CFO 2018: Finance And The Move To Outcome-Based Business Models

Tony Klimas

Part 1 in the 4-part “SAP Finance and EY Talk” series by Tony Klimas of EY and Joel Bernstein of SAP

The question for so many companies in 2018 is as simple as it is daunting: How do I reinvent my business? Answers to this question will vary – but whatever the answer is, the CFO will be right in the middle of it.

I recently participated in an interview with my colleague Joel Bernstein, CFO of SAP Global Customer Operations. In that discussion, Joel talked about the impact on finance of changing business models. One prevalent change is the move toward outcome-based business models, where companies are realizing what customers want most: not so much products, but positive experiences with outcomes that deliver value.

Take SAP, for example, which has been transitioning to a cloud-based delivery model. “There’s still demand for perpetual-based licenses and software delivered on-premise in the traditional way,” Joel said. “But the real growth is coming from cloud services.”

The impact on finance

What does this mean for CFOs like Joel? It means that the finance function needs to transform itself to serve a new business model, where revenues and profits are recognized in entirely different ways.

“It’s one thing when you follow a traditional sales cycle, sign a contract, deliver code, and then recognize revenue and profit at that point in time,” Joel said. “But when you follow an outcome-based model, things are entirely different.”

With such models, finance needs to be integrated into the cloud service-delivery model at a fundamental level — because revenue and profit are often based on consumption. What’s needed here is a way of monitoring usage and calculating prices systematically, as well as ways to measure delivery performance across variables, including availability and uptime. All of this has an impact on everything from deal structuring and execution to invoicing and cash collection.

The same across industries

The move to outcome- and service-based models is common elsewhere. Take, for instance, Kaeser Kompressoren, an SAP customer. Until recently, this century-old manufacturer of industrial air compressors made and sold equipment, and made money from service contracts. Today, it provides and maintains the units for free and charges according to how much compressed air customers consume. This is tracked by IoT sensors. You can imagine the changes required in the finance role to support this new business model.

Even at EY, where I serve as global performance improvement finance leader, we’ve started to make a similar transition to what we call asset-based help services. This means that instead of selling our traditional product — hours of consulting time — we’re now looking at value-added services generated by an asset. An example might include a subscription-based risk management service or specific assets related to analytics, which would be extensions of traditional consulting work. This creates a whole host of new challenges for finance from a valuation and performance measurement perspective.

The importance of innovation

To be sure, the particular challenge your finance team and company face transitioning to new business models will differ. But a likely connecting thread across all transitions will be a need for finance to emphasize innovation.

As data flows in and out of new outcome-based business models, finance organizations are in a unique position to generate insight — which is what it’s all about in a digital economy. This is why it’s so important to instill a culture of innovation within finance. People should feel encouraged to go out, analyze the data, and innovate new solutions.

Changing the discussion

Joel’s team at SAP, for instance, has transformed the finance function to a shared services model. Today, much of SAP gets access to core finance functions, such as order-to-pay, through these shared services.

Leveraging a shared service model has allowed SAP and the finance teams to standardize best practices across end-to-end processes. Joel said this allows new acquisitions to connect much more quickly. The efficiency and scale of this new model, in other words, make growth easier for SAP. That’s strategic.

This model has also helped to transform data visibility at SAP. Now, the finance team at SAP can support the business with real-time analytics. People can gain even the insight they need themselves.

How do you know when you’ve succeeded? Joel answered this way: “The sense of success comes when the discussions begin to change.” Instead of talking about reports that finance has provided, “Now the business and finance teams are talking about new insights that the business has discovered and what we should do to take advantage.”

This, of course, only increases the pressure on finance to innovate. But in the grand scheme of things, this is a good problem to have.

To learn more about how finance leaders are taking charge of innovation, take a look at this animated infographic, and this great resource for CFOs: Agile Finance 2.0 white paper.

The views reflected in this article are the views of the author and do not necessarily reflect the views of the global EY organization or its member firms.

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Tony Klimas

About Tony Klimas

Tony Klimas, global finance performance improvement leader with EY, LLP, is a member of EY’s Advisory Executive team with global responsibility for the Finance consulting practice. He is an experienced consultant with 20+ years of experience across a variety of industries. His areas of expertise include finance strategy and transformation, shared services/offshoring, and BPO advisory. Tony also has significant experience with finance and accounting systems and has traveled and worked extensively in Asia, Europe, and Latin America. He spent most of his consulting career in the Southeast U.S. before moving to the greater New York City area in 2009.