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DIGITAL DISRUPTION: THE CFO’S SECRET WEAPON

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DIGITAL DISRUPTION: THE CFO’S SECRET WEAPON

By Lone FønssSchrøder

Among the issues facing boards these days, none is more frightening than the prospect of innovators nullifying a business model or strategy, seemingly overnight. Well-publicized stories of disruption are a constant reminder that at any time, new and unrecognizable competitors can come up from below with high-growth start-ups built on compelling value propositions, lean digital company models, big data, and real-time intelligence.

Driving the point home is McKinsey & Company’s Strategic Principles for Competing in the Digital Age. As their recentarticle reports, a banking CEO said that his respective industry is in the midst of a transition that occurs once every 100 years. And it’s not just banking – every business in every industry is increasingly surrounded and affected by the rise of information technology.

Tech titans like Google and Amazon, with digital in their DNA, have pulled the rug out from under many companies. Meanwhile, smaller innovators like Uber, AirBnB, and Netflix have irked or eliminated incumbent players in their respective markets.

Boards of nearly all companies, and the leaders that report to them, now face the paramount task of responding to the havoc (and opportunity) caused by business’s total digitization and most, unfortunately, don’t have an answer.

Digital disruption doesn’t only apply to shaping industries: it starts from the inside out. As corporate leaders prioritize their digital agendas and explore ways to enhance capabilities, there’s huge potential to make an impact in an overlooked place: procure-to-pay (P2P). I believe boards should urge corporate leaders to transform their internal purchasing and payables from a manual, back-office function into a digitized, real-time cycle and an on-ramp for digitalization. Let me explain why.

Typically, board meetings review the order side of the business. Everyone wants to know where the next quarter is going to land. However, the order side is only one part of quarterly results and unfortunately, understanding spend and its inherent risks is still a big challenge. Too often, internal processes are manual and extremely slow; and the moment you know where your cost position is, it may be too late – leaders end up reporting a significant surprise to the shareholders, impacting stock prices.

Furthermore, most large-cap companies today function like banks, managing complex money flows across multiple business units. Their challenge is to properly design those flows, and implementing changes quickly when needed is hard without real-time cost and order data.

To meet the demand for visibility into costs requires a centralized and digitized procurement, AP, and treasury. P2P transformation is no longer limited to reducing costs, eliminating inefficiency, and meeting KPIs. Progressive organizations are managing growing streams of data and converging them into actionable insight to help support decisions made in the Chief Financial Officer’s office. They’re accurately predicting quarterly costs to improve analyst ratings, and even reduce currency risk, which I’ll explain later.

For most, however, P2P digitization as a strategic priority is nowhere in sight when it should be. Take manufacturing, construction, and engineering companies, for example, which operate on less than 10% margins. To make a profit, many are transitioning into managed-services companies, such as Rolls-Royce, which now delivers engines as a service. Such a transition means increased reliance on other businesses (suppliers, partners, etc.) which, in turn, means a need for closer and more seamless connectivity and much more transparency. They’ll also need real-time information to help maintain and grow their margins.

Unfortunately, most are not going to get that kind of information using legacy ERP systems. If anything, because ERP software projects are typically plagued with long implementation timelines, cost overruns, and little focus on the real-time aspects of the business, they leave you at high risk for ending up with different results than you expected from your supply chain. Those with high debt will be put at risk. Such cost volatilities can trigger a breach of a debt covenant. At worst, that can spell game over.

Supply chain risk can be greatly mitigated through digitization. An open network of digitally connected suppliers means that their data is born electronic, rather than paper or PDF. It enters buyer systems through the cloud as purely digital, flowing into applications and tools in real time to inform everything from supplier master data to payment terms, and beyond. Far from being a luxury, digitally based analytics can make or break complex decisions, such as choosing between two different currency strategies.

