Transforming finance in the digital world

15 February 2016

In June 2015, Jens Madrian was keynote speaker for an FDE dinner briefing in London and spoke about the CFO as being a Chief Future Officer. More recently he spoke at PwC's Finance Leaders' Summit in London on the topic of Finance Transformation. His new blog contains the following post that reflects some of the issues he spoke about at both events.

Just like the animal kingdom, it's survival of the fittest out there. Every year, companies that were once household names go to the wall, others struggle to survive while others still seem to make it big, and every market sees a flood of new entrants. The evolutionary cycle is played out every day in the business world. Kodak, Blockbuster, Woolworths, Ryan Air all responded for better or worse to the digital revolution, which is an example of a megatrend presenting opportunities for some, threats for others.

The organisations that thrive in this rapidly changing world will be radically different on the inside compared to the organisations we have seen in the 1990s and early 2000s. In particular, their finance teams will give the business a new competitive edge, driving insight and innovation quickly and responsively across the organisation. Finance teams have a crucial role to play in ensuring that businesses grow and prosper in this rapidly changing environment. Here are some of the changes in finance I have experienced over the years.

Life using a rear-view mirror

The digital revolution has had an enormous impact on the way consumers buy, the way they select their energy providers and in the loyalty they feel towards those providers. Having worked for many years in operational leadership roles, I recognised finance as having a laser focus on performance, but because measuring performance is largely a retrospective activity we have become very good at looking backwards, but less good at looking forwards. The past is concrete, the future is more blurred, and so the CFO must have an opinion on where the business is headed as compared to what customers want now, then challenge the business in the right way to formulate a strategy in response.

Focus on innovation and growth

I'd like to share with you a boardroom experience I had while we were evaluating and deciding our digital strategy. The business case for a digital transformation was well founded - streamlining processes and significant cost reduction opportunities meant substantial internal rate of return and short payback. I had rarely seen such a financial no-brainer - and yet something nagged at me.

Like good finance professionals we were evaluating an investment with the mind set of, 'I give the business money, when do I get my actual return?' As a result, the business case, and therefore the whole transformation plan, is often limited to saving cost and driving efficiency rather than innovating and driving growth. When we re-focused as a team, we found we became much more innovative about how to move from an efficient business to one that also truly engaged with its customers. This outside-in perspective has led to the organisation transforming its whole structure, values and culture in a short period of time, rather than simply opening up a new sales channel.

My reflection was profound for me. There was an issue with the underlying mindset existing in both finance and the business - a mental model I have seen in many other companies over the years. The business believes it needs to formulate a strategy that would 'get past' finance. Their thinking seems restricted whenever the initial conclusion is, 'Finance won't go for it' and I now realise how debilitating this can be for any decision-makers. How many ideas went unexplored because of this attitude? How often was the status quo protected at the expense of action? Finance was complicit in this approach, of course, but we spotted our decision-making bias early and rectified our thinking. This started to change the mindset across the whole organisation and allowed people to think more about innovation and the art of the possible rather than constraining these thoughts.

The result is that sustained digital investment has started to drive significant increases in customer satisfaction and create a higher customer and portfolio lifetime value, with some ways to go.

Changing the role of finance

The digital transformation has resulted in other interesting changes. For example, the finance teams play a much more active role in data governance, cyber security and data flow controls, investing in the right expertise to protect the company in the new world, and stewardship.

Our role as efficiency driver has also changed. The digital transformation turns finance into the insight engine for the business, giving informational support for strategic decisions along with business performance measurement and review. We need to pay more attention to generating and maintaining the quality of our data, because the better the data, the more efficiently we can use our budget to create returns through analysis and insight. As a consequence, using this insight we can engage customers in the way they would like to be engaged.

We have also changed our role of business partner by becoming really plugged in to the business, ensuring that it doesn't have different goals from finance or the wider business strategy. I have noticed that the best finance business partners possess one outstanding attribute - they are curious about how the business works, how it makes and keeps money, and what the business is trying to do at a strategic level. This curiosity, and the ability to ask the right commercial and operational questions, is a fundamental attribute of a great finance business partner.

This all means that we also needed to grow new skills in finance, becoming conversant with new language and technical know-how so we can't be fooled, so that we can challenge the business and hold them to account on their promises. This has been by far the most difficult thing to accomplish, with people who have trained their whole careers in one discipline needing to stretch themselves in another. Only by challenging ourselves as finance professionals will we continue to add value and be relevant in the rapidly changing business world. Finance has so much to add but it needs to change to unlock this potential.

Jens Madrian, former chief financial officer at RWE npower, is an operational CFO with extensive international and transformational experience in large retail/customer centric operations.

Jens Madrian − "Only by stretching ourselves as finance professionals will we continue to add value and be relevant in the rapidly changing business world."