Digital technology is connecting many aspects of our lives. From a single phone, we can shop for groceries, book a cab, or even control many features of our home remotely. This “digital disruption” isn’t going to slow down, and is already affecting how many companies do business. On Coffee Break with Game-Changers, a panel of experts predicted that it will make an enormous financial impact on business.
The program, presented by SAP on The Voice America Business Channel, 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 from the Nov. 18 episode.
Bonnie: What’s the impact of hyperconnectivity on finance? Let’s start with Birgit.
Birgit: I always say to people, don’t get behind me in an airport line. I’ve got two iPhones, two iPads, and a computer. You name it, I’ve got it. Like me, most people are always online even if it’s after hours or on vacation. So we are getting more used to being always connected in our personal lives. We can see our airport schedule, our bank statement, whatever we may need. We can now activate the alarms in our house through our smartphones. We can set our heating and air conditioning systems. We can get alerts from our car when the tire pressure is down.
Now that’s taking over in business. At first it was just RFIDs moving information around. Now, we can schedule maintenance – and that has a financial impact.
If, for example, I regularly schedule maintenance on a particular machine, I might be wasting money because I’m not really sure when exactly the machine needs maintenance. However, I do it anyway because it’s “preventive.” Well, why don’t we invent a chip that lets us know when that machine needs maintenance? That way, we don’t spend money on maintenance that isn’t needed yet. We also don’t have the downtime, which has a financial impact both on the production cost as well as the revenue. So the trick here is that we make sure that we maintain the machine before it actually breaks down.
It’s not just about having volumes of information but having the right information when you need it. I am definitely seeing more of that intelligence being embedded, and again, it all has a financial impact on serving customers. With this type of embedded intelligence, we can actually do our production planning more accurately. I would say that finance is being very much more intertwined with operations, including supply chain – including sales and service, because it all has a financial impact.
Bonnie: Great stuff! David, let’s get some comments from you on this hyperconnectivity trend and its financial impact on businesses.
David: I agree with Birgit completely. Let me give you a real and simple finance example here.
In the old world, a customer would order a part for a machine. The part would either be picked from inventory or manufactured. It would then be shipped to the customer. The engineer at the customer site would take the part and install it in a machine. He would update the record and the paperwork would be routed back to the finance department. There would be a shipper, a receiver, or a purchase order and an update of the asset record. Finance would go through a manual process of doing the three-way match to pay the supplier. They update the fixed-asset record to show that the part is now in the asset and in service to depreciate the expense appropriately.
In today’s world, the supplier installs a 3D printer at the customer’s location. When the engineer needs a spare part, he goes and prints it out on the 3D printer. That automatically triggers not just the sale, but also the receivable, and sets up the payable in the customer’s system. The engineer goes in and installs the part, which has a sensor in it, into the asset, which automatically updates the fixed-asset record. In the new world, you have no inventory. You have no payable. You have no receiver. You have no shipper. You have no purchase order. Think about in the context of the work that finance does today and compare it to the work that finance will do tomorrow.
The working capital implications are huge. Most personally, for financial professionals, their job is being redefined.
Bonnie: There we go. We have it in stone now. Bob, thoughts on what Birgit started and David added onto? Go ahead, Bob.
Bob: I think on hyperconnectivity, finance professionals have to think about how their job is changing.
So in David’s example, let’s assume the spare part isn’t feasible to 3D print. I need to know inventory. Inventory balances have always been the results of debits and credits of all those transactions David mentioned. But what if I can go ask the shelf how many spare parts it has, and it tells me how many? Now my operational construct isn’t tied to double-entry bookkeeping; it is tied to real-time visibility.
I think the finance function changes completely on that basis because the system of record could be that inventory shelf, not the ledger balance resulting from the debits and credits.
This excerpt from “Coffee Break with Game-Changers: Finance 2020 – Life or Death by Digital” on the Voice America talk radio network was adapted for the Digitalist Magazine. It is available on demand. Read Part 1: Will Digital Transformation Kill Finance?, Part 2: Role Of The CFO – Scorekeeper or Coach?, and Part 3, Can You Look Ahead at the CFO’s Job Description in 2020?. The final topic in this series is:
- A Wild Ride for Finance? The Experts Look Toward 2020
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.