A digital agenda also delivers the real-time information needed to reduce guesswork, and it makes events or decisions more predictable. This is helpful for shareholders and for the banks that provide loans or credit. Real-time data improves compliance to debt covenants and helps to monitor and optimize working capital processes. Consider the cost to your company if you cannot expand because you don’t have enough cash and can’t get credit. Reframed, what is the cost if you don’t have control of your information? With the right technology, you can have access to that information. If your company is listed on an exchange, there’s no reason why Wall Street analysts should have better information about it than you do.

By driving a digital agenda in procure-to-pay, business and finance leaders can benefit their organizations in three ways:

  1. Process optimization: By increasing use of electronic invoices, you can reduce approval cycle time, supplier inquiry calls, and invoice exceptions (by having suppliers resolve exceptions themselves). At the same time, you can improve visibility into overall AP processes and increase global compliance. Process optimization can save up to $7M per $10B in spending.
  1. Financial returns: Automating accounts payable opens the door to huge savings and returns present with dynamic discounting. Essentially, you can invest cash safely at rates that can significantly exceed returns from many other traditional investments. Using programs and other working capital optimizations can result in up to $30M in savings per $10B of client spend.
  1. Indirect cost savings: Currency risk is multiplied by the time it takes for transactions to be available in an ERP system. Speeding up the availability of transactional data – specifically, actual invoices that have future foreign currency obligations – will help your treasury make timely strategic foreign currency decisions that can result in significant savings. While a PO or similar order system can serve as a plan-ahead mechanism with lesser visibility and accuracy, access to real-time invoice data in foreign currencies before this data makes its way through an ERP system can be an effective tool in foreign currency hedging strategies. Your treasury staff will be better able to seize favorable FX rates and know when it is best make local currency payments.

Defunct major companies like Blockbuster, Circuit City, and Tower Records are prime examples of victims of the first wave of digital upheaval. A new wave is now upon us that will touch every industry, even those thought to be immune to disruption. (Deloitte hascoined such industries as “long fuse, big bang,” which include health, education, and utilities.) By targeting your digital initiatives at procure-to-pay, which regardless is already in need of modernization, you can begin to deliver the one-two punch that will keep you ahead of the disruption.

Finally, one of the companies on the forefront of helping enterprises digitize procure to pay is Tradeshift, a Danish startup that is now based in San Francisco. Born in the modern cloud era, the company, which is led by pioneers of e-invoicing in Denmark’s public sector, has built an open platform that facilitates the flows of data and transparency that I detailed above.

Lone FønssSchrøder is a member of the board of directors at Volvo, AKSO, SAXO, Schneider,Valmet, and Advising Credit Suisse – Towerbrook, and a co-owner XO &Norfalck.

Business

How to use data to protect and power your business

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How to use data to protect and power your business 1

By Dave Parker, Group Head of Data Governance, Arrow Global

Employees need to access data to do their jobs. But as data governance professionals, it’s our job to protect it. Therefore, we must perform a fine balancing act to weigh robust data protection against the productivity of workers who need the data to maintain business-as-usual working processes.

Data grows exponentially, and most organisations will admit that they simply don’t know what data they have, where it is, and the controls that exist around it. This creates 2 challenges:

  1. Burgeoning amounts of unstructured data makes the business increasingly vulnerable from external attackers or internal data breaches.
  2. Because data is the key to understanding a customer’s wants and needs, if the business can’t identify its data and unlock its value, it’s at a competitive disadvantage.

As a European investor and alternative asset manager, here at Arrow Global we take care of £50bn of assets and own a data estate exceeding 160TB. How we manage our data is key to our success. We understand the difficulties involved in opening up environments to allow people to work productively, while at the same time locking them down to protect our organisation.

When it comes to analytics, I believe that Arrow is highly proficient because we employ a talented team of data scientists. But even for us, the sheer volume of raw and processed data, that resides in both our structured systems and unstructured data repositories, has the potential to put our business at risk.

