals and offer them advice that can help them propel their careers forward. One of the many questions I often get asked is “With all the technological advancements taking place, what does this mean for current and future finance professionals, including the finance function as a whole?”

A lot has been written about the current digital revolution taking over specific jobs performed by humans and making them redundant. One of the jobs being accounting and finance. No wonder finance professionals are worried whether they will still be in employment in the next five years, ten years or not too distant future.

Think of robotics, artificial intelligence and machine learning. These new technologies can replicate humans and perform rules-based, repetitive activities.

Traditionally, finance professionals joined the finance organization via the accounting route. An individual would go to university, earn a Bachelors in Commerce, upon graduating register with a professional accounting body such as ACCA, CIMA, CPA and CMA. Undergo a three-year training program and bingo, your finance career is birthed.

Fast-forward to the current digital age. The finance landscape has significantly changed. Rapid environmental changes, shifting customer behaviours and technological breakthroughs are all turning business models upside-down and upending conventional wisdom. This new operating model demands finance professionals to have a different skill set.

Having technical competences alone is no longer a hundred percent determinant for success.

We now live and conduct business in a hugely connected and better informed world. Thanks to social media and IoT. Social media is allowing us to stay in touch with colleagues hundreds of miles away from us. Through IoT, buildings and other items are now technologically connected allowing data to be gathered, exchanged and analysed to generate key decision-making insights.

Cloud is Driving Finance Transformation

Cloud-based applications are enabling CFOs to do more with less, at the same time modernizing and transforming finance. These solutions have the capability to integrate external data and optimize decision-making. They allow finance executives to have full data visibility, identify correlations and trends, as well as key drivers of operational performance and financial outcomes.

One example of cloud-based solution that is making waves is Syft, a cloud analytics platform that directly links into your existing accounting cloud software and instantly generates easy to interpret graphs and reports for your business.

The challenge for many CFOs today is unlocking critical business insights from their data. The insights they are looking for lay buried in disconnected, legacy ERP systems that are struggling to keep pace with today’s information needs of the business. Most of these legacy systems operate in silos and do not communicate with each other.

In the ongoing digital revolution, integration is the new information paradigm. Where silos were the norm, organizations today must seek to share critical data among business operations to manage costs and coalesce company strategy.

Not only does cloud integrate external data, it also simplifies the cost structure of the business, help forecast with greater precision and potentially close books faster. In addition to having analytics embedded within the applications, these cloud-based financial systems are designed from the ground with the end-users’ real-time information requirements in mind.

This is different from the traditional ERP systems that lack customer specifications and customization, and are build for standard adoption. In today’s information age, organizations have different information needs, specific to their strategic direction and are not keen on adopting the herd mentality.

Investing in cloud computing and SaaS often results in reduced finance and IT costs mainly because of reduced up-front capital expenditures. With cloud-based applications, the focus shifts from capital expenditures to operational expenditures (subscription-based) as there is no need to have the financial system set up on business premises.

Unlike traditional, on premise financial systems which require the software providers’ IT support team to visit your offices to service or upgrade the system, cloud-based platforms are easily updated remotely allowing you to always work with the latest version, with current features and functionality.

This way, you avoid getting billed for call-out fees and other unnecessary servicing costs.

Reinventing the Finance Function’s Wheel

Technology alone is not the silver bullet, it is an enabler and empowers finance professionals. Rather than look at the ills of this new digital age, why not look at the opportunities presented? Higher demands are being placed on finance to transition from a back office reporter of the past to a trusted business advisor.

In most companies, finance is spending considerable time and effort gathering data and getting to the right numbers instead of analyzing what the numbers mean. In these organizations, a lot of emphasis is placed on transactional processing and reconciliations as opposed to insightful analysis.

Thanks to the digital revolution, finance has an opportunity to move up the value chain. But what does this digital transformation really mean? Does this mean entirely changing what finance does within the business? No. Finance is a decision support function to the business and will always remain so.

What digital transformation means for finance is that the function should take stock of its current deliverables, evaluate priority areas and establish where value should be delivered most, and how, arguably by leveraging new technologies.

