Geopolitical Disruption A Top Board Concern For 2017

Olivia Berkman

Strategy will be the board of director’s best weapon against risk. FEI Daily spoke with Dan Konigsburg, managing director of Deloitte Global’s Center for Corporate Governance on Deloitte’s 8th annual Directors’ Alert, which highlights key concerns facing boards today and how to address them strategically and courageously.

FEI Daily: What are the disruptions boards will face in the coming year?

Dan Konigsburg: Some of them are new, some of them are not. We have the results of the U.S. election. We have Brexit in the UK. We had the surprise Italian election. We’ve got elections coming up that people are concerned about in Europe. I think for the first time in a while, people are concerned about the consequences to their business. Not just political disruption but the growth in populism and how that might affect business.

People are also closely watching what’s happening in China (in the South China Sea), what’s happening in the Euro zone, what’s happening between the U.S. and Mexico.

Cyber is a disruption that remains. Boards are very closely following the way that cyber risks, hacking, problems with the breakdown of intricately interconnected connected systems are disrupting them.

And activism would be the fourth one I would raise. Shareholders becoming much more active as owners and challenging companies in a way that perhaps they weren’t four or five years ago.

FEI Daily: What are some of the differences in areas of concern between the U.S., Europe, and Asia?

Konigsburg: There’s an interesting difference around disruption. A lot of people point to disruption in business models as being one of the biggest concerns for boards, and not just business models, but political disruption. In Asia, we heard, “I don’t actually believe in disruption.” Disruption is another way of saying you haven’t prepared yourself, you haven’t looked at all the risks. That is a real distinction. We’re generalizing, but perhaps we ran into that a bit more in Asia.

FEI Daily: How should boards approach these disruptions?

Konigsburg: Boards have to be more courageous in challenging old ways of thinking. Challenging management certainly takes courage. Being courageous without thinking about all the risks is not courage, that’s being foolhardy. It’s about being able to be contrarian, with full knowledge of the facts and being aware of risks.

FEI Daily: What are some of the questions that boards should be bringing up and discussing?

Konigsburg: First of all, boards should start by asking questions about themselves: Do we have the right people around the table to deal with these disruptions, and these risks? This brings up questions of board composition and diversity. Do we have folks that come from different backgrounds, do we have women on the board, do we have racial minorities who can see things differently and give a better chance at thinking divergently and dealing with problems?

The questions that boards should be asking of management includes, are we prepared? Management, walk us through a scenario. If we start to see a border, import tariff in the U.S., and we’re big importers into the country, what does that do to our costs, what does that do to our cost of capital? Walk us through that and take us down to the agile line, and what does it mean.

FEI Daily: Conversely, what should management understand about the challenges their boards will be facing?

Konigsburg: I think management doesn’t often think about things from the board’s perspective. They’re looking at the canvas one inch away from the picture. So it’s good for management to take a step back and ask themselves some basic questions. These are people who come together four, five, six, seven times a year. They’re not working at the company. They’re very thoughtful, smart people, but perhaps they don’t know every in and out of the business. So if you were in that position, how would you want to be presented to? What information would you need? What are the big-picture areas of discussion that would help lead to better decision making?

So I think it can be very helpful for management to turn that picture around and say, let me imagine what directors are going through. And that has implications for board reporting, for the type of discussions that you have. It can help management pull the board back if they’re trying to go too deep and micromanage. And equally, it can help them pull back and say, let’s look at the bigger picture: let’s look at economic trends, let’s look at geopolitical questions.

FEI Daily: Given where we are politically, do we think the role of boards will expand?

Konigsburg: I think for the U.S., yes. There are certain industries where the board is going to become a much bigger player. I would say banks and financial institutions certainly. The regulators are encouraging boards to play a larger and larger role.

The trend is for boards to do more and more. I think one of the questions as you look into the future is where does it stop? We put a lot of responsibility on the shoulders of outside directors. And as I said earlier, they’re only there at the end of the day, as part-timers.

From both the perspective of regulators and from the perspective of a mom-and-pop investor who rely on boards to protect their interests, what’s reasonable to expect? What’s unreasonable? I don’t think we’ve reached a conclusion about that. I think that’s really open to debate still.

FEI Daily: How can boards develop a resilient strategy?