We know there’s always more that can be done to strengthen our security posture and ensure regulatory and contractual compliance, while at the same time using our data to drive the business forward.

Data protection isn’t just about compliance

For many organisations, data protection has centred on demonstrating compliance with the GDPR. At Arrow, our efforts have gone one step further to include our contractual exposure.

Being a more mature data organisation, we had previously tried to develop an application in-house to manage our data estate. However, with 160TB across the company in production data alone, we simply couldn’t achieve the scale we needed to handle the sheer volume of data. Of course, the volume is just the start – once you know what data you have, you then need to be able to categorise the data and put it into a structure, so the business can analyse it for a specific use case.

We knew we needed to go to market to find an industrial-strength data discovery product to replace our in-house application. By aligning our choice of product to our overall IT and change strategy, meant that ultimately, we ended up with a far better outcome than we’d anticipated.

Position data as both a risk and an asset

Data touches every part of an organisation, so when it came to building a business case for buying-in a data discovery software platform, we approached it in a way that would speak to different people at the same time. We did this by posing the question:

“What do we want to do with data in a way that is GDPR-compliant, contractually-compliant and enables us to better service our clients?”

These are the black and white tests of data governance – to recognise the importance of securing and protecting data. They’re applied in a way that enables us to commoditise data and use it to drive the business forward, by forcing us to consider how we would use the data – for example, creating value-based pricing for our clients.

In aligning the business case to initiatives that were already priorities within the boardroom, we knew that we’d gain the attention of the senior leadership team and it would be easier to get the buy-in and budget we needed. And in the end, everyone wins – we get what we need to protect the data, and the business gets to distil the data’s value to better meet our customers’ expectations.

Dave Parker

Dave Parker

Get visibility of data at scale

For us, things got really exciting once we were able to see all of our data at scale. We chose Exonar because it allowed us to discover our data in ways that other products couldn’t. And the interface between the user and Exonar meant that everyone – both technical and non-technical users – could understand the technology and the findings it revealed.

When we saw exactly what data was in the estate, where it was and who had access to it, data security became much easier and the risk of data being compromised was dramatically reduced. We can see exactly where the vulnerabilities are and restructure how our data is stored to strengthen security. Then over time, we can use search, workflow and analysis to optimise the infrastructure and continually identify new areas to improve.

Commercialise the data

From a wider-business perspective, once people can see the data, they can start asking “What if…” to query it and distil its value. But it’s more than just the data itself. It’s not uncommon for data relating to the same thing to exist in unconnected systems across the business. For example, customer interactions and incidents or events.

Exonar is capable of joining the dots in disparate data sets. By stitching these data sets together, we can get a better overall view of our customers and use the outcomes to think of new, different or better ways of serving them through enhancing or adapting our offerings.

Why other financial services businesses should also take a smarter approach to data

  1. By changing the way you approach data, you can use it to protect and power your business and the people you serve.
  2. By positioning data as both a risk and an asset, you elevate its position to give it priority in the boardroom. Ultimately, it’s data that helps the business make informed strategic decisions about how to strengthen its competitive advantage.
  3. By gaining visibility of data at scale, you can see exactly what data you have and where it is. This gives the business confidence about the actions needed to ensure it is secured in both a regulatory and contractually compliant way, and that people are doing the right thing with data at all times.
  4. And joining different data sets provides you with a single view of ‘X’ within your data, no matter where it is. Helping to support your wider-business strategy and priorities, it gives you the information you need to secure a business advantage and generate value.
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Business

How business leaders can find the right balance between human and bot when investing in AI

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How business leaders can find the right balance between human and bot when investing in AI 2

By Andrew White is the ANZ Country Manager of business transformation solutions provider, Signavio

The digital world moves quickly. From keeping up with consumer behaviour patterns, to regulation and compliance, the most successful organisations are always on the cutting-edge of technological developments.

