The scale and rapid pace of technological change has spawned entirely new business models and ways of going to market. And as value creation strategies change, so too must the traditional finance benchmarks associated with value creation.
Nearly 90 percent of CFOs surveyed during Oracle's September 2013 CFO Summit agreed that the use of emerging technologies is leading them to reconsider or introduce new finance best practices in key areas such as cloud and mobile adoption to deliver insights and innovative new functionality to employees, predictive analytics and big data to improve planning and forecasting, and business support metrics to identify how finance can better support strategic lines of business.
While traditional finance benchmarks such as how fast a company can close its books or reduce its days sales outstanding (DSO) rate still matter, new finance benchmarks increasingly are top of mind for CFOs. For example, Deloitte reported in its Q4 2013 CFO Signals survey of North American CFOs that business support metrics are the most important finance measure today1. Traditional measures including head count, finance costs as a percentage of revenue, and velocity of reporting still rank highly but there has been a notable shift toward business support metrics. These can include internal client satisfaction scores that can shine a light on the success of new finance best practices such as business partnering.
More broadly, the potential impacts on finance best practice are as varied as the technologies themselves, but the ability to drive more economic value from data-driven insights coupled with the agility conferred by cloud and mobile computing are standout areas.
The embedding of business intelligence and predictive analytics in transaction systems, combined with hardware that is 20 times more powerful than even a year ago, allows the finance function to churn large volumes of data at levels of granularity that were previously unattainable. This rich capability has been game-changing, allowing the finance function to use real-time data to quickly respond to market volatility, spot trends, more accurately predict outcomes, and proactively drive top-line growth as well as contain or reduce costs. Best practice reflects a shift in emphasis from traditional reporting on historic data to partnering with other line-of-business functions to proactively influence the drivers of growth and cost reduction.
New technology is also causing CFOs to re-examine the traditional yardsticks of investment appraisal. Payback, discounted cash flow, and return on capital employed become blunt instruments in the new era of big data and social business where the link between revenues generated from structured (big data) and unstructured data (social media) becomes more tenuous. For example, a McKinsey social media survey2 revealed that while more than 70 percent of companies believe that digital marketing holds significant potential, more than half struggle to measure its exact impact on sales and profits. CFOs certainly have their work cut out to establish best-practice measures in this rapidly evolving environment.
The cloud is delivering greater operational efficiency through automation of finance processes where traditional systems simply cannot cope. But the cloud is also exposing the inadequacies of traditional ways of measuring the total cost of ownership (TCO) of systems as CFOs grapple with the implications of monthly subscription fees in place of perpetual software licenses and annual maintenance fees.
The cloud is even reshaping finance best practices around the buying decision as organizations struggle to compare the ROI of cloud versus on-premises propositions and the profoundly different operating model (for example, infrastructure, upgrades, head count) that can result from cloud deployment. Substituting capital expenditure with operating expenditure can have a material effect on cash flow and taxation and possibly budget allocations in some public sector bodies. Even where the transactions are notionally located in the cloud can give rise to unexpected tax challenges.
According to an Oracle CFO webcast with the FEI in 2013, organizations seeking to capitalize on the transformative qualities of mobile computing are actively encouraging a "mobile first" policy for applications such as mobile business intelligence and dashboards. But the rapidly rising popularity of mobile technology is also causing CFOs to quickly reevaluate finance best practice around where mobile computing can add value, as well as which employees and applications should be supported and provided access. Furthermore, as mobile apps proliferate, CFOs are scrambling to codify policy and procedure around security and confidentiality. The "bring your own device" (BYOD) phenomenon is adding to the strain as CFOs seek to guard against the consequences of stolen devices with corporate data on them while at the same time developing fair compensation packages for employees using their own mobile phones and tablet devices in the workplace.
Of course, the rapid evolution of best practice also places heavy demands on finance talent. Accenture strategy consultant David Axson recently stated, "The success of the CFO will be measured by the success of the organization as a whole." CFOs at the top of their game are uniquely placed not only to influence the success of their own domain but also to secure the future success of their organization, and the most competitive CFOs are using emerging technologies and new finance best practices to benchmark success and deliver on their goals. To help CFOs adopt new finance best practices based on today's emerging technology imperatives, Oracle has partnered with Accenture to produce a new series entitled Five Minutes on Modern Finance. You can find the first issue here.
1 Deloitte Q4 2013 CFO Signals survey of North American CFOs
2 McKinsey, ROI Analytics for Digital Marketing, June 2013