Konigsburg:  When we talk about resiliency, we mean a strategy that holds up over time. We’re talking about strategies that can be flexible that can change, perhaps as external circumstances change.

You want a strategy that is not rigid. A poor, non-resilient strategy would be one-dimensional. You need people on the board that come from different backgrounds that are approaching this from different angles, who can see around corners. I think one of the advantages of having outsiders on your board is they aren’t there in the weeds. And that increases your chances of having a strategy that holds up over time.

For more insight on disruption in today’s complex business environment, see Are You Ready To Monetize The Disruption Economy?

This article originally appeared in FEI Daily. It is republished by permission.

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Olivia Berkman

About Olivia Berkman

Olivia Berkman is the managing editor of FEI Daily, Financial Executives International’s daily newsletter delivering financial, business, and management news, trends, and strategies.

Business Payments In A Digital Economy: It’s About Timing

Chris Rauen

“When will I get paid?”

For me, the answer to that question is generally “in the middle and end of the month.” For many suppliers, though, the payment date remains a mystery. When they call their customers about payment status, the frenzy that often results may get them an answer. Or it might not.

In a digital economy, the opportunity for trading partner collaboration and self-service eliminates these calls about payments, leaving organizations more time for higher-value work. For the finance and treasury teams, one activity that can have a dramatic impact on business performance involves payment timing.

That’s because your ability to time payments can be as valuable to your business as increasing sales. Pay sooner to take advantage of early-payment discounts, and you can earn double-digit cash returns, risk free. Proactively manage payment terms, and you can extend your days payable outstanding (DPO) and free up working capital to support your business.

Cash in on discounts

For organizations with cash on hand, few opportunities compare to the cash return from early-payment discounts. That isn’t lost on the procure-to-pay lead at a global tire manufacturer. He touts the annualized earnings on discounts as so attractive that he would take them any time over DPO extension.

At BC Hydro, e-invoicing over a supplier network is helping to improve on-time payment performance and expand early-payment discounts. According to Hanif Dhrolia, BC Hydro e-commerce manager, many BC Hydro suppliers have embraced the company’s early-payment discount program to improve their cash flow and days sales outstanding (DSO).

That’s another lure of dynamic discount programs: they appeal to buyers and suppliers alike. What’s more, the flexibility of today’s dynamic discount programs go far beyond traditional, static discount programs. Here are just a few advantages:

  • Offer prorated or dynamic discounts, up to the invoice due date
  • Control the amount of cash to apply to a program
  • Set the minimum rate of return you are willing to accept for these discounts
  • Capture discounts on electronic invoices and those you process manually
  • Target new groups of suppliers that haven’t accepted discounts before

What happens when you combine an early-payment discount program with a payment term-optimization initiative? Typically, a higher uptake of discounts, and the ability to free up working capital by extending DPO. For every $1 billion in payables you extend by 15 days, you can generate more than $40 million in free cash flow. For some organizations, the scope of a working capital management initiative can involve hundreds of millions of dollars in free cash flow.

Consider some of the options for putting this cash to work:

  • Pay down debt
  • Open a new store or manufacturing plant
  • Increase research and development
  • Fund a new product line
  • Support mergers and acquisitions

If none of this is under consideration at your organization, it certainly should be. When you take a closer look, you’ll realize that, when it comes to managing payments, cash, and working capital, it is about timing.

Join us on Oct. 5 for a complimentary live Webinar. You’ll hear Hanif Dhrolia, BC Hydro manager of eCommerce, discuss procure-to-pay transformation at BC Hydro and the importance of early-payment discounts to increase cash earnings while supporting supplier cash-flow needs.

Learn how organizations are gaining instant financial insights and using them to make better decisions—both now and in the future. Register now for the 2017 Financial Excellence Forum, Oct. 10-11 in New York City.

Follow SAP Finance online: @SAPFinance (Twitter)  | LinkedIn | FacebookYouTube

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Chris Rauen

About Chris Rauen

In his role at SAP Ariba, Chris Rauen educates procurement, finance, and shared services professionals on the business value of accounts payable automation, procure-to-pay transformation, and collaboration via business networks. Chris has addressed these topics at finance and shared services conferences, in articles for trade and business publications, and in blogs for online communities. Chris has more than 15 years of experience in e-payables, and holds a B.A. in Economics from the University of California, Santa Barbara.