However, when it comes to investing in artificial intelligence (AI), a hard and fast strategy does not guarantee a top spot amongst the league of tech greats. Instead, it pays to take a considered approach to balancing reliance on automated processes with a human touch. Why? Because creative and strategic thinkers are the true propellers of innovation; automation is simply the enabler.

The International Monetary Fund (IMF) developed the ‘Routine Task Intensity’ (RTI) index as a measure of which processes are likely to benefit most from automation. According to this metric, jobs requiring analytical, strategic, communicational and technical skills score low on the RTI index, while simple, repetitive tasks scored highly.

The lesson for business leaders here is simple; your digital investments are just as important as your stake in talent. When deciding which processes to automate, start simple, and remember to value the skills and potential of your people.

Keep customer-centricity at your core

Customer-centricity means that every business decision, dollar spent and new hire is centred on one question: how does this benefit my customer? Investments in AI are no different. To be truly successful, they must have a customer-focused outcome.

Where companies get this wrong is by implementing cost-saving measures or ‘copy and paste’ software that fails to improve the customer experience – often having the adverse effect.

Take the virtual chat-bot, for example; if implemented poorly, it can send your customers into a frustrating and seemingly infinite cycle of dead-ends. The modern consumer is far too digitally savvy for this shortcut, and will quickly move onto the next merchant offering a more seamless customer service experience.

To guarantee your investments are delighting rather than infuriating your customers, it helps to take an outside-in perspective of your business processes, aided by Customer Journey Mapping (CJM).

Before you commit to digital investments, CJM can trace and map each customer touchpoint, signalling pain points or conversion rates throughout their journey. These data-driven insights lead you to the areas that would benefit the most from automation, instead of implementing a broad band-aid solution.

Avoid the ‘set and forget’ method 

When investing in enterprise-wide AI, the ‘set and forget’ method rarely works. Real transformation requires an ongoing dedication to refining and improving AI-driven processes, as well as adapting them to the evolving needs of your customers. This is the best way to achieve customer loyalty, by proving that your organisation listens to, and understands its users.

A human perspective is invaluable here, paired with process mining – a method that thrives on finding process inefficiencies – to create a consistent feedback loop of improvement.

During periods of uncertainty, customer loyalty is everything, so aim to protect it at all costs.

The power of your people

The rise of automation can be linked to the corporate world’s obsession with speed and efficiency. However, the psychology behind this goes deeper than being the biggest and fastest producer; it’s also about reallocating resources into attracting and retaining the brilliant minds that drive companies into the future.

When communicating digital change, it’s critical to highlight the valuable impact AI has on augmenting jobs; removing the burden of mundane, repetitive tasks and allowing for more strategic skill-sets to shine through. For lower-skilled workers, invest in upskilling or re-education where possible.

Successfully rolling-out digital transformation plans means that every employee across all tiers of your company understands the value of AI. The starting point here is education to achieve buy-in. Change communications must be accessible, constructive and value-focused, supported by key culture influencers who champion automation within teams.

Enterprise-wide buy-in is an important element of refining and improving digital processes, as cross-functional collaboration can offer valuable insights into common pain points or inefficiencies ripe for automation. Supported by process mining, collaboration provides a holistic view of how each investment will impact other processes. There is no point investing in automation that streamlines one process and makes another more people-centric, so be sure to take a balanced approach to your investments.

Remember, AI is not about creating an army of robot workers; it’s about increasing efficiency and productivity so that an organisation, and its people, can work smarter.

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Are you a fighter or a freezer? The 4 “F’s” of Surviving Danger

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Are you a fighter or a freezer? The 4 “F’s” of Surviving Danger 3

By Dr.Roger Firestien, Author of Create In a Flash.

The fight, flight, freeze survival response – or FFF for short – is designed to mobilize our brain and body to fight an enemy, run from a tidal wave or freeze to hide from a predator.

FFF is how humans react when they encounter a dangerous situation. It is a primal response that happens instinctively even before we are able to think about the situation we are confronting.

