Sections

Disrupt With Digitization

Sven Denecken

Innovation requires reimagined processes – and the CIO needs to lead this transformation.

Enterprises today must be prepared for the transformation that the digital economy is forcing upon them.

Now, you might think, “Another digital buzzword article.” Well, yes, some dismiss it as a buzzword, but the challenge for many has just started. But let’s not look at only the problems; there are opportunities if seized right – and you can win big.

For example, competing for new business, or even exploring a new revenue stream by creating a new business model, are things you need to look out for constantly – and for sure you can learn from startups, because that is what they do: challenge the status quo. In a fast-moving digital economy, the window to capture these opportunities closes quickly; companies that are unprepared to pounce when occasions arise will likely get stuck on the road to irrelevance. In my job as product manager, my team constantly screens such opportunities, as innovation needs to be weighted fast and implemented via co-innovation even faster if there is a chance of success – and it must also be adapted fast if reality kicks in.

Successful companies need to be willing to change: They must assess whether they are truly in a position to reinvent business processes every day, not just every generation. And here is where the modern CIO comes in. Yes, digital officers arise at every corner of every industry, and they are needed ambassadors or agents of change. But today I think we should be clear: If every company will soon be a “software” company (which I very much believe, as data will rule the world) you need a modern chief information (and innovation) officer to help business and the company board of directors to make this change happen.

Here are 3 key lessons we have learned from the CIOs we constantly speak with during our co-innovation work. (Of course, there are also many lessons we learn from CIOs who are not embracing it – but will they still be CIO next year?)

Lesson #1: Four trends to check if you are on track

As I stated earlier, there are four inescapable trends are creating the pressures that shape today’s digital transformation:

  • The empowered customer: Whether your customers are Generation Z consumers or multi-national conglomerates, they all share one vitally important characteristic: Each demands to be treated as a unique segment of one. You have no choice but to meet that expectation.
  • Competitive and regulatory pressures: Transparency is a necessary part of business today, and that means competitors and regulators alike can dissect any business process. Staying ahead of the former and meeting the standards of the latter requires operational excellence and accountability at every step in the value cycle.
  • Globalization: More businesses today must be prepared to go global in order to remain relevant. Expanding into new markets can no longer be done effectively with costly, infrastructure-heavy international build-outs. Enterprises need a pay-as-you-go strategy with scalable capacity, which can be adjusted rapidly to meet market conditions in any region.
  • Technological progress: The tide of innovations and discoveries is unrelenting. Businesses must be agile enough to quickly adopt new strategies, and be steered by insightful, knowledgeable leadership that can sort winning inventions from dead-end novelties.

Lesson #2: Unprecedented levels of business agility

The need for an unprecedented level of business agility to match the rapid pace of innovation and transformation present in business is not restricted to a particular industry. Rather, we see entire markets, including transportation, logistics, and e-commerce, being reinvented on a seemingly daily basis. For any industry in which the production, shipment, and transaction of a product is still relevant, transformation supported by digitization is fast becoming a necessity.

Pressures to reshape the business using a digital template are likewise common across the industry spectrum. Companies — both in the business-to-business (B2B) and business-to-consumer (B2C) worlds — expect personalized interactions as a “segment of one,” which necessitates individualization of products and services, and freedom of choice. The business has no choice but to meet these demands — on the platform the customer chooses — or risk losing customers to a competitor.

The common solution that addresses these pressures is agility, and the way to achieve that agility is with a flexible, digital core at the heart of every organization that can meet the demands presented by increasing across-the-board disruption.

In my presentations I often state why we need to talk about a digital core: As long as something is produced (even if it is a service), as long as something is delivered or shipped, and as long as something will be paid – there is a need for a core. It is as simple as that. Every CIO surely knows that end-to-end processes often start at the edges or with systems of engagement, but they are of limited value if they do not connect with the core – the heart that makes your company run.

Now building on top of this, with a digital core, organizations can do far more than simply meet these pressures at a minimum level of success. They can pivot in near real time to capitalize on innovations in areas such as cloud, Big Data, and business network connectivity to completely transform the business, whether it’s to keep up with the growing influence of emerging topics such as the Internet of Things (IoT), 3D printing, or augmented reality, or to defend against new competitors launching up all around them.

