As you sit here reading this, there’s a good chance you’ve overlooked something – or never noticed it in the first place, to be more precise. Most CFOs are very good at the strategic aspect of shifting resources and reallocating provisions for the longer term, but very few understand or anticipate the shorter-term impact of requirements at an operational level. According to McKinsey, a third of companies reallocate a measly 1% of their capital from year to year. The average is just 8%.
Why does this matter? Because companies – namely CFOs – that actively and regularly reevaluate where resources are allocated create more value and deliver higher returns (10% return to shareholders) to shareholders than those who don’t (just six percent returns). This type of missed opportunity is the direct result of a value-creation gap between dynamic and “drowsy” reallocators. And if that wasn’t enough to make you sit up and take note, McKinsey predicts that within 20 years, companies that dynamically reallocate resources will be worth twice as much as their less agile counterparts.
How (and how often) you allocate resources can double your company’s value
By “dynamic,” I mean making informed decisions in the minute, mitigating deficiencies, using Big Data that can factor in considerations around production capabilities, labor and/or tax legislation, workforce planning, and regulatory obligations, for example. This level of granularity – where everything is talking to everything else, in the moment – is still a new concept to most companies.
There was a time when technology was a barrier to any sort of nimbleness or agility around analysis. Pulling data out of an ERP system and then putting subsections of it into another system to run a simulation or planning process will take you only so far. You couldn’t ever link that scenario to a different topic, as you’d need to start again with raw data.
With innovation comes acceleration. And that acceleration has now reached real-time, “dynamic” speed. The arrival of modern technology platforms means there’s now no artificial separation of analytics and transactions. It’s an important distinction, and a profitable one. But technology alone will take you only so far. And this is the real point of my blog. In the same way that we need to move away from siloed systems, we need to move away from siloed thinking. Or as Einstein said, we can’t solve a problem with the same thinking that created it.
Rethink your processes
I’d urge you to think about your existing processes and then question them. Rethink them. Have you just been making outdated processes faster over time? What would it be like to operate in a live business with live data and proactively act on the things when you see them as they unfold – rather than reading about them three months later in a quarterly report? Much of what we do is predicated on the habit of our existing corporate processes. What’s required is a different mindset of how you can contribute to the success of your company. This will no doubt be de rigueur in your successor’s skill set, so it’s time for a rethink. Imagine if your calendar was not live but updated just once daily. Think of the time you’d waste waiting for people who canceled or rescheduled a meeting without you knowing. In the same way, why would you want to see a capacity shortage once demand is skyrocketing instead of anticipating and being prepared and fully stocked?
The same ease and fluency you have in your personal life – making decisions on the fly when plans change or when more information comes to light – should be translated to your professional life. You already have a fiduciary responsibility to include a forward-looking aspect into your reporting. The difference is that with modern technology and the right attitude, you can now turn that dynamic planning into a profitable, strategic advantage. Think about it.
If you’d like to know more about dynamic planning, click here. For more about the value of instant business insights and how to thrive in a fast-paced digital economy, read CFO.com’s thought leadership report, Financial Planning and Analysis 2016. More great resources for CFOs are available now at the SAP finance content hub.