The FFF alarm causes our brain to focus on negative memories, probably to scan them to avoid repeating dangerous situations and negative outcomes.  We get tunnel vision as our pupils dilate to increase our focus and long-range vision, but as a result we lose our peripheral vision.   

Humans use the FFF response and so do organizations.

When organizations encounter dangerous situations, like, say, trying to survive a global pandemic, they can respond by either fighting the situation, fleeing from the situation, or freezing and waiting for the situation to pass.

I would like to propose a fourth strategy for organizations to deal with a danger like the pandemic. It is the fourth “F.”  The farm response. More on that later.

What kind of organization is yours?

The fighter organizations were the ones that fought the idea of a global pandemic or pushed back against the research that reported how serious the virus was.  Think of the meat processing plants that didn’t provide proper protective gear or the religious organizations that refused to take a break from large services.

The results were catastrophic for the organizations and deadly to the employees and worshippers.

It is pretty easy to identify the fleeing organizations.  You don’t see them anymore.  Unfortunately, this is the organization that just doesn’t have the resources or the energy to fight.  You will recognize them by the “For Rent” signs in the windows of the buildings they used to occupy.

The organizations that freeze  are a little more difficult to identify.  They are still around but are frozen by fear. They are the organizations that, although they are in a position to move forward, are too frightened to take a risk or even look at the periphery of their business. Their tunnel vision blinds them to opportunity.  The freezers hide and wait for the danger to pass.  They are the ones who miss out on possibilities.

For example, if you are in the business of supplying concessions to sporting events, airports and national parks, your business is in deep trouble now. So, what are some ways to keep people buying food and drinks with so many venues closed?

Dr.Roger Firestien

Dr.Roger Firestien

Many national parks are now open and visitors need to eat.  How can you sell food while supporting social distancing? Answer: Sell picnic meals to your patrons.  And, sell a blanket that commemorates the park that diners can spread out and have lunch while social distancing with their families. Then, they’ll keep the blanket that reminds them of their visit to the park.

Sound like a good idea? It sure does. You can keep your park concession business, allow people to social distance and add to your product line with that commemorative blanket. Did the company implement the idea? Unfortunately, they did not. They froze and missed the opportunity.

However, businesses are finding ways to optimize their organization and capture opportunities. They are the farmers. The farmer organizations study the situation, just like farmers study the weather and the land. They look at the resources available to them and get to work.

Farmer organizations pivot and get creative.

Distillers, who before the pandemic, were making vodka, whiskey, gin and other spirits quickly changed their operation from distilling booze to distilling sanitizer.

Telemedicine, which had limited acceptance before the pandemic, almost immediately became the accepted way to deliver care.  Now, the doctor comes to you.

Fitness trainers are conducting their sessions via Zoom or in person outside on sidewalks in front of their gyms so they can social distance.

My favorite ranch, SK Herefords, sells their beef at local farmer’s markets in the Western New York area. This spring when the large packing houses shut down and grocery stores were limiting the amount of beef customers were able to buy, my farmer friends were there at the markets with locally produced farm-raised beef.  Sales soared and demand skyrocketed.

Why? The farmers were ready.  They used their resources and were not afraid to optimize them in a rapidly changing and volatile environment. Farmers live with constantly changing weather conditions and market prices and are accustomed to rapid change.

To operate with constant change, all of us, like farmers, need to be constantly creative.  Phil Keppler, my philosopher farmer friend from SK Herefords says, “Creativity helps you to not look at things as a problem. It’s trying to find the solution – and that’s the exciting thing about it. Things aren’t problems anymore. It’s just difficult situations and you’re trying to find a solution to that situation.”

A good mindset for what our world is experiencing now… it’s a difficult situation and we are creating solutions daily.

Fight, flight, freeze or farm. What kind of organization is yours? And, what can you learn from “the farmers?”

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