A digital core is an enabling platform for transformation and innovation, but what are its hallmarks? We find five key characteristics that make up a digital core:

  1. A digital core provides the enterprise with the capability to drive and anticipate business outcomes in real time.
  2.  It integrates the business seamlessly across all value chain processes such as client interaction, administration, production, and research and development.
  3.  The digital core increases efficiency by automating processes and distributing responsibility for customer insights across an intelligent business network.
  4. It increases effectiveness by converting signals in business data into tangible action, essentially bringing Big Data to the size and scale needed to turn insight into action for the everyday user.
  5. The digital core increases enterprise agility by elevating each employee’s view of the organization.

So how can the modern CIO help to disrupt with digitization?

Here is the modern CIO’s plan for success: They prioritize day-to-day operations that were formerly siloed lines of business to have complete visibility into the entire core business of the enterprise. Finance, sales, and manufacturing can then act in concert, basing decisions on the same information in real time. This is where the company wins big, and this is how the modern CIO will drive change for the better and help their company win in the digital economy.

Successful CIOs know that the race to digitization is on. Until recently, many of the clients I spoke with were still questioning the need for digitizing the enterprise. Now, they want to know the most efficient route to get there. And while SAP’s digital core S/4HANA Enterprise Management is certainly a monumental milestone, clients are surprised to discover that arriving at a digital core is not as difficult as it might seem to enable this level of transformation.

A digital core helps any business run faster and simpler, so getting there should not be as complicated as the siloed line-of-business applications and redundancies a business leaves behind.

Want more insight on digitization? See The Digitized Core At The Heart Of Reimagined Business.

Looking forward to your feedback! Follow me for the latest updates: @SDenecken (link to Twitter account).

Comments

Sven Denecken

About Sven Denecken

Sven Denecken is Senior Vice President, Product Management and Co-Innovation of SAP S/4HANA, at SAP. His experience working with customers and partners for decades and networking with the SAP field organization and industry analysts allows him to bring client issues and challenges directly into the solution development process, ensuring that next-generation software solutions address customer requirements to focus on business outcome and help customers gain competitive advantage. Connect with Sven on Twitter @SDenecken or e-mail at sven.denecken@sap.com.

IDC 2017 Predictions: Birth Of Augmented Humanity

Susan Galer

Speaking on a recent webinar entitled, “IDC FutureScape: Worldwide IT Industry 2017 Predictions,” IDC senior vice president and chief analyst, Frank Gens, revealed the research firm’s top ten trends these analysts predict will impact companies this coming year and beyond:

“We are at a pivotal time in the IT and every industry as the digital transformation or DX economy rises over the next 36 months,” said Gens. ”We’ll see new digital services and smart connected products transform every industry, driving materially higher growth than traditional product and service lines, and enabling exciting new scale and pace of innovation in supply chains, distribution networks, and customer engagement.”

In IDC’s nomenclature, DX refers to the application of digital technologies that fundamentally change business and the world at-large. It is the source of innovation and creativity for new business models, enhanced experiences, and improved financial performance. The third platform refers to cloud, social, Big Data, and mobile technologies.These are IDC’s top ten 2017 predictions.

  1. By 2020, 50 percent of the G2000 will see the majority of their business depend on their ability to create digitally enhanced products, services, and experiences.
  1. By 2019, third-platform technologies and services will drive nearly 75 percent of IT spending — growing at twice the rate of the total IT market.
  1. By 2020, 67 percent of all enterprise IT infrastructure and software spending will be for cloud-based offerings; the cloud will morph to become distributed, trusted, intelligent, industry-focused, and channel mediated.
  1. By 2019, 40 percent of all digital transformation initiatives, and 100 percent of all effective IoT efforts, will be supported by cognitive/AI capabilities.
  1. In 2017, 30 percent of consumer-facing G2000 companies will experiment with augmented reality/virtual reality as part of their marketing efforts.
  1. By 2018, the number of industry collaborative clouds will triple to more than 450; by 2020, over 80 percent of the G500 will be digital services suppliers through Industry Cloud Councils.
  1. By year-end 2017, over 70 percent of the G500 will have dedicated digital transformation and innovation teams.
  1. By 2020, over 70 percent of cloud services providers’ cloud revenue will be mediated by channel partners/brokers.
  1. By 2020, all enterprises’ performance will be measured by a demanding new set of DX-driven benchmarks, requiring 20 to 100 percent better business performance.
  1. By 2020, one-third of health/life sciences and consumer products companies will begin to develop the first products and services tightly integrating third platform technologies with the human body; “augmented humanity” offerings will be mainstream in the mid-2020s.

