Thriving
in the
Digital Age: A Guide for Modern Finance Leaders

Business trends for CFOs in the digital age

Digital developments have historically been handled within a single department. Customer service responded to the growth of social; the marketing team needed a mobile-friendly version of the website; the CIO moved computing power from on-premise into the cloud; and so on.

The CFO’s digital role has most often been about understanding the new jargon, so that sensible decisions could be made (“You want to spend how much on ‘Social media’?”).

That has changed. The four areas of mobile, cloud, social and big data form one of the biggest business trends in recent times, in what Gartner calls the “Nexus of Forces”. Mobile phones, powered by the cloud, socially connected and continuously generating data have fundamentally altered the way that employees and customers behave.

They are offering faster information, smarter data, leaner processes and better ways of organizing teams across the business—in other words they are rapidly and permanently altering many of the core functions of the finance team.

It’s clear that a top-to-bottom digital transformation of your business is needed if you want to thrive in the next 10 years. But less than a quarter of businesses are getting on with implementing changes.

In the next four chapters we explore the key things that smart CFOs are putting in place to make sure their departments are leading the way, while avoiding the pitfalls that accompany any major shift in ways of doing business.

For the past five years, Gartner has asked CFOs to identify where there is room for technology improvement, and CFOs have consistently highlighted business intelligence, big data analytics, and performance management as their top areas for investment—so those are the three things we will focus on.

How well do you use organizational data to inform and enable the right people to make high quality business decisions? How agile are you in your planning? How effectively are you using ‘new nexus’ to optimize procurement and operations?

The three steps your team needs to turn information into action

Organizations today face an inverse problem to one they experienced in the past. Not long ago, businesses had no way of getting hold of the information they valued most. Now, there’s overload.

We’re data-rich but insight-poor

You can now track business performance in real time. You know your sales today in every location and how that compares with last month, last quarter, and last year. You have more real time data than ever before about costs, profitability and (in particular) your customers.

Has this actually had a material impact on the way you do business?

In a 2012 Accenture survey, it emerged that only a quarter of executives used data to make decisions. The rest relied on instinct, intuition or past performance.

Your priority is finding ways to make information actionable—and not just in the finance team, but in even the most mathematically illiterate parts of the wider organization.

1. Increase your data analysis capacity

   Big data has given you a haystack. Now you need people who can find you the needle. Your hundreds of new live metrics are only useful if you can find real correlations between these metrics and business value. The finance team needs the skills of data scientists to find these correlations.

   This doesn’t necessarily mean increasing headcount, but it does mean that when hiring for any role in finance, you should be looking to add a specific set of skills.

   A well-intentioned hiring policy will only get you so far—work with HR to build a specific scorecard for your finance team in each part of the world, so that you can check that they are acquiring the right capabilities.

2. Learn to speak the language of other departments

   Just as urgently, the finance team need to become experts at communicating their conclusions.

   The finance team’s priority has always been to communicate to experts—investors, board members and the C-Suite. But nowadays, the finance team are producing information that’s relevant in real time decision-making for specific teams. That means data needs to be delivered in an actionable way.

   It requires a completely different language to explain data to call center managers and sales directors, but as the digital age broadens the finance team’s remit, line of business need you to send them timely, actionable information just as much as the CEO does.

   To do this, you need to appoint a Finance Business Partner. They will push out strategic insights into the wider organization. Importantly, they will lead in framing other departments’ strategies in a data-oriented, value-driven approach. The importance of this in pushing transformation beyond the finance function to the rest of the business cannot be underestimated—typically, Finance commits around 15% of its resources to finance business partnership initiatives.³

3. Use narrative triggers to build actions

   If you send a pivot table to a sales director, she’ll never look at it. So adding narrative explanation is key. The output of your data process needs to be a recommendation, not just a forecast.

   The best way to do this is with triggers—a specific change in conditions should automatically send a real time alert to any stakeholder in the business who will find it relevant.

Dan Knutson, EVP and CFO at agricultural giant Land O’Lakes combines 20 different data sources—from weather to crop yields—into a single business intelligence system that’s delivered to salespeople on iPads. As a result of centralizing their data, “we’re able to provide insights that enable us to push higher margin products and drive sales,” he says.

Using frictionless procurement to squeeze out costs

Despite efforts to rationalize purchasing, the typical US business is able to manage only two-thirds of its expenditure through vendor contracts. One dollar in three is maverick spend⁴.

How can it be that in an era of instant digital communication, we can only properly control two thirds of the money that goes out?

The answer lies in a basic truth about human behavior: every additional step in any process leads to people giving up on it. Consider the ‘cashback’ business model. The manufacturer or retailer offers a discount but only after the customer fills in a form. There are whole digital businesses founded on the fact that a very significant portion of people don’t get round to doing this, and that the retailer then turns that discount into profit.

If people can’t be bothered to fill out a form for a direct cash reward, imagine how few of them are going to bother with your procurement process—especially in an era when companies like Apple and Amazon have made so much of their personal purchasing behavior a one-touch process.

Three rules for the modern CFO:

1. Rule 1

   Get purchasing under control through self-service

   Why self-service? Because employees find it too tedious to use the company’s processes otherwise.

   (And why can’t you just order them to follow the process? Because people are people, and they will always take short-cuts.)

   Providing self-service procurement systems can make a massive difference, so long as you are offering a consumer-like user experience: making a purchase from a contracted supplier should be as easy as buying an app for your iPhone—and the process should be just as mobile-friendly.

   SITA is a world-leading specialist in air transport communications and IT solutions. CFO Colm O’Higgins centralized its P2P process into a single global finance center (GFC) in Prague. “We now have visibility and control of 100 percent of our spend,” he says. “If you want to open a new supplier, that supplier opening is performed in our GFC after it has been vetted by the purchasing organization. The integrity of the data around the supplier credentials goes through the GFC as well. And that works today in 195 countries.”

2. Rule 2

   Improve productivity through ‘touchless’ processes

   The entire turnaround from request to PO issuance needs to be as fast and frictionless as that first step—whether it’s an approved supplier or a request to add a new one. A system with a reliable 24-hour turnaround will be hugely more appealing to employees—and thus much more successful at getting maverick spend under control.

   Your system needs to route employee requisitions to their managers for one-click approval and send on to your procurement department for formal PO creation and issuance without any further friction for the original requester.

3. Rule 3

   Reduce costs through spend analytics at a centralized cost center

   The final step is to make sure that as more spend gets properly routed through your central systems, there’s someone ready and waiting to analyze it and negotiate some spectacular cost savings. So long as someone is looking properly at what’s coming in, it doesn’t take long to realize the discounts you can negotiate.

“Our procurement solution has given us a whole other level of visibility that we never knew we had. Where we may think we spend US$10,000 a year on a cleaning solution, once you really do the analysis, you realize you’re spending US$2 million a year on cleaning in all these plants, when you add it up. You can now negotiate a countrywide contract and drive some real cost savings out of that.”

Dan Knutson
EVP and CFO, Land O’Lakes