The Finance Leadership Playbook Part 2: Stepping Up Automation To Drive Efficiency

Michael Diehl

Part 2 of the The Finance Leadership Playbook series

Finance teams are experiencing significant stress across their spectrum of responsibility. Customer expectations, channel proliferation, constant disruption, cost reduction, and volatile economic and political outlooks are adding more risk and uncertainty to an already high-volume, complex workload. With one decision or innovation, anyone from the CFO to the payables specialist can impact how the business navigates a fast-changing world while delivering on its commitments and operating competitively.

The spotlight on finance as the business’ top strategic partner shines brighter every day. However, the pressure to perform general activities—including budgeting, forecasting, planning and analysis, invoice processing, accounting of operating expenses, payroll administration, and internal and external reporting—continues to grow as available resources to execute them dwindle.

To refocus finance’s attention on strategic tasks without neglecting daily routines, activities need to be streamlined and organized more efficiently. The Oxford Economics study How Finance Leadership Pays Off – Efficiency Helps CFOs Stay Ahead of the Pack,” sponsored by SAP, recently revealed that automation is a key enabler of this shift. Nearly three-quarters (73%) of surveyed finance executives agree that automation is improving efficiency within their organization and throughout the company, freeing bandwidth for more strategic tasks.

The value of process automation

Although process automation is not a new concept, the potential for mechanizing the majority of finance’s work is gaining significant attention. The function is reaching a turning point where emerging automation technology offers an opportunity to improve efficiency and strengthen its reputation in the C-suite. For years, organizations have moved transactional tasks to shared service centers to increase scalability and take advantage of lower labor costs. Emerging technologies such as artificial intelligence are now opening the door for another quantum leap in efficiency gains.

Take, for example, Zalando. To complete its transformation into Europe’s leading online fashion platform for women, men, and children, the company created new products and services that allow all suppliers and buyers to interact with one another and benefit from high-performance billing and provisioning capabilities. With a smart data and automation strategy, Zalando is now equipped to process at least 10 times its previous maximum transaction volume. In turn, it has significantly accelerated all financial processes—from invoice processing and dunning to closing activities—with much more confidence.

The real-time actual-to-plan cash system

The ability to accurately predict cash and liquidity needs is certainly an important aspect of finance’s role. No other activity can have a greater influence on the efficiency of use of capital, reduction of expenditures, and mitigation of emerging risk in a world where globalization, financial complexity, and extensive regulations are a constant threat of disruption.

Bundesdruckerei GmbH, an electronic identity management solutions provider, is a prime example of how to automate financial forecasting. After establishing a single view of the truth with a secure unified data platform, the company accelerated processes, such as generation of profitability analysis reports, by 40%, on average. At the same time, it dramatically improved profitability analysis with reports delivered at unprecedented speed. This powerful solution for enabling future business models is providing decision-makers with the information they need instantly and eliminating the manual work to process and analyze data to derive real-time insights.

Management of evolving regulatory change and risk

If asked what keeps them up at night, most CFOs would say that risk mitigation and compliance are top of mind. In fact, the Oxford Economics study revealed that, for 68% of participating finance leaders, these two topics are prioritized higher than any other business objective. And nearly all respondents (93%) are given decision-making authority to enforce policies for adherence to regulatory requirements.

As demonstrated by Wheels India, this stressful aspect of every finance team’s day can be streamlined to the point where risk is minimal. The steel wheel manufacturer faced an ever-growing demand for improved flexibility and transparency. In response, the company invested in a solution for governance and reduced risk of improper user access.

This implementation transformed Wheels India into a more transparent environment with:

  • 60% fewer segregation of duties violations
  • 50% faster identification, categorization, mitigation, monitoring, and reporting of risks within business processes

Securing in-the-moment action with efficiency and flexible growth

Automation technology can not only liberate finance teams from straightforward, repetitive tasks, but also more complex activities such as collections and report-writing and analysis. Leading companies like these are connecting the dots between efficiency and performance with these forms of automation. They are the ones that can take immediate action on the latest market opportunities and risks by quickly reaching conclusions and developing context-sensitive behaviors.

