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The Most Valuable Time To Build Relationships With Customers: Post-Sale

Shelly Kramer

When it comes to customers, are marketers better served focusing on acquisition or retention? And what’s the proper balance of each?

Any marketer worth his or her salt knows that the most valuable customers, and your biggest source of business growth, lies with your current customers. As such, the most valuable time to build relationships with your customers is post-sale. Think about it: A current customer has already said yes. They already trust you. They trusted you enough to buy, anyway. Focusing on those customers post-sale is without question, the most important part of developing an ongoing relationship with them, and it’s not at all hard to do. Let’s explore.

The case for customer retention

When it comes to customer retention, marketers are historically short-sighted, as are their counterparts on the sales team. While acquisition has traditionally dominated retention as it relates to marketing strategy focus, in fact the statistical evidence points firmly towards a solid retention strategy as delivering the best ROI. The fact that we’re still talking about this amazes me: I remember learning this in my earliest days in marketing—in fact, it’s pretty much Marketing 101. Yet we still see sales teams chasing new customers and marketing teams equally focused on acquisition as well.

Consider the stats laid out in this infographic from Retention Science:

Retention-Science-Infographic

As you can see, existing customers are the veritable foundation upon which you should build your business. They have the potential to create more sales and make a greater contribution to profits, all at a lower cost to the business than what you will spend attracting new prospects. What’s not to like about that? And why the heck aren’t more marketers concentrating on customer retention strategies? Here are three things that might explain why:

  • It’s easier (and more exciting) for both sales teams and marketers to focus on drumming up new business.
  • A customer retention strategy takes time to produce returns and marketing departments (and sales teams) are under constant pressure to produce short-term results.
  • The return on investment for customers over the long-term is harder to measure than new customer sales and, therefore, harder to justify.

The importance of understanding your customer lifetime value (CLV)

For those who understand the value of retention (or who want to), embracing a customer lifetime value (CLV) mindset is key. CLV is a model that takes a long-term view of customers, estimating the value of future cash flows, and not just historical sales. It’s a complex subject that I’m not going to get into here in detail, but if you want to explore this more fully, I highly recommend you read Avinash Kaushik’s Guide to Calculating Customer Lifetime Value. I love his blog, and his big brain, and once you read this guide, I predict you’ll be likewise enamored. More importantly, thinking about CLV as he breaks it down will help you as you create your own customer retention strategies.

The point is that while the majority of companies see value in CLV as a concept, only a minority report that they are able to put it into action. According to an Econsultancy study more than three-quarters of companies (76 percent) considered CLV to be important, but less than half (42 percent) actually said that they were able to measure it. Worse still, just 11 percent said that they “strongly agree” that they could measure CLV, meaning that a mere one in every ten companies would appear to have fully grasped the concept.

CLV chart Graphic source: econsultancy.com

Customer retention strategies: How to build post-sale relationships

So if I’ve managed to convince you about the importance of this, please know that an effective customer retention strategy does not mean sending random email blasts to your new customers focused solely on generating interest and more sales. You need a communication strategy with this customer base that delivers ongoing value post-sale and continues to build trust and credibility. You don’t need to constantly be selling them, but you do need to be touching them on a regular basis so that you don’t become just another commodity. There are myriad things you can do, including:

  • Provide memorable customer service. That means empowering your front line staff (online or off) with real time customer information, so that questions can be answered and issues resolved without delay. You want to be proactive, rather than reactive, and build good relationships by meeting—even exceeding, where possible—customer expectations.
  • Listen and learn. Encouraging feedback from customers, both positive and negative, is a great way to understand their likes and dislikes, as well as their needs and wants. Monitoring reviews and social commentary on your brand can provide invaluable insights into what customers are looking for.
  • Everybody likes attention. Feature your customers, and their stories in your eNewsletter and/or by way of short video interviews that can live on both your website and your YouTube channel.
  • Reward loyalty. Build strong loyalty programs that reward ongoing business. Customers may like patronizing your business, but they’ll like you even more if you reward them from time to time for being a great customer. This is easy to do, and can be very cost effective, yet go a long way toward establishing strong relationships.
  • Remember that referrals are a gift. A referral from a satisfied customer is the best kind of gift—don’t take that for granted. Don’t forget to establish referral programs that reward customers for sending you business.
  • Pay attention, pay it forward. Find and follow your customers in social media channels. Share their stories, support their marketing efforts, introduce them to your other customers. Relationships are a two-way street, so remembering that, and putting that into action can go a long way toward building customer relationships that are long and mutually beneficial. Social media makes that easy.