For more insight on the technologies that are reshaping business, see Four Workplace Technologies That You Need To Know About.

Comments

Stop Playing Digital Roulette: Get The Right Guidance For Your Digital Strategy

Caroline Conlon and Gerd Stumm

Analytics, mobile apps, social networks, cloud computing, and the Internet of Things are quickly turning traditional business models upside-down. As digitization continues to move from an innovative trend to an all-encompassing reality, companies need to understand and take advantage of digital technology across all aspects of their operations. Otherwise, they run the risk of limiting their competitiveness in delivering on market expectations and creating products, services, and delivery models that bring value to customers and the business.

According to The Economist Intelligence Unit (EIU) report “Digitising IT,” sponsored by SAP, 97% of business and IT leaders are engaging their organizations in a digital initiative. Yet, rarely is there a comprehensive digital strategy present. Although 86% of respondents believe that digital transformation is the most important action to achieve better outcomes from their digital investments, only half of them believe that they fully understand it. Under these circumstances, digital transformation is, well, daunting.

EIU report: How IT departments worldwide are digitally transforming their business

Enterprise support value maps: A new phase in support service and IT expertise

There are many ways to reach a destination, but it is often difficult to find the right path. A full understanding of the potential of digital technology enables companies to make informed decisions about their path to digital and in which areas to invest. With the right guidance and digital skills, businesses can reduce the time to value and benefit from concrete and demonstrable outcomes.

Enterprise support value maps provide support and guided access to the knowledge, skills, and services needed to drive innovation. Covering topics such as custom code management, security, and data volume management, value maps empower members to build up their digital proficiency and prepare the IT landscape for innovation. And with topics such as in-memory computing and digital core platform implementation and cloud solutions, employees are prepared to complete the next step in their business’ digital transformation journey.

With this insight, businesses can accelerate their digital agenda by answering critical questions such as:

  • Which services and tools can best address my business challenges?
  • Which support services and on-demand expertise can help empower my employees?
  • How long will it take and what skill level do I need?
  • What is the best approach to prepare for and adopt innovation?
  • How can IT optimize software landscape operations and maximize efficiency while ensuring data security and regulatory compliance?

Michael Kleinemeier, member of the SAP Executive Board of SAP SE and head of the Digital Business Services organization at SAP, says, “the feedback from our customers and research vendors, such as Brandon Hall Group, speaks for itself. Value maps help drive digital transformation, unlock business value, and realize measurable benefits by integrating processes, operations, and technology to create measurable benefits. This methodology for future-oriented social media-based learning and support is a key part of successful digital transformations.”

Take, for example, Carsa S.A., a leading retail company in Argentina that wanted to innovate in the cloud, integrate SAP SuccessFactors into their landscape, and leverage integration capabilities between cloud and on-premises solutions. The company decided to keep things as simple as possible, follow best practices, and reduce total cost of ownership. By registering for and participating in the value map for cloud and hybrid implementations, Carsa was well-equipped to make strategic decisions, having upskilled with best practices, documents, meet-the-expert sessions, expert and peer customer collaboration through social collaboration, and much more.

With the support of the enterprise support advisory center and the enterprise support value map for cloud and hybrid initiatives, Carsa improved its ability to adopt an integration strategy and determine integration tools that best fits its needs. This level of insight frees the company to dedicate 30% more time and resources towards driving innovation and make better use of its human capital management cloud solutions.

Mapping a clear path to competitive, value-add digital transformation

While digital transformation is a fundamental requirement to survive and grow, all-encompassing, business-wide change typically takes a long time to execute. Unfortunately, your market, stakeholders, customers, and competitors are not willing to wait.

With enterprise support value maps, you can accelerate the reinvention of your business through a broad range of services, tools, best practices, and expertise. Best of all, this level of insight empowers your workforce to resolve business challenges and drive competitive, value-add outcomes.