Further explore the benefits of each of these pillars and the technologies that support them. Check for new installments to our blog series “The Finance Leadership Playbook” and read the Oxford Economics study “How Finance Leadership Pays Off: Efficiency Helps CFOs Stay Ahead of the Pack,” sponsored by SAP.

Learn how organizations are gaining instant financial insights and using them to make better decisions—both now and in the future. Register now for the 2017 Financial Excellence Forum, Oct. 10-11 in New York City.

Follow SAP Finance online: @SAPFinance (Twitter)  | LinkedIn | FacebookYouTube

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Michael Diehl

About Michael Diehl

Michael Diehl is the director of Global Finance Audience Marketing at SAP. His specialties include go-to-market strategy, thought leadership, demand generation, digital marketing, messaging, and positioning.

Diving Deep Into Digital Experiences

Kai Goerlich

 

Google Cardboard VR goggles cost US$8
By 2019, immersive solutions
will be adopted in 20% of enterprise businesses
By 2025, the market for immersive hardware and software technology could be $182 billion
In 2017, Lowe’s launched
Holoroom How To VR DIY clinics

From Dipping a Toe to Fully Immersed

The first wave of virtual reality (VR) and augmented reality (AR) is here,

using smartphones, glasses, and goggles to place us in the middle of 360-degree digital environments or overlay digital artifacts on the physical world. Prototypes, pilot projects, and first movers have already emerged:

  • Guiding warehouse pickers, cargo loaders, and truck drivers with AR
  • Overlaying constantly updated blueprints, measurements, and other construction data on building sites in real time with AR
  • Building 3D machine prototypes in VR for virtual testing and maintenance planning
  • Exhibiting new appliances and fixtures in a VR mockup of the customer’s home
  • Teaching medicine with AR tools that overlay diagnostics and instructions on patients’ bodies

A Vast Sea of Possibilities

Immersive technologies leapt forward in spring 2017 with the introduction of three new products:

  • Nvidia’s Project Holodeck, which generates shared photorealistic VR environments
  • A cloud-based platform for industrial AR from Lenovo New Vision AR and Wikitude
  • A workspace and headset from Meta that lets users use their hands to interact with AR artifacts

The Truly Digital Workplace

New immersive experiences won’t simply be new tools for existing tasks. They promise to create entirely new ways of working.

VR avatars that look and sound like their owners will soon be able to meet in realistic virtual meeting spaces without requiring users to leave their desks or even their homes. With enough computing power and a smart-enough AI, we could soon let VR avatars act as our proxies while we’re doing other things—and (theoretically) do it well enough that no one can tell the difference.

We’ll need a way to signal when an avatar is being human driven in real time, when it’s on autopilot, and when it’s owned by a bot.


What Is Immersion?

A completely immersive experience that’s indistinguishable from real life is impossible given the current constraints on power, throughput, and battery life.

To make current digital experiences more convincing, we’ll need interactive sensors in objects and materials, more powerful infrastructure to create realistic images, and smarter interfaces to interpret and interact with data.

When everything around us is intelligent and interactive, every environment could have an AR overlay or VR presence, with use cases ranging from gaming to firefighting.

We could see a backlash touting the superiority of the unmediated physical world—but multisensory immersive experiences that we can navigate in 360-degree space will change what we consider “real.”


Download the executive brief Diving Deep Into Digital Experiences.


Read the full article Swimming in the Immersive Digital Experience.

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Kai Goerlich

About Kai Goerlich

Kai Goerlich is the Chief Futurist at SAP Innovation Center network His specialties include Competitive Intelligence, Market Intelligence, Corporate Foresight, Trends, Futuring and ideation. Share your thoughts with Kai on Twitter @KaiGoe.heif Futu

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Jenny Dearborn: Soft Skills Will Be Essential for Future Careers

Jenny Dearborn

The Japanese culture has always shown a special reverence for its elderly. That’s why, in 1963, the government began a tradition of giving a silver dish, called a sakazuki, to each citizen who reached the age of 100 by Keiro no Hi (Respect for the Elders Day), which is celebrated on the third Monday of each September.

That first year, there were 153 recipients, according to The Japan Times. By 2016, the number had swelled to more than 65,000, and the dishes cost the already cash-strapped government more than US$2 million, Business Insider reports. Despite the country’s continued devotion to its seniors, the article continues, the government felt obliged to downgrade the finish of the dishes to silver plating to save money.

