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.
While this is a traditional way of looking at it, the pyramids still very much exist today but maybe we need to reconstruct it slightly. We could, for example, split it up into four mini pyramids, with particular focus on this second way I've been talking about to do more with less, the middle two. So, we've an upright and we have an inverted pyramid. And that represents team and talent. And that's what I call the diamond. And we I suppose, we all appreciate the importance of talent in delivering great results. But I always feel that it's the team that's overlooked.
Ask yourself, how many employees do you have in your organisation, your Finance and Accounting function, your immediate team? You could probably answer these accurately. But how many teams are your employees on? How many other organisations are they working in within your business? How many other functions are they working with?
There are formal and informal teams, teams that not only decide what gets done, but actually gets stuff done. And it's those talents that work in those cross functional teams who organise and value what actually gets done.
And when our individual talents are faced with the complexity and change that is exponentially increasing around us, it's the teams that pull everything and everyone together. When the original pyramids were being constructed many thousands of years ago, it wasn't the talent that built the pyramids, it was the teams of people, the engineers, the architects, sailors, cooks, chefs, farmers, labourers. All those teams coming together.
Going back to the finance pyramid, once you've got the diamond taken care of, you then support it with the appropriate technology and tactics. And for the central diamond to remain upright, you need proper support from technology, such as ensuring you've got the right automation tools. Doing so will support your teams to so what they need to do, do more with less.
In terms of tactics, this applies to having the systems in place so that you can do more of the right things more often. For functions such as Sales for example, salesforce.com is a good example as this allows them to do things in a more structured way. If you manage what gets managed, this means you can focus on driving the right digital outcomes. Excel templates may keep costs low, but they're very awkward to consolidate and include manual repetitive processes. This is where digitisation and automation of the processes can help you do so much more.
So, we can not only bring a focus on what we can do very well in Finance, but we can scale it across other outcomes elsewhere. From my experience, it was about dangling the right carrots in front of people. If you think about what a business partner or a team member wants, their incentives are broadly aligned. People like to look good in front of their boss or peers. People don’t like bad surprises, and like to understand and appreciate where they are adding value.
And you can do this during the digital age. There's plenty of opportunity to add value, but teams must be engaged on the right priorities and using the latest and best practice approaches out there based on the knowledge available. Engage in the conversation. What are the priorities that they want to hit? And list those out in those boxes. Where are they currently? This information is key.
As we move into these exponential times where the rate of change is so massive, we really need to start with our talent and teams. Make sure they're focused on delivering stakeholders priorities, where technology and tactics can support them in those initiatives. Manage what gets measured to do more with less more often.
This may sound challenging, but it is all possible. I started with each of the stakeholders, understanding what they wanted, what they needed. This was, your stakeholders become your biggest sponsors. In my experience, this led to the stakeholders putting pressure on the CFO of the overall organisation to invest in our team so we could do more of the right things more often. We were treated as diamonds. This meant that everyone in the organisation were accessing those tools that help them measure what they're delivering, to manage processes better into the future. Using more advanced, digital tools became a habit.
While we don't want to destroy what makes us unique in Finance, and even though we're in very turbulent and changing times, there's no doubt about the benefits of digitisation and particularly digitising our traditional processes. The benefits are seductive, they're alluring for finance professionals and investors alike.
About Andrew Codd
Andrew Codd CGMA MBA is the Founder and Lead Producer at The Strength in the Numbers Show – an independent podcast which has helped finance professionals across 170+ countries to elevate their impact and ability, to make a meaningful difference within their organisations, and to have more rewarding and influential careers.