Check out the award-winning value maps from SAP Enterprise Support, part of SAP Enterprise Support Academy.

Caroline Conlon is the communications and global operations lead for the SAP Enterprise Support value maps program at SAP.

Gerd Stumm is a communications and knowledge management professional at SAP, with a focus on SAP Enterprise Support.

Comments

Everything You Know About Leadership Is Wrong

Michael Rander, Karie Willyerd, David Ludlow, Kerry Brown, and Randy B. Hecht

Companies that begin life digitally operate differently from the incumbents they threaten and unseat. Employees at digital companies don’t waste time gathering and analyzing information; they use live data to make decisions. They don’t need to wade through organizational hierarchies to get permission to act; their leaders explain business goals and then empower them to use their best judgment.

To compete, incumbent companies have to transform not only decision-making processes and hierarchies that have hardened over decades but also the nature of leadership itself. The leadership strategies and behaviors that drove success in the knowledge economy aren’t sufficient to navigate a successful transition to the digital economy.

sap_q416_digital_double_feature3_images5Two-thirds of Global 2000 CEOs will center their business strategies on digital transformation by the end of 2017, according to IDC. But few business executives today have the leadership mindset or skills necessary for these strategies to succeed, according to the Leaders 2020 study conducted recently by SAP, Oxford Economics, and McChrystal Group. The study found that only 16% of executives are ready to lead their companies through this transformation.

Leaders must lead differently if their companies are to transition to the digital economy and reap its rewards. In 10 years, for example, 75% of the companies that were listed on the S&P 500 Index in 2012 will have been replaced, according to a study by Innosight. Meanwhile, global competition is heating up. Rising disposable income in emerging economies has sparked the advent of new rivals—and in a survey by consulting firm Accenture, 70% of marketers in those economies expressed confidence in their ability to execute a digital business transformation. In mature economies, the figure was just 38%.

But it’s not too late to learn the essentials of digital leadership.

Communicate the Digital Mission

Fostering an organization whose employees have the skills, tools, authority, and information they need to make decisions in the moment begins with leaders who can formulate and communicate the digital mission. Randall Stephenson, chairman and CEO of AT&T, understands the forces driving digital transformation. Under his guidance, AT&T’s lines of business have expanded—both organically and through acquisitions—to include extensive digital operations, like DirecTV and potentially, as of press time, Time Warner, according to The New York Times. So even as AT&T continues to compete for market share against established and startup telecommunications providers, the company is going head-to-head against digitally based companies like Amazon and Google.

Every business must become digital and work in the cloud, but the change doesn’t merely mean making acquisitions, buying new technology, and rewriting org charts. A new digital workforce is needed as well to meet the transformation challenge. And like the companies they serve, the members of this new workforce will have to develop new abilities and prepare to take on new roles.

That reality is the impetus for Stephenson’s ambitious initiative to transform his company by transforming his team. Through a program launched nearly three years ago, AT&T is underwriting education and professional development opportunities for employees who are willing to pursue the studies on their own time. Those who take advantage of the offer can learn new computing skills that align with the company’s blueprint for digital transformation.

AT&T’s education plan shows the extent to which data is driving a profound change in employees’ daily tasks, functions, and core value to the company. Until recently, businesses sought knowledge workers who were capable of reviewing, assessing, analyzing, and disseminating data in support of decision making. But in the digital economy, companies must be able to respond in the moment to customer, market, and competitive changes. Reviewing masses of data and following traditional hierarchical decision-making processes defeats that goal. To succeed and, in truth, to survive, companies must have that data available when they need it and make a decision in the right moment.

sap_q416_digital_double_feature3_images6

Invest in Understanding How Work Gets Done

With that in mind, digital leaders must invest in understanding how work gets done and then commit to adjusting processes, deploying the right technology to support those processes, and measuring what adds value for customers and, therefore, to the bottom line. Yet only half of the executives surveyed by Oxford Economics rated their companies’ senior leaders as highly proficient in using the technology necessary for transformation.