How to not be a commodity: Educate them about your other offerings

Once you’ve got the relationship-building part under control and in process, know that you do need to continue to touch and educate your customers about the other things you do and sell and how you might serve them. As an example, we once had a customer who sold aluminum bleachers to schools and community centers. When I asked about what happened after the sale, our client said that the last contact with a customer was a “your product has shipped” email notification, and that was that.

What they weren’t taking into consideration is that their clients largely found them online, and once the sale was over, they risked being forgotten by customers who might not remember where they purchased. Those same customers, however, might also need things like gym flooring, soccer goals, basketball goals and nets, or pool equipment. But they weren’t staying in touch in any way at all with those customers after their initial purchase, nor were they making any effort to let those customers know other ways they could be of service, thus making those other sales largely impossible. We changed that, and guess what? They sold more stuff as a result.

Whatever tools and tactics you use to develop a retention strategy, it should be built around one clear goal: Building a post-sale relationship with every single customer is the key to business growth and profitability. Court new customers for sure, but don’t ever lose sight of how valuable your existing customer base is. And make sure your marketing efforts are designed to keep those existing customers top-of-mind.

What loyalty and retention strategies do you employ for your business or for your clients? What do you have to add to the list above? I’d love to hear what’s working for you and any lessons you’ve learned along the way.

 

This article was originally seen on The MarketingScope.

The post The Most Valuable Time to Build Relationships With Customers: Post-Sale appeared first on Millennial CEO.

Photo Credit: Polycart via Compfight cc

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Three Essential Steps To A Strong Online Identity

Grant Leboff

The digital media transformation has changed everything for businesses. When anyone and everyone has access to media channels, a compelling online identity is essential to ensuring your company won’t disappear into the din of information overload. 

Whether it is a website, blog, or social media presence, digital media requires companies to have a clear position and an arresting message. To be attractive to an audience, people need to know what you are about, what you stand for, and whether they can relate to your identity. 

Here are three key steps to build a strong online identity: 

Crystallize the purpose

Identify the big vision. Beyond making money, why does your enterprise exist? Your ethos must excite customers and employees alike. Bill Gates was clear on Microsoft’s original purpose in 1977:  “Put a computer on every desk and in every home.” Ken Blanchard, co-author of the mega-bestseller The One Minute Manager, had a dream with his wife Marjorie to “drive human worth and effectiveness in the work place.” That’s the kind of vision that attracts people to engage with a company’s media channels.  

But your purpose can’t just be to capture the online market. Your online identity may have a brick-and-mortar impact as well. A 2016 global consumer study by Neilsen reports that behavior is shifting. Instead of looking in the showroom and then buying online, some customers are also window-shopping online — “webrooming” — and then purchasing in a store. This doesn’t just hold true for goods like electronics or clothing. 63% of respondents in the market for travel deals and services researched online first before going to make a purchase. 

Clarify the value proposition

To paraphrase Blaise Pascal, the French philosopher, “I would have written a shorter letter, but I didn’t have time.” Can your company explain the value it provides in one sentence? That’s about how long companies have in this age of shrinking attention spans. One career-training firm I worked with had the motto, “We believe in delivering a return on education.” Its value proposition was  “We build careers.” The customer can understand the deliverable in three simple words. Both sentences work to form two sides of a strong identity that really stakes a claim in the marketplace. 

Conveying value could mean making it clear that your customer comes first. A 2014 report found that 69% of online customers were turned off by a website’s complicated return process. 61% would leave a website that doesn’t offer free shipping. A firm belief in customer’s security in another critical factor: 60% on that study said they wouldn’t make a purchase at an online shop if it seemed to lack safeguards against credit card fraud.  

