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Chief Supply Chain Officer: The Most Transformative Executive In The C-Suite

Hans Thalbauer

Customer experience and omnichannel commerce have been the hot business topics over the past couple of years, and for good reason. Emerging technologies such as mobile and social platforms have changed customer behaviors. They’ve also provided companies with new ways to engage customers.

But mobile and social are only part of the picture, and they take you only so far in becoming truly customer-centric and differentiating yourself in the marketplace. To compete in the digital economy, companies are discovering they must embrace more fundamental change. And to achieve that, they’re renewing their focus on the extended supply chain.

That new scrutiny has raised the profile of supply chain executives. In fact, several prominent companies have tapped people with supply chain experience to lead the enterprise – Apple’s Tim Cook and GM’s Mary Barra being just two examples.

But more organizations are creating a new role: chief supply chain officer (CSCO). The CEO runs the company. The CFO holds the purse strings. But today, the CSCO may be the most important role in the executive suite.

CSCOs for customer-centricity

Consumer products companies were among the first to establish the CSCO role. In part this is because the consumer products industry took the lead in pursuing omnichannel strategies. Retail changed dramatically as consumers embraced online shopping and direct delivery. Consumer products companies needed to retool their supply chains with the speed, visibility, and flexibility necessary to serve multiple channels consistently and effectively.

But the CSCO is strategic to any organization that intends to be customer focused. And increasingly, that’s every manufacturer. In manufacturing and asset-intensive industries, the CSCO is sometimes called the chief operations officer (COO). But whatever you call it, manufacturers need someone in the executive suite who’s responsible for all extended supply chain processes, from product innovation to product delivery.

That level of leadership is necessary as manufacturers grapple with the new drivers of the extended supply chain. Omnichannel strategies make the supply chain more complex. The need to deliver individualized products and become more customer-centric means the supply chain must be faster, smarter, and more flexible.

It’s no longer enough to make incremental improvements. CSCOs must lead the charge to actually transform the supply chain. For example, they need to continuously predict demand and automatically adjust product allocations across every channel. They must integrate warehouse and transportation processes to enable same-day or even one-hour shipments.

Extending the enterprise

But CSCOs aren’t only revolutionizing the supply chain. They’re also transforming the organization and its competitive posture. One key way they’re doing that is by bringing new talent into the enterprise.

First, the new business processes and business models of the digital economy are placing a premium on data analytics. Companies need data scientists who know how to analyze massive amounts of data and interpret the results accurately.

Second, the new emphasis on speed and flexibility creates a need for a larger contingent workforce. Especially in manufacturing and warehousing, organizations will rely on contingent labor to respond to demand fluctuation.

Third, manufacturing and warehousing will rely more and more on automation, especially robotics and the Internet of Things (IoT). While these technologies replace some skills, they call for new capabilities to manage digitized processes.

All these workforce changes begin in manufacturing and logistics, the purview of the CSCO. But they extend throughout the enterprise, placing the CSCO in a position to influence the skillset of the organization overall.

Fundamental drivers such as individualized products and customer-centricity are upending the traditional supply chains. They’re doing the same to the executive suite. A CSCO who knows how to respond can transform not just your supply and demand networks, but your entire company and its competitive position in the marketplace.

For more insight on how digitalization will affect your organization’s business strategies, read the research report by SAP “Digitizing the Extended Supply Chain: How to Survive and Thrive in Today’s Digital Economy” to learn how to be a leader in this digital economy.

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Hans Thalbauer

About Hans Thalbauer

Hans Thalbauer is the Senior Vice President, Extended Supply Chain, at SAP. He is responsible for the strategic direction and the Go-To-Market of solutions for Supply Chain, Logistics, Engineering/R&D, Manufacturing, Asset Management and Sustainability at SAP.

The (R)evolution Of PLM: Enabling “Live” R&D And Engineering

John McNiff

We often think of evolution as a linear process: starting with amoebas, proceeding to fish, progressing to four-legged animals, and culminating in humans. But we know that’s not how it works. Instead, evolution is the continual adaptation of each organism to its particular environment and, possibly, behaviors.

Product lifecycle management (PLM), for its part, has primarily been a linear endeavor, starting with design and engineering and extending through manufacturing, service, and disposal. But linear PLM is no longer sufficient. Increasing demand for product individualization, accelerating design cycles, and the rapid buildout of Internet of Things (IoT) networks are all placing incredible environmental pressures on the old way of doing PLM.

