How the power of people-led transformation can help you do more with less
By Andrew Codd, Founder and Lead Producer at The Strength in the Numbers Show
I have based this piece on conversations I've had with CFOs, finance professionals, controllers, and so on, who are experiencing rapid rates of change while trying to implement digital transformation. I am fortunate to be able to learn from others’ experience what's working well, what could work better, and the lessons learnt from others’ experiences. The key theme that keeps coming up is digital and change. Accounting and Finance has been round for many thousands of years, going back to the ancient Babylonian times.
Probably up until the early 1800s when we started encountering maybe the first Industrial Revolution, where we had investors and capitalists coming to the Accounting and Finance teams and asking, "Could you prepare some financial statements to help us understand the performance of this organisation? Can you help us calculate some returns on investment on the capital, the plant and equipment and stuff we're putting into these businesses?"
From then, Finance started getting seats at the decision-making table so we to get a bit more scientific. Performance analysis methods were stepped up and evolved to include things through DuPont analysis, budgeting, and cost accounting methodologies. In more recent times, with the developments in computing, networking, communications, and artificial and human intelligence coming together to deliver enhanced cognitive power, the pace of change has gotten much, much faster.
The gap between these revolutions is almost now non-existent, and this can feel like a relentless rate of change. Finance has gone from a flat history to something that's part of an exponential change curve, so it can feel a bit much. Sometimes I like to try and get away from it all and head out towards the coast. If I was to try and do this years ago, I probably would have relied on a friend's recommendation on where's a good place to go to, or checked out some websites, got in contact with a landlord, travelled out there, hired a car and so on.
Now, this process has been very much digitised. You can now identify a nice location off a pinboard from Pinterest, check out the reviews, arrange a short term let via the Airbnb platform, order an Uber to get you to the destination. And it's no accident that I highlighted these companies, because for me, they express in financial terms the potential value of the opportunity of digitising Finance and transforming digitally.
Each have tremendous market capitalisations and these companies only started coming to existence 12, 13 years ago. So, it's no wonder why the majority of Finance teams have embarked or are embarking on some sort of digital transformation. The benefits are extensive, the reduction of manual work, less errors, freeing up of team members' time to work on more valuable activities, no more repetitive processes that humans have to do to name a few. When you start unpicking the numbers, you'll realise that the companies mentioned have never made a profit in their existence! The interesting thing about the switch towards digitisation of these traditional processes is that it does force us to question our fundamentals.
When I started in Finance, I was taught how to value companies using something called Gordon's dividend growth model. These companies don't pay dividends, so can't really use that one. We were also shown to use earnings multiples, well they don't generate profits, so can't use that one. And there's not much in the way of operating cashflow either so can't really project that one forward. So, what is their market capitalisation made up of? It's expectations.
And this is one of the two risks I see with digitisation - the potential risk for hype, and the danger of embarking upon it, using the wrong approach, and risking destroying something that's already a productive process. If you look at Airbnb for instance, they don't own any assets, the landlords do. They just have this fantastic platform and a talented team that have grown a massive company in a short period of time. I appreciate they've not generated a profit so far, but that's yet to be seen. While it has worked for Airbnb, there is the danger of taking a productive process, putting a platform over the top and digitising it, when it was working fine.
I'd like to share how I've gone on that journey myself. About three years ago, I was parachuted into a role to lead a $5 billion business, commercial Finance function. My predecessor had actually done a very good job, starting the digitisation process. He started putting in place some technology around “one source of truth” and self-service analytics, which certainly endeared the business partners to him.
But results were slipping, and the team were a bit disengaged and weren't really working with the business partners. So, it was a bit of a tough spot to come into but there were some good foundations in place. My role over the next two years was really trying to do more with less and drive that agenda forward. The team was actually able to deliver $3 billion of additional stakeholder value. And not just added, but logged and demonstrated with testimonials. The team also achieved 4 million what we call “outcomes benefits analysis points” - points that were given for doing more of the right things more often around digital. So, developing digital capabilities by investing in their own training, or perhaps freeing up team members' times by running a macro, or putting in place a standardised automated process which freed up not only their own time, but their team members' time. They got points for those and we gamified it, which meant that people were incentivised.
Additionally, the business unit sales also picked up during this time, and satisfaction scores for employees moved from negative territory to positive. We had a lot of promotions, and we were able to reduce the team's costs because, as part of building the team back up, we located team members and best cost locations across four continents.
When the pandemic hit, and we realised we weren't returning to site anytime soon, this didn't really impact our operations.
The Talent & Team Diamond
I liken Finance to a pyramid, with the CFO at the top, various senior executives and chiefs underneath, and then those that get things and make things happen – the foundations.