 

Digital Leadership in Hard Numbers

Executives who have already established themselves as digital leaders demonstrate the value of their initiatives in hard numbers, according to the Oxford Economics study Leaders 2020. For example, their companies are much more likely to sustain top financial performance in terms of both revenue and profitability. Where leadership has embraced digital, companies:

  • Are 38% more likely to report strong revenue and profit growth
  • Have more mature strategies and programs for hiring skilled talent
  • Report one and a half times more effective collaboration, which contributes to productivity
  • Achieve 87% employee satisfaction and significantly higher levels of employee loyalty
  • Are better equipped for succession planning
  • Listen to Millennial executives, whose advice may provide shortcuts to digital transformation

 

What’s more, becoming digitally savvy isn’t enough. Leaders’ aptitude for cultivating teams and work environments that can make good use of technology is also essential. Indeed, nearly 80% of the companies considered farthest along in digital maturity make data-driven decisions, according to the Oxford Economics study (see Digital Leadership in Hard Numbers). Meanwhile, 53% of respondents were found to be clinging to old-school decision-making styles and failing to map decisions to strategy. As a result, only 46% qualified as equipped to make decisions in real time.

Lead by Simplifying

Digital leaders make it a priority to continually simplify processes and decision-making procedures to reduce institutionalized complexity and bureaucracy. These impediments take a real toll. A study by the Economist Intelligence Unit found that organizational complexity costs businesses up to 10% of profits. Flattening organizational hierarchies and encouraging transparency and organization-wide inclusivity in the decision-making process can help erase such losses, according to the Oxford Economics study.

Achieving these goals doesn’t require a committee. Empowering people at lower levels to make business-critical decisions based on available data has a natural flattening effect on the hierarchy. And as individuals and the enterprise as a whole become accustomed to having access to real-time data that speeds responsiveness, decision making becomes distributed across the organization.

That doesn’t automatically mean that the organizational pyramid is dead. Rather, it empowers employees, the organization, and leadership by placing responsibility for individual responses and actions in the hands of the people best equipped to carry them out, take ownership of the results, and ensure their success. This key characteristic distinguishes digital workers from knowledge workers: they have access to the data necessary to drive the right decisions at the right time, regardless of where they appear on the organizational chart. This not only empowers people at lower levels but also eases the bureaucratic burden on upper management, which is then freer to focus its time and energy on leading the organization forward instead of directing its day-to-day and even minute-by-minute activities.

Lead by Getting Ahead of the Customer

Creating an organization that’s capable of capturing data and making decisions in the moment can transform customer relationships. Besides responding to immediate customer needs, digitally transformed organizations can also predict emerging requirements, even before the customer is fully conscious of them.

To achieve this, digital leaders must be able to view digital in terms of its ability to support innovation: to make it possible for the business to deliver an array of services and advantages that it wasn’t possible to deliver before.

“The challenge is to not ask the question, ‘How does this affect my business?’ That’s inherently a defensive, firm-centric question,” says David Rogers, author of The Digital Transformation Playbook and a member of the faculty at Columbia Business School. “Instead, firms need to look at every new technology and digital capability and ask, ‘How might this allow us to offer new forms of value to our customers that we could not have done in the past?’ And be continuously looking.”

Being plugged into digital’s power to transform customer relationships thus allows an executive to evolve into a digital leader with the vision and the tools necessary to conceive and implement continuous innovation.

Concentrate on Team Dynamics and Employee Engagement

Millennial leadership is well suited to understand the human side of digital transformation. Digital leaders of older generations must recognize the importance of inviting and acting on input from Millennials, which is essential to inspiring them to perform at their best—and to achieving the overall goals of digital transformation.

sap_q416_digital_double_feature3_images2Digital leaders must also understand that encouraging diversity in their workforce isn’t simply a matter of fairness; it’s also a source of competitive advantage. Leaders who build diverse organizations have more engaged, productive employees, as well as higher levels of innovation, according to the Oxford Economics study. This in turn leads to better bottom-line results. Companies that reported higher revenue and profitability growth were more likely to cite the positive impact of diversity on their numbers.

Despite this, the study found that only 60% of companies have adequate programs to ensure that they are developing a digital workforce. The shortfall is hurting companies’ ability to hire and retain talent: only 53% say they are successful in attracting qualified applicants.