Understand the emotion

In his book Descartes’ Error, neuroscientist and professor Antonio Damasio wrote, “We are not thinking machines that feel; rather, feeling machines that think.” Emotions play a role in every decision we make. A company must understand the emotional deliverable to its customers. Is it selling candles, or invoking romance? Are you about coaching or empowerment? Are you selling financial services or a sense of security? Identifying the emotional proposition affects the language a business uses to describe its services, the colors it chooses to be associated with, and even what employees wear when they interact with customers.  

Companies must also make sure that emotion remains relevant. Harley-Davidson sells freedom to a traditionally white, male, 45+ demographic, but that demographic is now shrinking. So will its emotional value proposition work for other, faster-growing segments? Or will it need to shift gears?  

A company’s strong online identity can’t be forged without knowing purpose, value proposition, and the emotion behind it. Until that clarity is achieved, the enterprise will struggle to make its media channels interesting and engaging. Take a position and stand for something and your voice will ring loud and true. That’s what it takes to be heard in this clamorous, crowded digital media marketplace. 

For more strategies that boost customer engagement, see How To Build Customer Loyalty Through Digital Emotional Affinity.

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Grant Leboff

About Grant Leboff

Grant Leboff is a leading expert on digital marketing. Based in the UK, he is the founder of Sticky Marketing Club Ltd., a strategic global consultancy that is transforming how we sell in the digital environment. His approach is that traditional sales and marketing doesn't apply in a world that has radically changed, and it has transformed selling success for his clients and followers. An in-demand speaker and thought leader, he is a fellow of both The Institute of Direct and Digital Marketing and The Institute of Sales and Marketing Management. He is regularly featured in numerous publications and broadcasts, including The Financial Times and BBC Radio. His latest book, Digital Selling, is an Amazon chart-topper and follows in the footsteps of his three previous best-selling business titles.

Augmented Reality's Impact On Commercial Real Estate

Jennifer Horowitz

Pokemon Go may be all the rage with gamers, but what does Nintendo’s popular game have to do with commercial real estate?

Pokemon Go is a location-based augmented reality (AR) game. This year, a completely new impact coming from AR has hit the commercial real estate industry.

The combination of augmented and virtual reality gives Pokemon Go the ability to trigger a new commercial real estate trend: driving potential consumers to actual locations. Pokemon Go is a strong tool for businesses and retail that could drive engagement and benefit other areas of commercial real estate.

The emerging area of augmented realtiy is predicted to develop into a $80 billion market by 2025, according to the CBRE’s July report. “Augmented reality has the ability to merge the consumer’s current experience of online and in-store shopping,” explained Julie Whelan, head of occupier research for CBRE. “Both on their own have limitations, but blending them together gives the consumer a powerful in-store experience that could continue to sustain the bricks-and-mortar segment of retail.” 

Whelan added, “Someday it is not beyond the realm of possibility to see sophisticated augmented reality used to replace window displays and store signage; perhaps even tailored to passing-by consumers.”

According to CBRE, real estate companies can also add elements of augmented reality to their marketing, bringing otherwise static flat brochures to life and creating a virtual pop-up book that allows the user to interact with the property through 3D images and simply click a virtual button to contact the company.

Pokémon GO has doubled the value of Nintendo (which developed the game together with the Pokémon Company and Niantic) since it was released on July 6, adding $20 billion to the company’s market cap in less than a month, and has far outpaced other mobile-device games in terms of active users, retention rates, and revenue.

CBRE said, “DHL and Ricoh recently carried out a successful augmented reality pilot in a warehouse in the Netherlands that proved successful in enhancing time efficiency and error reduction.” With AR usage growing, it is also likely data centers will be able to benefit.

“With this technology, an architect or designer can bring their vision to life and share it with consumers,” Whelan noted. “The power that this will give to marketing of development and construction firms is immense.” 

Still, cautionary tales remain associated with Pokemon Go and AR technology. For example, building owners and managers must consider safety concerns and ensure that security measures are in place. “A common concern about Pokémon GO is physical security, as the game may encourage players to trespass on private property, thus posing a risk not only to property and business owners that don’t welcome the general public, but to the players themselves,” Whelan said.

For more insight on AR technology, see Concrete Steps Toward Virtual And Augmented Reality In The Enterprise.

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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.

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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.

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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.

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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.

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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.

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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.