By Michelle Perry
Information technology investments are now falling under the remit of chief financial officers. Michelle Perry looks at their essential considerations in plotting an IT strategy for companies.
For the past two decades the paths of finance and technology have been gradually converging, but the pace of this change over the past five years has accelerated inexorably. Today, chief financial officers are called on increasingly, not just to be financially adroit and business savvy, but also technically skilled – and often to take charge of information technology strategy and investments, too.
The onslaught of big data and how to take advantage of the business insights it can provide is a major starting point for any CFO.
The latest CFO research by EY shows that four new forces are changing the expectations placed on CFOs: digital, data, risk and uncertainty. Most group CFOs in the global study say that the delivery of data and advanced analytics will be a critical capability for tomorrow’s finance function. But 58 percent of finance leaders interviewed say they need to build their understanding of digital, smart technologies and sophisticated data analytics.
Indeed, Guy Look, CFO and Executive Director of cosmetics group Sa Sa International Holdings, and a member of the Hong Kong Institute of CPAs, tells EY in the study: “The finance function today involves the more technical and compliance part of accounting, but on top of that there’s the business part – the market data analysis and business intelligence. People may disagree with me, but in my mind, it takes different people to do these different things. It’s a different mindset.”
Companies are at very different points on the voyage of digitization, with most research showing that CFOs are only just dipping their toes into new technologies like robotics and blockchain. But the speed of development is increasing as more companies consider the benefits of a grassroot overhaul to their business model because of the advantages that these new technologies can provide. How to measure the benefits of these new technologies is radically changing, too.
“In the past CFOs were looking at ROI to measure expenditure and monitor returns, but now in IT investments the KPI is no longer ROI, it’s more customer centric: how many touch points are there with the customer? How can we capture data from consumers? And understand behaviours, and judge the agility of the data model, for example. The measurement is very different from the past model,” says William Chou, National Leader, China CFO Program at Deloitte China.
A report by his firm recently found that almost all the CFOs in privately owned enterprises (98 percent) reported that they were actively involved in business transformation and participated as a core management member in developing transformation strategy. This compares with 78 percent of CFOs in the study who regarded going beyond the traditional financial perspectives as an urgent need.
Chou says that companies in China and Hong Kong are at different stages in technological investment, but most of them are using some form of cloud computing, while the second most popular technology is robotics, also known as robotics process automation (see How the latest technologies will transform business and finance on the right).
Derry Fong, Director of Information Systems at the Hong Kong University of Science and Technology, and an Institute member, is currently overseeing the construction of a data warehouse for the university and sourcing analytics tools.
“I think we are very similar to other organizations in Hong Kong, even commercial organizations, that are looking at how to streamline and make more systems and processes more efficient,” he adds.
It is difficult to pin down the proportion of CFOs globally who are directly charged with technology investments, though it is clear that more CIOs are now reporting to the CFO, and the proportion of finance chiefs coming up through the ranks who are IT savvy – having grown up with technology all their working lives – is fast overtaking those that aren’t.
“CFOs have tremendous impact on technology investments, and even more so as these technologies have become more important in driving business benefits,” says Tony Klimas, Principal and Global Performance Improvement Finance Leader at EY.
Developing IT strategy
Despite the abundance of new technologies available to CFOs to streamline processes and cut costs, a clear strategy of what an organization needs and hopes to achieve is paramount. Finance bosses need to assess their organization’s current digital maturity and understand its digital budget and strategic goals. “Among the finance leaders we surveyed recently, 58 percent said that they ‘need to build their understanding of digital, smart technologies and sophisticated data analytics’ in order to deliver against their critical strategic priorities,” Klimas says. Once they have that data they can play a crucial role in helping to make coordinated and focused decisions on IT strategy and investment.
What shouldn’t be overlooked is the impact digitization can have on people. “In the digital era there are a lot of challenges. CFOs need to spread the strategy across the organization to form a holistic view. They also need to understand that there will have to be a culture change too. And while some companies’ digital journey will travel from zero to one; for some business models it will require an overhaul, so I think the board needs to be ready for a culture change,” says Chou at Deloitte.
Fong at HKUST is in the process of automating all systems and processes for the university. He began two years ago and estimates the whole process will take around five years in total. Fong is only too aware that digitization is as much about culture change as it is about digital tools.
“It’s an education process for people, and sometimes people are resistant to change. The more automation you want to do, the more time you have to spend explaining the process to people,” Fong says.
Ahead of the game
Certain sectors are more advanced than others in the adoption of digital technologies. This trend can be found across geographies too. Highly regulated industries such as financial services, pharmaceuticals and the utilities sectors are well advanced in their adoption of automation and digital technologies such as artificial intelligence and blockchain.
Sectors with narrow margins and constant cost pressure are also at the forefront, as well as retail and consumer products. Government and the public sector are currently looking at ways to leverage these technologies to better serve people.
Digitization comes with its own pitfalls. On one hand, it offers organizations the opportunity for new business models and revenue streams. But on the other hand, digitization can make organizations susceptible to disruption from new players and agile incumbents, and creates exposure to new risks.
And of course, all manner of cyber threats are on the rise. Barely a week goes by without news of a major global organization – private and public – being hit by cyber attacks. As part of risk assessment, CFOs must work with the CIO to establish a governance framework for quantifying digital risks, prioritizing and protecting digital assets, and mediating across silos to create an integrated approach.
As Chou points out, there are no guarantees once an organization has undergone digital transformation that it will be a success. But, he says, at least organizations will then be agile enough for the challenges ahead.
“Companies need to be ready to change quickly,” Chou says.
How the latest technologies will transform business and finance
Blockchain, the technology that underpins bitcoin, allows data to be exchanged through a publicly immutable ledger of transaction, as a shared network of computers around the world verifies it. This technology could fundamentally change the role of the finance function in areas such as corporate reporting, where it could transform the speed of reporting and theoretically allow transactions to be recorded and logged in real time, helping to improve transparency and trust in company accounts.
Retailers like the The Co-operative in the United Kingdom are trialling blockchain technology on fresh food products in their supermarkets, tracking food from the source to ensure its authenticity.
Blockchain is a potential game changer to the financial services industry, too. Financial institutions such as Goldman Sachs, Morgan Stanley, Aviva, Shroders and others are all investing in blockchain for certain services. The technology would give a product a digital identity, removing humans from the checking process, and permitting banks to verify transactions in real time without further checks.
Robotics process automation has been gaining momentum, and can reduce the need for people to perform back-office processes. Robotics has major implications for how finance functions perform repetitive, transactional processes. It will also overhaul the training ground for junior finance professionals, and impact recruitment needs.
KPMG in the United Kingdom has already begun using IBM’s Watson cognitive computing technology for some of its services. The Big Four firm has built a cognitive engine called Astrus using IBM Watson technology, which can conduct due diligence on issues such as new suppliers or merger and acquisition targets for clients in minutes, a task where the whole teams of people used to take weeks to complete.
Deloitte U.K. is using robots in its Milton Keynes-based shared service centre to do management reports, which helps to slash costs. Deloitte reckons using a robot costs a ninth of the cost of a U.K.-based accountant and a third of the cost of recruiting an accountant in an emerging economy.
This article was originally published in the January 2017 edition of A Plus. You can also read the digital edition.