This problem will only get worse as Baby Boomers exit the workforce. Digital leaders will be increasingly pressured to maintain stability and continuity in their workforces. The challenge will be especially difficult for companies that lag in meeting the expectations of professionals who have entered the workforce in the era of the gig economy. They expect to make numerous career moves and don’t necessarily see length of tenure as a priority.

Thus, companies need processes for bringing new staff members up to speed as quickly as possible while optimizing their productivity, encouraging them to make constructive contributions to the business, and motivating them to deliver their best performance. They must also develop programs for continuous learning and job rotations to engage and retain workers who may not otherwise remain with the company as long as they would have in past generations.

Address the Generation Gap

Millennials and Generation Z have different expectations of what it means to be an employee and how to use technology than other generations do. They expect collaboration across the hierarchy, which is important to keeping them engaged with the organization and with their personal passions. Fostering a sense of meaning within the workplace, then, is another element of digital leadership; leaders must make the company a place where employees feel as engaged and rewarded as they can be and can do their best work.

In this respect and many others, most businesses are contending with a generation gap. The Oxford Economics study found that in comparison to older executives, Millennial executives have a much more pessimistic view of their organization’s ability to perform well in such key areas as using technology to achieve competitive advantage, collaborating internally, inspiring employees, and fostering an organizational culture that promotes feedback and reduces bureaucracy. In addition, the Millennials are more conscious of—and place a premium on—diversity and its benefits. Addressing that generational disconnect is key to digital leadership.

When today’s mid- and late-career executives entered the workforce, it was understood that younger workers invested the early years of their professional lives paying their dues. But that model no longer works in a market in which a company’s future depends on an approach to digital transformation that comes most naturally to younger executives. And those executives will not invest themselves and their expertise in companies that fail to recognize and respect Millennial workplace priorities.

sap_q416_digital_double_feature3_images7

Help Employees Address Future Challenges

Digital transformation isn’t just altering employees’ expectations of their careers. It’s also remaking jobs and what work itself entails. In response to a survey by consulting firm Cap Gemini, 77% of companies reported that they saw digital skill gaps as the chief obstacle to their digital transformation.

Their concerns are well founded. Oxford University examined 702 job descriptions across all job types and found that 47% were likely to be replaced by technology within a decade. Another 19% were moderately likely to be replaced. With that in mind, part of the leadership challenge in digital transformation is anticipating how people will work in this world and how artificial intelligence, robots, and people will be integrated into a new and more efficient workforce. How will people interact with these digital forces in the workplace? What will it mean in human terms?

sap_q416_digital_double_feature3_images1Digital leaders can’t expect employees to keep up with these changes on their own: things are simply moving too quickly. AT&T’s Stephenson recognizes this. The New York Times reported that the company’s digital transformation is projected to make 30% of current jobs obsolete by 2020. That’s why, to get ahead of that challenge, Stephenson ordered the creation of AT&T’s training program, which includes an extensive curriculum of online and classroom courses.

This approach illustrates a key characteristic of digital leaders: the ability to think conscientiously about where their companies are headed, what skills their people will need, and how they can help them develop the skills they’ll need as their roles evolve. Digital leaders are also able to articulately communicate to employees where the world is headed so that they are motivated to get there and be productive now and in the future.

Unleash a New Generation of Executives

Companies can no longer afford to delay recognizing the digital sea change that is transforming decision making and the capacity to respond in real time to challenges and opportunities. Led by Millennial executives, the new digital workforce is ready to spark unprecedented performance improvements in organizations that do not constrain their ability to communicate, collaborate, and contribute. Digital leaders are devising strategies for harnessing their energy, enthusiasm, and innate understanding of digital capacities to achieve higher levels of productivity and profitability. The remaining leaders face a choice: embrace this change or get left behind. D!

Read more thought provoking articles in the latest issue of the Digitalist Magazine, Executive Quarterly.

Comments

Michael Rander

About Michael Rander

Michael Rander is the Global Research Director for Future Of Work at SAP. He is an experienced project manager, strategic and competitive market researcher, operations manager as well as an avid photographer, athlete, traveler and entrepreneur. Share your thoughts with Michael on Twitter @michaelrander.

Tags:

What Does Blockchain Mean To The CFO?

