Digital transformations are neither a trend nor discretionary initiatives that business or IT functions are undertaking to simply modernize processes or technology infrastructure. They are about presenting a new value proposition to customers in the digital age. These transformations are occurring at a global level, ushering in irreversible changes across industries.
Historically, CFOs and finance organizations have approached technology or transformation investments from a cost and efficiency standpoint. Such an approach is driven by a near term ROI view as opposed to a long-term transformational view. As a consequence, CFOs may or may not be creating a positive impact – let alone set the agenda for transformation.
Trasers research shows that leading CFOs play a dual role in the digital transformations taking place in their companies. The first is to transform the finance function itself and the second is to drive the agenda across the company to ensure everything is tied to enhancing shareholder value.
Transforming the finance function
In the digital age the concept of Finance as a back-office function is no longer valid. The days of sales or marketing, negotiating with customers or partners; manufacturing or supply chain negotiating with suppliers and then going to Finance for approvals, are going to be over. Finance now affects customer, partner and supplier transactions, experience and satisfaction in real time. For this to occur, the finance function has to digitalize and integrate its interactions with various other functions.
So, where are we in Finance transformations? Consider the following insight from Trasers:
- Low digital maturity: A full 40-60% of finance functions (depending on the size segment of their company) still think transformation is about websites and portals
- Medium digital maturity: Another 40-50% are reinventing the finance value chains
- High digital maturity: Leaders, comprising 3-7%, are redefining the role of finance and its operating model independent of their past successes
The companies with high digital maturity will see breakthrough performance. Not only are CFOs setting an example by taking risks and transforming their function first, they also learn about digitalization and its powerful benefits before others do. Having experienced success, they reflexively start influencing the rest of the organization.
Setting a shareholder value-based transformation agenda for their company
In the Trasers 2019 Ab-Initio Surveys we asked over 550 leaders in R&D, Product Development and Innovation a series of questions related to customers, products and services. Here’s a relevant summary for CFOs:
- We are in the digital age, but over 80% of products or services do not have any digital interfaces or content in their products
- Less than one-third are confident that 75% or more of their product-service portfolios will be competitive in the next three years
- A majority feel that anywhere their competitors are transforming is at twice the pace
- 90% of R&D leaders say their CEO either does not understand or embrace a transformation of product-service portfolios through funding
Why is this important? Revenue, margins and profits are driven by products and services bought by customers. When these products and services start losing appeal and relevance, CFOs will first observe revenue volatility; then margin volatility and ultimately a decline in revenues. The corrosive impact to shareholder value is obvious.
As custodians of shareholder value CFOs need to influence CEOs and Boards toward setting a transformation agenda that begins with a reimagination of products and services and then extends across the value chain.
So as a CFO, where do you start your digital transformation?
CFOs who understand this duality of their role, i.e. transforming finance and influencing the transformation agenda, will gain operational benefits and influence the company in the right direction. Data-driven decisions are important to reduce or eliminate subjectivity, bias and siloed agendas.
CFOs who utilize fact-based insights will raise industry-specific awareness and align top management leadership as well as their own teams. They benchmark to understand their company’s, a business function’s or IT’s competitive digital maturity. Understanding very specific themes tied to their customers, markets, operations and technologies will help in developing effective strategies.
Visit www.trasers.com to access guides and reports that will help you develop your digital transformation strategy and better align your team.
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