27-10-2020 09:00
Why CFOs need to stay in the driving seat of digital transformation
When we discussed the CFO’s contribution to digital transformation a little over a year ago, we argued that they should be taking a leading role. It might have only been a year, but a lot has happened since then and so it seems like a good time to revisit the topic.
When we discussed the CFO’s contribution to digital transformation a little over a year ago, we argued that they should be taking a leading role. Since then, the coronavirus crisis has thrown up a set of challenges for Treasury departments that no-one could have predicted.
As most of the world entered some form of lockdown in response to COVID-19, ‘survival’ was the immediate priority for most businesses. At the end of April 2020, PwC1 found that 82% of CFOs were considering cost containment as a response to the pandemic, a big jump from the 55% who said the same at the end of March. In June, cost containment remained the priority for 81%, with 56% of respondents considering deferring or cancelling planned investments.
New ways of thinking
But even by April, only 18% were considering deferring or cancelling their digital transformation investments—well behind those looking to cut spend on facilities/capex (81%), operational (57%) or their workforce (54%). And by June, even fewer CFOs (11%) were considering deferment or cancellation of digital transformation efforts. This is in line with other research conducted at the time. For example, a global survey carried out by Longitude, an FT company, in May 2020 found that while 61% of senior business leaders believed that the crisis had highlighted weaknesses in their business strategy, even more (66%) said that the ability to rapidly deploy new technologies would be more important in the future.2
If anything, the pandemic has elevated digital transformation as a business priority. Increasing agility has always been one of the main drivers for digital transformation, and the importance of that has been reinforced by recent events. But this isn’t just about dealing with COVID-19. The pandemic may have been the catalyst, but smart business leaders know that agility and efficiency are essential to surviving any disruption and thriving in the aftermath—and shocks will continue to come. Expectations of both a new wave of infection and a global economic downturn are still high1, and the effects on geopolitical stability are difficult to predict. So as businesses exit ‘survival’ mode, it’s clear that many are actually accelerating digital transformation, though perhaps with altered priorities.
Joakim Bredahl, Cash Management Consultant at Nordea, says: “Digitalisation is something that can’t really be left to IT departments to lead alone anymore but needs to be an integrated part of every business area. The research that Nordea has previously conducted amongst Nordic customers for the Future Treasury Report has found that CFOs or the Treasury function feel they should be an integrated part of digitalisation efforts. Despite their ambition, in reality digitalisation initiatives are very rarely driven from the Treasury’s point of view as senior managers are still looking to other business areas to drive innovation and digitalisation. For the most part Treasuries are just getting what’s being given to them and they should be working on many more digitalisation initiatives themselves in order to set the agenda.”
Digitalisation is something that can't really be left to IT departments to lead alone anymore but needs to be an integrated part of every business area.
New ways of working
One of the most obvious new priorities is to enable the virtual workplace. Nearly three quarters (74%) of senior business leaders surveyed in Longitude’s research said that the crisis had driven their organisation to give more importance to creating policies to enable and support remote working. In PwC’s survey, only about half of CFOs said their company was planning to improve the remote working experience (52%), make remote work a permanent option for roles that allow it (52%), or accelerate automation and new ways of working (50%), but this may be because at the time they recognised that the focus was squarely on changing workplace safety measures and requirements (75%) and reconfiguring work sites to promote physical distancing (72%).
ii. Almost 75% of senior business leaders said that the crisis had driven their organisation to give more importance to creating policies to enable and support remote working.
Or it may be that in a challenging time, CFOs are more conscious than ever of the value of enabling new ways of working. The technologies that enable virtual working come with their own risks. While these should be managed by IT and HR, it’s usually the CFO who is regarded as most responsible for managing risk—especially when the response to it requires a coordinated effort from different parts of the business.
Joakim continues: “Being a part of the digitalisation conversation isn’t really a challenge for Treasury departments and CFOs, the hard part is doing their own work on finding and leading the initiatives selected to drive digitalisation. Treasury departments and CFOs face a huge workload dealing with their day-to-day business process tasks. This is one of the main reasons that prevents them from driving digitalisation initiatives as much as they would like to. Somehow they have to clear a space in their schedule to take a step back and force themselves to address digitalisation as this will undoubtedly help them immensely in the future.”
From a purely financial perspective, the immediate costs of enabling remote working are relatively small as technology investments go, but funds still need to be found—at a time when more than half of CFOs also expect a decrease in revenue and/or profits for the year.1 And a long-standing shift to (more) remote working is likely to have knock-on requirements for investment in core networking and cloud platforms. Meanwhile, plans to cut costs in facilities/capex investment can’t be expected to yield results quickly. So where do you turn? The advice that we gave in last year’s blog still stands, especially with respect to investigating different funding options.
Joakim says: “For Treasuries, it’s important to go through their areas of expertise and analyse how they can do things in different ways in order to bring new value to the company. One of the major digitalisation efforts for Treasuries is robotisation and automisation. In order for Treasuries to make sure that they have an integral role to play, they need to step up and own these initiatives themselves. Anything that helps either grow top line or save costs will be welcome. If anyone can make a business case about a digitalisation initiative that’s viable, it’s the Treasury department.”
For Treasuries, it's important to go through their areas of expertise and analyse how they can do things in different ways in order to bring new value to the company.
New ways of doing business
Another existing trend that has been accelerated by the pandemic is the move to subscription or ‘as-a-service’ business models. Recurring revenue is a recognised source of business resilience, and these models also provide opportunities to build stronger, longer-lasting relationships with customers. When a pandemic puts pressure on your customers’ liquidity, it becomes even more urgent to find flexible ways to serve them. The CFOs surveyed by PwC recognised that changes in products or services (63%) and pricing strategies (48%) are key to rebuilding or enhancing revenue streams. Industry after industry is looking for creative solutions, with businesses expecting their CFOs to help them make the right strategic choices and implement them effectively. Again, there are questions of funding these transformation projects, but the need goes beyond that to ensuring that the opportunities and risks are properly assessed, that clear measures for success are set out, and that successful pilots or proofs of concept can be properly scaled. Digital transformation is as much about mindset and decision-making as it is about technology, and the need for CFOs to step up is just as important today as it was a year ago.
Joakim concludes: “In November, Nordea will publish the findings of updated research into the digitalisation landscape amongst Nordic companies. We will again be looking at the pace of digitalisation and how much CFOs or Treasury functions are getting more involved. Following our previous research into the Treasury’s role in digitalisation, we have spoken to many large corporates in the Nordics and tried to find out what is restraining many CFOs from leading digitalisation efforts. If they are not leading these initiatives then even though they have to do the work, they don’t necessarily play a key part in defining where and what initiatives should be driven. It will be interesting to see if anything has changed.”
You can read the result of Nordea’s new survey into the pace of digitalisation in the Nordics on Insights during November.