Matthias Heiden

In my previous blogs, I’ve stated that CFOs need to play a strong, active role as an independent challenger for the business while assessing risks – balancing risk and opportunity for the business. I’ve also covered changes to our role as digitization begins to envelop our organizations. The digital economy will impact many things, that we can be sure of.

In the digital economy, collaboration is increasingly important, and the task of the CFO is to establish this collaboration role, and someone needs to establish collaborative digital finance processes and safeguard their effectiveness and efficiency. In many cases, CFOs have taken that role. Looking to next year, there’s a huge expectation that the technology known as “blockchain” will gain greater prominence in practical business applications, and I believe CFOs can and should enter the picture of this discussion early on. It’s not the realm of the technologists alone, and many are pointing towards blockchain as an underpinning of a digital economy.

The blockchain movement and its accompanying technological capabilities are incredibly intriguing, and a quick Google search delivers about 416,000 results, underscoring the interest. If we can build use cases and applications, blockchain can radically change the way we do business. As a CFO, I need to be mindful of risks, and some associated with this technology are difficult to comprehend upon first reflection. However, as I wrote previously, this is typical of the CFO in the digital economy. Both on the business and compliance sides, we are able to leverage traditional skill sets and our knowledge while stepping into unknown territory in both areas at the same time.

Singapore has announced the city state’s central bank will explore blockchain by launching a pilot project with the country’s stock exchange and eight local and foreign banks to use the technology for interbank payments. While blockchain technology, which emerged from bitcoin, is expected to draw interest by banks and other centralized institutions, it’s expected that companies like Amazon, Facebook, and Google will be early adopters as well.

Being mindful of risks

Given that a lot of information is shared in a blockchain, I wonder what it would do to the system – beginning with fraud and going onward along the risk chain – if and how someone could break into it.  I’m sure there’s a good answer – maybe hackers could hardly or never access all of information, given its distributed ledgers. But my point here is that the role as a CFO is to assess the risk and benefit. The latter would include an analysis of the energy footprint of blockchain technology. Is the hardware used sufficiently and is it energy efficient? Are the algorithms computationally efficient in this regard?

Blockchain promises a huge benefit because it increases how we do business and the speed at which it can be conducted. It promises to eliminate the intermediaries and bring new life back to some professions. Some of the technology’s early adopters are public audit firms, and their perspective is in the public interest. I saw a presentation from a utilities company, and it was mind boggling what they’re exploring with blockchain. They can see a case extending collaboration and interaction all the way to the customer in a way they’ve been previously unable to achieve.

From the finance perspective, there’s a limit to optimizing processes and the number of people involved. Even with full robotics, oversight is needed, i.e., someone who watches the robot. When we reach those limits, we turn to technology to help increase volumes and transaction processes. I see a lot of potential for blockchain in this regard, with new, associated business models that have potential.

A hot topic in financial services

At I recent forum for financial services, I co-hosted a dinner where blockchain was the topic. It was amazing to see how people had picked up on the topic, and there were a lot of questions. Many had similar questions about exploring the risks and benefits, and I think it’s fair that everyone took away the sense that they need to keep their eyes on and learn more about it.

Consistently, I see a lot of people taking note, especially those close to the financial market or treasury. Predictably, IT departments are keenly curious, but I think CFOs need to step up their game and begin looking more closely, forming points of view to guide their businesses. It ties in with traditional CFO skills like business modeling, risk and compliance, and advising the business. This remains at the core of our role.

A great resource for CFOs is available now at the SAP finance content hub, specifically on topic of Enterprise Risk and Compliance Management.

To continue the discussion on the topic of governance, risk, and compliance (GRC), join the December 8, 2016 Webinar, A Case Study in Going Beyond Three Lines of Defense to Create Stakeholder Value – Embedding Integrated Thinking at Exxaro.

Comments

Matthias Heiden

About Matthias Heiden

Dr. Matthias Heiden, senior vice president, regional CFO, Middle and Eastern Europe (MEE), is responsible for the field finance organization of MEE. In this role, he supports the organization in managing P&L, continuously driving strategic finance transformation initiatives initiated by Corporate Finance together with the other regional CFOs. This team helps improve business-related processes and supports the Market Unit CFOs in their role as business facilitator and transformation agent.