What tends to get lost in discussions about automation taking over jobs and Millennials taking over the workplace is the impact of increased longevity. In the future, people will need to be in the workforce much longer than they are today. Half of the people born in Japan today, for example, are predicted to live to 107, making their ancestors seem fragile, according to Lynda Gratton and Andrew Scott, professors at the London Business School and authors of The 100-Year Life: Living and Working in an Age of Longevity.

The End of the Three-Stage Career

Assuming that advances in healthcare continue, future generations in wealthier societies could be looking at careers lasting 65 or more years, rather than at the roughly 40 years for today’s 70-year-olds, write Gratton and Scott. The three-stage model of employment that dominates the global economy today—education, work, and retirement—will be blown out of the water.

It will be replaced by a new model in which people continually learn new skills and shed old ones. Consider that today’s most in-demand occupations and specialties did not exist 10 years ago, according to The Future of Jobs, a report from the World Economic Forum.

And the pace of change is only going to accelerate. Sixty-five percent of children entering primary school today will ultimately end up working in jobs that don’t yet exist, the report notes.

Our current educational systems are not equipped to cope with this degree of change. For example, roughly half of the subject knowledge acquired during the first year of a four-year technical degree, such as computer science, is outdated by the time students graduate, the report continues.

Skills That Transcend the Job Market

Instead of treating post-secondary education as a jumping-off point for a specific career path, we may see a switch to a shorter school career that focuses more on skills that transcend a constantly shifting job market. Today, some of these skills, such as complex problem solving and critical thinking, are taught mostly in the context of broader disciplines, such as math or the humanities.

Other competencies that will become critically important in the future are currently treated as if they come naturally or over time with maturity or experience. We receive little, if any, formal training, for example, in creativity and innovation, empathy, emotional intelligence, cross-cultural awareness, persuasion, active listening, and acceptance of change. (No wonder the self-help marketplace continues to thrive!)

The three-stage model of employment that dominates the global economy today—education, work, and retirement—will be blown out of the water.

These skills, which today are heaped together under the dismissive “soft” rubric, are going to harden up to become indispensable. They will become more important, thanks to artificial intelligence and machine learning, which will usher in an era of infinite information, rendering the concept of an expert in most of today’s job disciplines a quaint relic. As our ability to know more than those around us decreases, our need to be able to collaborate well (with both humans and machines) will help define our success in the future.

Individuals and organizations alike will have to learn how to become more flexible and ready to give up set-in-stone ideas about how businesses and careers are supposed to operate. Given the rapid advances in knowledge and attendant skills that the future will bring, we must be willing to say, repeatedly, that whatever we’ve learned to that point doesn’t apply anymore.

Careers will become more like life itself: a series of unpredictable, fluid experiences rather than a tightly scripted narrative. We need to think about the way forward and be more willing to accept change at the individual and organizational levels.

Rethink Employee Training

One way that organizations can help employees manage this shift is by rethinking training. Today, overworked and overwhelmed employees devote just 1% of their workweek to learning, according to a study by consultancy Bersin by Deloitte. Meanwhile, top business leaders such as Bill Gates and Nike founder Phil Knight spend about five hours a week reading, thinking, and experimenting, according to an article in Inc. magazine.

If organizations are to avoid high turnover costs in a world where the need for new skills is shifting constantly, they must give employees more time for learning and make training courses more relevant to the future needs of organizations and individuals, not just to their current needs.

The amount of learning required will vary by role. That’s why at SAP we’re creating learning personas for specific roles in the company and determining how many hours will be required for each. We’re also dividing up training hours into distinct topics:

  • Law: 10%. This is training required by law, such as training to prevent sexual harassment in the workplace.

  • Company: 20%. Company training includes internal policies and systems.

  • Business: 30%. Employees learn skills required for their current roles in their business units.

  • Future: 40%. This is internal, external, and employee-driven training to close critical skill gaps for jobs of the future.

In the future, we will always need to learn, grow, read, seek out knowledge and truth, and better ourselves with new skills. With the support of employers and educators, we will transform our hardwired fear of change into excitement for change.

We must be able to say to ourselves, “I’m excited to learn something new that I never thought I could do or that never seemed possible before.” D!

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