In fact, PLM needs to more closely resemble evolution. Today, PLM must continuously sense and respond in as near to real time as possible, with all end-to-end activities — from design, to manufacturing, to service, and including business functions like sales and financials — interconnected and synchronized.

In short, to survive in the digital economy and to achieve “live” R&D and engineering, manufacturers will have to embrace an extended “live” PLM, enabled by a digital product innovation platform.

Rapid transformation

PLM is being transformed by three drivers: demand for customized products, increasingly rapid design cycles enabled by embedded technology, and new data streams from a growing plethora of IoT sensors.

These drivers affect business-to-consumer (B2C) and business-to-business (B2B) markets, as well as discrete and process industries, in different ways. Consumer-driven markets like automotive or apparel and footwear have long pursued customization, for example, but today’s digitalization means personalization can occur with far greater speed and scale. Industrial markets like mill products and aerospace and defense, meanwhile, are achieving customization through software-enabled configuration.

But regardless of industry, manufacturers must pursue live PLM in three key areas:

1. Understanding customer demands

Customer demand is a new dimension for PLM. In the past, PLM was largely concerned with developing an engineering definition that manufacturing could use to build the product. But with the rise of individualized products, design and engineering must potentially address a lot size of one.

As a result, it’s the sales configuration that drives manufacturing. Which means design and engineering must get much closer to the sales process. You need clearer insights into what customers desire and into how successful your designs are from a sales, and not merely an engineering, perspective.

These insights have been difficult to attain because the data was unavailable or it existed in different places and formats. Today, smart products are embedded with software and sensors that gather data on product usage and customer behavior. Social media and other customer touch points capture customer sentiment. And in-memory computing platforms can harmonize this data in a single location. So design and engineering can understand in real time what customers prefer, what they’re buying, how they’re using products, and how products are performing in the field.

2. Recognizing how product design affects end-to-end processes

Products that formerly had long design cycles, like cars and airplanes, now include more embedded software and electronics. This enables, for instance, Tesla owners to boost their battery capacity through an “over-the-air” upgrade.

Likewise, products are embedded with more and more IoT sensors. So manufacturers can not only understand how their products are performing in the field, they can also capture customer usage patterns and environmental factors like ambient temperature and humidity to help them optimize product design.

But these advances can lead to significant changes in all business processes. For starters, they mean much shorter design cycles. They also allow companies like Harley-Davidson to let customers custom-configure motorcycles in hundreds of ways, and then build those products on-the-fly without retooling production. That requires a manufacturing process tightly integrated with marketing (website), sales (dealerships), service (performance-enhancing parts), finance (market-of-one price tags), and more.

And they allow companies like Kaeser Compressors to transform from a seller of products to a provider of services. Instead of simply making air compressors that it sells to its industrial clients, the company now outfits client sites with its air compressors, which it then operates, charging a fee for the amount of compressed air consumed. That requires an entirely new profitability model.

3. Deploying a digital product innovation platform

Ultimately, to achieve live PLM, manufacturers will need to implement a digital product innovation platform that integrates business silos and enables the harmonization and analysis of structured and unstructured data.

You want to get to a point where you have a live dashboard of your product portfolio, where you can see the assets in the field, where you can see customer-demand signals, and where design and engineering, manufacturing, supply chain, sales, and service can all collaborate. That will enable you to instantly determine, for example, that your product isn’t malfunctioning because of a design flaw but because of a hardware and software incompatibility.

Live PLM is about leveraging connective technologies, harmonizing and analyzing vast data streams, making accurate predictions, and taking decisive action – all in as near to real-time as possible. There are few (if any) companies that are consistently practicing live PLM across their portfolios today. But for first time, we have the technology to achieve it. The opportunity now is to take steps toward live PLM before your competitors do.

Learn more about the extended supply chain and how it can affect your organization.

eSCM - Live Business
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John McNiff

About John McNiff

John McNiff is the Vice President of Solution Management for the R&D/Engineering line-of-business business unit at SAP. John has held a number of sales and business development roles at SAP, focused on the manufacturing and engineering topics.

10 Must-Read Supply Chain Blog Posts Of 2016

Wilson Zhu

Learning is a cumulative process. Every day, we gain new insight and build upon the lessons we’ve learned in the past. We then apply this ever-growing knowledge to improve our personal and professional lives.

