CFOs face a host of challenges that require great agility to overcome. During his tenure at Vodafone, and now at Standard Chartered Bank, Andy Halford has had plenty of opportunities to exercise his agility. As keynote speaker at the latest Finance Director Europe dinner briefing held on 27 January, produced in association with Genpact, Halford highlighted the hurdles to jump and obstacles to navigate in the context of an increasingly digital world.
In a packed room of CFOs at the Andaz Hotel in London, Andy Halford, group CFO at Standard Chartered Bank, delivered his keynote address. Halford spoke about some of the challenges and opportunities that all organisations face, especially when tackling business transformation in the digital age. Following a welcome address by Steve Dunkerley from Finance Director Europe, Halford began his speech by commenting on the title of the dinner: 'Overcoming hurdles: today's CFO challenges in a digital world'.
"It feels like the title should be 'Overcoming hurdles: today's CFO challenges in a digital world, drowning in surplus oil, suffering from Chinese turbulence with a few terrorism and immigration issues thrown in for free'," Halford said.
As group CFO at Standard Chartered Bank, Halford is guiding the business through a period of restructuring that aims to cut costs and increase value through digitalisation. The bank is in the process of simplifying and adapting its operating model to achieve cost savings of over $1.0 billion in 2016 - a figure that will reach $2.9 billion over the next four years - as well as delivering a more customer-centric digital-banking experience. In his previous role at Vodafone, Halford oversaw a seven-year business transformation programme intended to deliver greater efficiency by harmonising processes across the group.
At first glance, the financial services sector may not seem to have much in common with the telecoms sector, but from the perspective of the finance function, the impact of new technologies, new market entrants, pressure on margins, increasing regulation and the urgent need to deliver cost-efficiency, there are many parallels. Halford highlighted these similarities and some of the differences between Standard Chartered, which is one of the world's leading clearers of US dollar transactions, and each year conducts transactions worth $58 trillion in that currency alone; and Vodafone, which handles around a trillion voice minutes a year.
"Both are real-time businesses and both have a low tolerance for failure. Both have a great overall culture and both must manage a huge variety of cultures across the markets in which they operate," Halford said. "Also, they both have to find the right balance between localisation and standardisation. While Vodafone spends billions up front to acquire spectrum and networks, Standard Chartered lends billions with the intent of being repaid with interest over time.
"But while the industry dynamics are different, the barriers to entry in both are high. When setting up a bank, the regulator is friend and foe. Banks are heavily regulated compared with any other industry, and the level of scrutiny deters everyone but the bravest. So, newcomers focus on parts of the process, the pockets of unregulated profit. On the other hand, if a bank falls over, the state is very concerned. But if a telco fails, it is concerning, but not to the same magnitude."
The breadth of responsibility
Halford's description of his experience in the companies shows the vast number of ways in which the implications of digital technology - inside the business and in the world in general - are impacting large organisations. The overall result is that the CFO is no longer simply the lead role in the finance function, but also has a much broader portfolio (see 'The nine hats of the CFO', opposite).
"Digital means different things to different people. It cannot be standardised. Its impact on many industries, however, is similar," Halford said. "For instance, the ease of access to information means customers can price check a purchase, and it is much quicker for a business to find out more about its customers. Businesses can no longer price at a premium through opaqueness. In terms of finance, digital means that the job of CFO includes a large number of different job titles. The speed of access to information, and the fact that information cannot be concealed for long, particularly if it concerns newsworthy business stories, means that the CFO must think fast on his or her feet and provide comment quickly, which makes the CFO the prime communications officer.
"The speed at which start-ups can go global through digital technology is also a factor. They just need a product, financial backing, a website and a delivery mechanism. So, the CFO is also the chief competitor monitor. Then there is the ability to unpick the supply chain and either replicate or circumvent the supply chain of an established competitor by focusing on one particular element, which is what fintech companies do. It is estimated that this poses a risk to half of the profit pool globally, so the CFO is also the chief supply chain officer," he added.
Then there is the dark side of the digital era. Cybercrime costs businesses around $400 billion each year, and is particularly challenging for banks to deal with. As a result, regulators are looking to ensure the banking industry maintains the highest standards, so Halford finds himself playing the role of chief compliance officer.
Finally, on a more positive note, the costs savings that the digital environment can deliver have brought business efficiency to the fore. The biggest wins in cost savings can be found in latest disruptors such as Blockchain and digital money. According to Halford, the CFO also needs to be the chief innovation officer and continually question the norm.
"Why continue, for example, with financial ledgers that need balancing, and then have document flows to another ledger system that is itself constantly balancing, when one can have a single closed-loop distributed-ledger technology that spans companies and sectors like Blockchain?" he asked. "So long as it can gain a reputation for being utterly dependable and secure, why should it not progressively transform the way the trade is recorded and undertaken?"
The accelerating pace of change
This focus on innovation, and the importance of new digital technologies to society as a whole, were emphasised in the supporting address by Barend van Doorn, head of financial services in Europe for Genpact.
Van Doorn began by referring to Klaus Schwab's book, The fourth industrial revolution, by noting that it took around 90 years to move from the steam age in 1784 to the electrical age in 1870, which ushered in mass production, and a further nine decades to move into the computer age in 1969, which enabled automation. The digital age that brought unprecedented connectivity, however, arrived much faster. The first website appeared in 1991 and the first iPhone came out in 2007.
"Two thirds of pupils now at primary school will end up with jobs that don't exist at the moment," van Doorn said. "In 1998, the International Space Station was launched, and less than 20 years later it could now be run on two mobile phones. We are nearing a time when we will have buses without drivers and planes without pilots."
Van Doorn also noted examples of how digital innovation has opened the door to new start-ups that pose a threat to established businesses through the cost savings and process efficiency that they bring to specific business activities. One was Rocket Mortgage, an online service in the US that enables people to obtain a fully underwritten mortgage in as little as eight minutes.
Genpact is helping large organisations that are showing interest in its lean digital approach to keep up with new market entrants by combining design-thinking methods that focus on the end user with digital technologies and lean principles for greater agility. This approach enables organisations to align their initiatives with business outcomes and deliver the expected benefits.
Despite the many hurdles that the digital environment throws up in front of the finance function, and the many additional responsibilities that the CFO must manage through the multiple roles that Halford describes, this is an exciting time when business can derive huge value from making smart investments in digital transformation.
"There is no doubt that the digital revolution and the ongoing process of globalisation are fascinating for the CFO," Halford said.
The nine hats worn by the CFO
- Chief business intelligence officer: harnesses information to keep one step ahead of the competition.
- Chief communication strategy officer: thinks fast on his or her feet as the media wants comment.
- Chief competitor monitoring officer: keeps up with the speed at which business start-ups can go digital.
- Chief supply chain guru: identifies and grows an aspect of a business that isn't impacted by regulatory obligation.
- Chief innovation officer: challenges colleagues to think creatively, embraces change and does not feel threatened by it.
- Chief strategy officer: has a firm grasp of the overall picture and direction of change at the top of the business.
- Chief full back: handles the adverse aspects of what digital currently brings to businesses, as the facilitator of cybercrime prevention initiatives.
- Chief compliance officer: enables the company to stay on top of compliance. Regulators have imposed $158 billion of fines across the banking sector globally in the last five years alone.
- Chief business efficiency officer: drives efficiencies by harnessing digital technologies.