This also involves building upon the existing talent and skills. Individuals with a strong technical background still have their place within the function. But what we are saying is that the organization’s talent base must be fit for purpose in this digital age, and aligned to areas of value creation.

Having a finance workforce that is tech savvy, diverse, connected, curious about how the business works, asks the right operational and commercial questions, and understands the application of disruptive digital technologies to drive automation and insight will differentiate great finance functions from those that are simply good.

Build a Positive Business Case for Digital Investment

Companies that have fully grasped the opportunities presented by the current digital revolution are allocating significant resources to IT budgets. The future finance function will have robotics and automation at the core. It is therefore advisable that CFOs jump on the train before it passes through their station.

Just because your organization is not investing in digital does not mean that your competitors are also not. Lessons can be learnt from the demises of Kodak, Blackberry, Borders and Nokia, only to mention a few. These companies failed to set pace in a rapidly changing technological environment and they all paid dearly for their slumber.

CFOs must therefore build a robust strategic business case for investing in digital and the advantages of harnessing its power. This helps secure the much-needed buy in from senior management. The later group must be made aware why it is critical for the organization to transition to the current digital ecosystem.

If the CFO is able to articulate the complexities the business is currently facing and how they can be addressed by investing in digital, then getting the thumbs up from senior management will not be very onerous.

This is a make or break time for many organizations. The ball is in your court, to either maintain your old-fashioned systems or inadequate business processes or invest in today’s modern systems for future strategic success.

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Leading in Uncertain Times

One of the biggest challenges facing business leaders today is making the right decisions that will ensure their organizations succeed, survive, and remain competitive in an increasingly uncertain and complex environment.

A recent post, The best way to lead in uncertain times may be to throw out the playbook, by Strategy+Business has several good points.

The article is about the COVID-19 pandemic, how global companies navigated through the crisis, and how best to prepare for future disruptions. Here are some key points and my comments.