In 2016, my colleagues and I dedicated countless hours to developing and publishing thought leadership aimed at educating readers on the latest innovations in supply chain. We tackled topics such as digital transformation, 3D printing, the Internet of Things, individualized products, and customer-centricity – all in an effort to help organizations optimize their current supply chain operations.

As we begin preparing similarly insightful content for 2017, we wanted to highlight some of our top-performing Digitalist blogs from 2016.

Our hope is that you consume this wisdom, combine it with the invaluable content we promise to deliver in the forthcoming year, and reimagine your supply chain for success in today’s ever-evolving digital economy.

Enjoy!

Why 3D-Printed Food Just Transformed Your Supply Chain

It’s not surprising that 3D printing is revolutionizing the production process. For companies to successfully leverage 3D printing, it’s crucial that they reimagine their existing supply chain processes. Learn how the food industry could benefit from 3D printing, and find out which four key drivers are enabling 3D printing in the era of extended supply chain.

Read the blog >

Zara’s Agile Supply Chain Is The Source Of Its Competitive Advantage

Zara is among the brightest stars in the fast-fashion industry. With an agile supply chain in place, the company is able to adapt couture designs, manufacture items, and distribute products to stores a mere two to three weeks after they first appear on catwalks. Discover how Zara’s agile supply chain strategy differentiates the company from its competitors.

Read the blog >

How Your Supply Chain Can Drive Digital Transformation For Your Business [Infographic]

In order to meet today’s demand for customized products and personalized shopping experiences, it’s imperative that manufacturers begin transforming their supply chains with digital transformation. Explore how digitized extended supply chains can help your organization better align product design, manufacturing, and service to achieve the customer-centricity your business needs to thrive.

Read the blog >

Chief Supply Chain Officer: The Most Transformative Executive In The C-Suite

Fundamental drivers such as individualized products and customer-centricity are upending traditional supply chains. Find out how a chief supply chain officer who knows how to respond can transform your supply and demand networks as well as your company’s competitive position in the marketplace.

Read the blog >

4 Ways Digitalization Is Transforming R&D

The digital economy begins and ends with the customer. Customers are more empowered, so companies need to become more customer-centric. And nowhere is that more true than in R&D. From innovation, to production, to logistics, manufacturers are seeing their operations revolutionized by digital technologies. Take a look at four key ways digitalization is transforming R&D.

Read the blog >

How Digital Supply Chains Are Changing Business

Customer demands change. Supply disruptions occur. In order to succeed in today’s digital economy, your supply chain must be agile enough to respond to these ever-evolving circumstances. Learn how a digital supply chain can enable your business to adapt and react in real time, providing your enterprise with the opportunity to better serve its customers and separate from the competition.

Read the blog >

Omnichannel Leaders Widen The Gap Through Customer-Centricity

SCM World research shows an interesting correlation between the value of customer data and an organization’s omnichannel capabilities. Moreover, companies that possess “good” omnichannel processes and/or technologies tend to place a better emphasis on customer-centricity. Discover how omnichannel leaders leverage these strengths to improve omnichannel sales, fulfillment, returns, inventory visibility, and integrated planning.

Read the blog >

Creating A Customer-Centric Supply Chain

Today’s consumers are better connected, more informed, and, as a result, more demanding than ever. This is transforming the way businesses sense and shape demand, design and manufacture products, and deliver goods. Uncover the importance of driving business processes centered around consumers and their constantly rising expectations.

Read the blog >

Is Your Supply Chain Ready For The ‘End of Silicon’?

Think resource scarcity doesn’t apply to your business? Think again. Today’s most forward-looking manufacturers need to begin thinking about what we refer to as “the end of silicon.” Explore how your company can respond to potential resource scarcity throughout the supply chain.

Read the blog >

How Harley-Davidson And Other Companies Deliver Individualized Products

The concepts of assembly lines and mass production have remained vital in supply chain for well over a century. But to win in today’s digital economy, businesses must shun the technologies of yesteryear and embrace the innovations of today. Discover how you can digitize your existing supply chain operations and satisfy your customers with individualized products.

Read the blog >

Stay tuned to the Digitalist throughout 2017 for all the latest trends, developments, and emerging solutions impacting the world of supply chain. In the meantime, visit SAP to learn how an extended supply chain can help your business be more connected, intelligent, responsive, and predictive than ever before.

eSCM Live Business

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Wilson Zhu

About Wilson Zhu

Wilson Zhu is a Marketing Manager at SAP. He focuses on the topic of Digital Supply Chain and IoT. Follow him on Twitter: @thezhu.

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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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.

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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.