The finance function’s resiliency has been tested in recent years. The global recession in 2008, as well as fluctuating oil prices and general economic unpredictability, have forced finance executives to be always on their feet.
Today, the finance function is at a turning point. New digital tools are allowing finance professionals to expand their data pool, enabling them to generate more accurate insights to help the business weather the storms of the future. However, these tools are also changing how finance is done, and some finance executives are slow to adapt.
This environment and the inherent challenges were discussed by a panel of experts in the Nov. 18 episode of Coffee Break with Game-Changers, a program presented by SAP on The Voice America Business Channel.
“Finance 2020 – Life or Death by Digital” was moderated Bonnie D. Graham, with a panel comprising David Axson, managing director, Accenture Strategy; Bob Parker, vice president, IDC Research; and Birgit Starmanns, senior director for Product Marketing, SAP. The following is an excerpt.
Bonnie: Since 2008 we have witnessed a seemingly never-ending stream of unpredictable and volatile events that have dramatically increased the demands on finance. Maybe you’d like to talk more about these challenges, David.
David: It’s been fascinating in the last seven to ten years in finance. The unprecedented depth and speed in which the global economy entered the recession in late 2008 was something that none of us has experienced in our lifetimes. What was interesting is that companies emerged from that financial downturn with stronger balance sheets than many of the earlier downturns, like the dot-com blowout, Black Monday in 1987, and the oil crisis in the early 1970s.
Because of this, the CFO’s representation within the organization has significantly elevated over the last seven years. Companies did a very good job of conserving cash and deploying capital effectively. This allowed them to emerge from debt depression in a relatively strong position. But what it’s also done is increase the expectations on the finance organization, mostly around the annual planning and budgeting process.
Now, most business executives, when it’s time to start building the annual budget, don’t open their arms out and say, “Great! The single most valuable use of my time over the next three or four months is to plan out the next year in excruciating detail!” Typically the end of budget season is greeted by a sigh of relief. It’s when executives say they can get back to their real job and do something important in the business. And frankly, that’s a crying shame.
We are in an environment today where planning is one of the few opportunities business executives have to think creatively about the future. And we in finance are not doing a good enough job of helping business executives do this. This is because our perspective is rooted in the past. If you think about the last eight years, the previous year has been a pretty appalling predictor of the subsequent year. Who, 12 months ago, was predicting that oil prices would stay in the $40 range? I’ve just got off an airplane from South Africa, and I was also there three months ago. In that period of time, the rand has weakened by 30% against the dollar! This volatility and uncertainty is creating a massive pent-up demand.
Finance needs to provide insight and perspective through techniques like scenario planning and sensitivity analysis rather than simply rooting our view of the future in what happened in the past. This new way of doing things is invigorating, and makes for exciting work for finance professionals. However, this also requires a fundamental change in mind sets, and different skills and technologies to allow finance to really unlock the analytic force power that exists within the organization and focus it on proactive decision making for the future.
How do we optimally allocate resources? How do we dynamically adjust performance in light of volatility? We really need to think very clearly about how we add value and how we bring our capabilities to bear.
Bonnie: Wow. That was a lot to absorb! Thanks, David. I want to know what Bob Parker at IDC thinks about that. Bob agree, disagree?
Bob: I agree, but with a twist. I like to refer to our economy now as a treadmill economy. Since the recession, we haven’t had any real economic growth, so companies have been on this treadmill.
We’ve become really good at managing the volatility, and we’ve generated a lot of cash, which relates back to David’s comments about balance-sheet health. But what we’ve done with the cash is to stock buybacks. We do dividend increases or we do acquisitions. So it’s almost a zero-sum game. However, I think there is a sense among CEOs that there is real growth in digital. So to David’s point, I think the CFO role has to change.
It’s always dangerous to use a sports metaphor. But I think the finance function’s sort of been a scorekeeper, an umpire or a referee in the treadmill economy. [CFOs] have to pivot from that role as an umpire, the one who enforces the rules, and add “coach” to the mix. As the business model changes, they have to be a key advisor, planner, and visionary for what the business model looks like. CFOs can’t just, as David said, look back at the past and apply past patterns to future expectations. That’s not going to work if we are going to be part of the digital economy and generate growth for the company.
Bonnie: Thank you. All very profound. Birgit, thoughts on what David started and Bob added to?
Birgit: I think volatility is going to continue, some years more and some years less. We’re seeing a less volatile economy right now, which is giving finance the opportunity to restructure and support the business while not really having to deal with emergencies, so to speak. At the same time, I think finance is really getting ready to embrace more of these technologies. I think finance in the past has always been very hesitant to embrace new technologies because of concerns about security, or just in general, a lack of familiarity with it.
However, we’re seeing more millennials going into finance, and they are more willing to embrace these technologies. So, instead of having to build all of their own spreadsheet models, all of a sudden they have planning tools that allow them to very easily identify key drivers for the business and do some modelling, what-if analysis, et cetera.
I think finance is starting to trust technology more. Previously, finance didn’t really trust anything that wasn’t on their spreadsheet, on their local laptop or desktop. Now it is in one centralized place on the server, so everybody has access to the same information. There is definitely a progression. They’re beginning to trust that collaborative effort, and we’re seeing more collaboration to get better information that leads to better decisions.
Bonnie: Also great, profound, and interesting information. David, thoughts on what Birgit and Bob shared after you started this topic?
David: I think they’re both exactly right. We have a tremendous opportunity with technology at the moment. I realize I sound like a broken record because I’ve been praying for this to happen for the last 30 years since I started my career in finance. But I finally see that it is really happening now.
We don’t need everything to be real time all the time. We want the right information at the right time. We also want analytical insight and forethought to be put into place that allows financial analysts to change their perspective. The very word “accounting” means looking backwards. Things will add up and balance when you look backwards, and details do equal accuracy. However, as soon as you switch and pivot to look to the future, things don’t add up. They don’t balance. Details do not equal accuracy. There is a significant mind-set shift that we need to have for people to go through this change in process.
This excerpt from “Coffee Break with Game-Changers: Finance 2020 – Life or Death by Digital” Nov. 18, 2105 on the Voice America talk radio network was adapted for the Digitalist Magazine. It is available on demand. Read Part 1 here: Will Digital Transformation Kill Finance?
Upcoming topics in this series:
- What will the CFO’s job description be in 2020?
- What is the impact of hyperconnectivity?
- What’s really going to happen in the next four to five years?
To learn more about how finance executives can empower themselves with the right tools and play a vital role in business innovation and value chain, review the finance content hub, which offers additional research and valuable insights.