  • Rather than follow a rigid blueprint, executives must help organizations focus on sensing and responding to unpredictable market conditions.
    • Comment: Senior leaders play a vital role in providing clarity about the organization’s strategic direction, creating alignment on key priorities to ensure the achievement of enterprise objectives, and ensuring the business model is continuously evolving to create and capture value in the face of uncertainty. They must not rest on their laurels and stick to the beliefs and paradigms that got them to where they are today and hope they will carry them through tomorrow. Regulatory changes, new products, competition, markets, technologies, and shifts in customer behavior are upending many outdated assumptions about business success. Thus, the businesses you have today are different from the ones you will need in the future hence the importance of continuously sensing changes in the global economy. Employees and teams often feed off the energy of their leaders and tend to focus their attention where the leader focuses attention. If the leader is comfortable with current business practices and rarely embraces the future or challenges the status quo, then the team is highly likely to follow suit.
  • When it became clear that supply chains and other operations would fracture, organizations began scenario planning to shift production sources, relocate employees, and secure key supplies.
    • Comment: Instead of using scenario planning to anticipate the future and prepare for different outcomes, it seems most of the surveyed organizations used scenario planning as a reactionary tool. Don’t wait for a crisis or a shift in the market to start thinking about the future. The world is always changing. As I wrote in The Resilient Organization, acknowledge that the future is a range of possible outcomes, learn and develop capabilities to map out multiple future scenarios, develop an optimal strategy for each of those scenarios, then continually test the effectiveness of these strategies. This does not necessarily mean that every change in the market will impact your business. Identify early warnings of what might be important and pay closer attention to those signals. In other words, learn to separate the signals from the noise.
  • The pandemic forced the organization’s senior management team to re-examine how all decisions were made.
    • Comment: Bureaucracy has for a very long time stood in the way of innovation and agility. To remain innovative and adapt quickly in a fast-changing world, the organization must have nimble leadership and an empowered workforce where employees at all levels can dream up new ideas and bring them to life. Identifying and acting on emerging threats and potential opportunities is not the job of the leader alone but every team member. To quote Rita McGrath, in her book Seeing Around Corners, she writes, “Being able to detect weak signals that things are changing requires more eyes and ears throughout the organization. The critical information that informs decision-making is often locked in individual brains.” In addition to the internal environment, the leader must also connect with the external environment (customers, competitors, regulators, and other stakeholders), looking for what is changing and how.
  • It’s worthwhile for leaders of any team to absorb the lessons of sense-respond-adapt, even if there is no emergency at hand.
  • Sensing: Treat the far-flung parts of your enterprise as listening stations. The question leaders must ask is, “What are we learning from our interactions beyond the usual information about costs and sales?” Train your people to listen for potentially significant anomalies and ensure that important information is not trapped in organizational silos.
    • Comment: Cost and sales data are lagging indicators that reveal the consequences or outcomes of past activities and decisions. Although this information can help leaders spot trends by looking at patterns over time, it doesn’t help understand the future and inform what needs to be done for the numbers to tell a different story. In addition to lagging indicators, pay attention to current and leading indicators and understand the relationship between these indicators and outcomes.
  • Responding: Improve communication across intra- and inter-organizational boundaries. Leaders should view business continuity as an essential function that acts as connective tissue for the enterprise.
    • Comment: In addition to creating mechanisms that allow the free flow of information both inside and outside the organization, decision-makers should also be comfortable receiving information that challenges their personal view of the world, even if it’s not what they want to hear. Create a culture of psychological safety where people are not afraid to share bad news for fear of getting punished, but rather are acknowledged and rewarded for speaking up. Leveraging the diversity of thought enables leaders to anticipate the future as an organization, decide what to do about it collectively, and then mobilize the organization to do what’s necessary.
  • Adapting: Challenge assumptions, and question orthodoxies. There’s always the temptation to mitigate threats simply by applying existing practices harder and faster. One way to get at those deeper issues and encourage double-loop learning is to ask, “What needs to be true for this to be the right approach?”
    • Comment: In an increasingly uncertain environment, it’s difficult to survive and thrive with an old business model or outdated technologies. Many businesses fail because they continue doing the same thing for too long, and they don’t respond quickly enough and effectively when conditions change. As a leader, stay curious and connected to the external environment, look for market shifts, understand what needs to be regularly refreshed and reimagined, adopt new technologies and capabilities, and adapt in ordinary times but also during times of transition. Unfortunately for many leaders, it’s just more convenient for them to continually downplay the fact that conditions are changing than take the appropriate course of action that drives business success.

How are you preparing your organization for potential future disruptions?

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The Collaborative Organization

These days the term collaboration has become synonymous with organizational culture, creativity, innovation, increased productivity, and success.

Let’s look at the COVID-19 pandemic as an example. At the peak of the crisis, several companies instructed their workers to adopt remote working as a health and safety precautionary measure.

Two years into the pandemic, they are now asking their employees back to the office full time or are planning to adopt a hybrid model.

The need to preserve our collaborative culture and accelerate innovation are two of the top benefits being cited by organizational and team leaders for bringing workers back.

Collaboration is indeed essential for the achievement of team goals, functional objectives, and the overall success of the organization.

Today’s breakthrough innovations are emerging from many interacting teams and collaborative relationships.

When teams, functions, and organizations collaborate, the whole is greater than the sum of its parts; group genius emerges, and creativity unfolds.

But, what makes a successful collaboration? What are the key enabling conditions?

  • It extends beyond the boundaries of the organization. Business success is a function of internal and external relationships. Instead of viewing your business in vacuo, understand that you are part of an ecosystem. External to your organization, who do you need to partner with to enhance your value creation processes, achieve/exceed your objectives, or successfully execute your strategy?
  • Ensure the objectives are clear and there is shared understanding by everyone. Unclear objectives are one of the topmost barriers to team and organizational performance.
  • Foster a culture that encourages opinions and ideas that challenge the consensus. People should feel free to share their ideas and not hold back for fear of others penalizing them or thinking less of them. Collaboration is hindered when one or two people dominate the discussion, are arrogant, or don’t think they can learn anything from others.
  • Groups perform more effective under certain circumstances, and less effective under others. There is a tendency to fixate on certain topics of discussion amongst groups which often leaves members distracted from their ideas. To reduce the negative effects of topic fixation, members of the group should be given periods to work alone and switch constantly between individual activity and group interaction.
  • Effective collaboration can happen if the people involved come from diverse backgrounds and possess complementary skills to prevent conformity. The best collective decisions or creative ideas are often a product of different bodies of knowledge, multiple opinions, disagreement, and divergent thought processes, not consensus or compromise.
  • New technologies are making collaboration easier than ever, enabling us to increase our reach and broaden our network. Although new technology helps, it will not make your organization collaborative without the right culture and values in place. First, define what you want to achieve through collaboration then use these tools to promote creative collaboration.

How else are you championing collaboration within your organization to create value and succeed?

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Preparing for Geopolitical Shocks

Geopolitical instability has steadily increased over the past years, and uncertainty in the global economy is at an all-time high. Thanks to globalization and advances in technologies, we now live and work in a tightly interconnected world, one in which the boundaries that previously separated domestic from global issues have disappeared.

Threats are no longer confined to traditional political borders, social structures, and geographic boundaries. Geopolitical shifts have dramatically altered the global economic landscape and brought politics and business together.

The rise of China as an economic and politically influential power has threatened the dominance of the United States as the world’s largest economy. Although the opening of China and a market of 1.4 billion people have benefited both countries, it has also intensified competition and sparked U.S. economic and technological espionage accusations against China, leading to strained relations between the two giants.

U.S. companies operating from China have felt the impact of this tense relationship. The opposite is true for Chinese companies in the U.S.

Across Europe, national populism is on the rise and now a serious force. In 2016, the United Kingdom shocked the world when it voted to leave the European Union, generating reverberating effects across markets.

Banks and financial services companies that once benefited from the EU passporting system have had their cross-border banking and investment services to customers and counterparties in the many EU Member States impacted, causing them to reimagine their value proposition models.

The recent invasion of Ukraine by Russia is another example of a geopolitical event that has had devastating effects on human livelihood and businesses. Although the conflict between the two countries has risen over the years, I think it’s fair to say that few political analysts, governments, and businesses predicted a war to happen.

The war has created a humanitarian crisis, rattled global commodity and energy markets, caused prices to soar, and forced many international companies to temporarily suspend their Russian activities or completely cut ties with the country.

Global supply chains which are already fragile and sensitive due to the COVID-19 pandemic are now facing new challenges in the aftermath of the Russia-Ukraine crisis. Multilateral economic sanctions have been imposed on Russia. A state of affairs that was unthinkable months ago and is now threatening to derail the nascent global economic recovery from the COVID-19 pandemic.

Given the global domino effect of geopolitical events and the shrinking of the distance between markets and politics, the need to better understand and more effectively mitigate geopolitical risk has become more urgent. The business impacts, whether direct or indirect, vary by company type and industry sector.

Your company may not be able to prevent wars between nations, but you can anticipate and better prepare for geopolitical shocks:

  • Integrate strategy, risk, and performance decision-making. Consideration of risks to business success is an important part of the strategy selection and execution process, not an afterthought.
  • Develop a better understanding of geopolitical trends and how they are changing. For example, what are the megatrends in business, politics, and technology that are making geopolitical risks more diverse, prevalent, and consequential?
  • Assess the links between these geopolitical events and business performance. What are the events that matter most to your business? For example, how might current global political trends pose physical, business, and reputational risks to your parent organization?
  • Anticipate how these trends are likely to play out in the short, medium, and long terms, and develop mitigation strategies for each geopolitical scenario. Proactively anticipate and plan for radically different worlds, instead of reacting to problems as they arise
  • Review your mitigation strategies as the world changes. Are they effective enough in case of a major shock?
  • Develop capabilities for continuous learning to anticipate, address, and recover from geopolitical crises.

What do you think?

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