How data-driven insights keep CFOs competitive

Innovation is the new currency of the twenty-first century.

Without it companies are destined to wither, doing what they’ve always done and foregoing opportunities for efficiency and growth.

And for “innovation” read “digital innovation,” since digital technology is the ultimate enabler, fuelling new business models and transforming existing ways of working.

According to a 2014 global McKinsey survey, “The Digital Tipping Point,” more than three-quarters of executives say that the strategic intent behind their digital programmes is either to build competitive advantage in an existing business or to create new business and tap new profit pools.

So what is the Chief Financial Officer’s role in fostering innovation?

The first thing to recognize is that digital innovation takes on many forms and guises. It’s not just about great and novel ideas.

Another McKinsey survey (“Finding your digital sweet spot”, 2013) makes the point strikingly by highlighting that the average bottom-line impact that can be realized from digital sales over the next five years is 20 per cent, whereas the impact from cost reductions could average 36 per cent.

It may not grab the headlines, but reinventing and transforming internal processes can yield surprisingly high returns. Smart CFOs know that they need to position themselves at the vanguard of innovation through process transformation. In addition, they need to contribute to entirely new ways of working.

Surveys reveal that reinventing and transforming internal processes can yield surprisingly high returns. 

It’s important to acknowledge that innovation doesn’t behave predictably like some other management processes with well-defined inputs and outputs.

As the late Apple co-founder Steve Jobs put it: “Innovation has nothing to do with how many (research and development) dollars you have. When Apple came up with the Mac, IBM was spending at least 100 times more on R&D. It’s not about money. It’s about the people you have, how you’re led and how much you get it.”

In addition, CFOs should be mindful that a new approach or idea, compelling as it might be, is often not enough to precipitate change. Promoting innovation is a collaborative venture, based on knowledge sharing among different functional areas — a core strength of CFOs who are increasingly looked upon as business catalysts and strategic advisors to the rest of the enterprise.

The industry perspective

Not all industries are at the same stage of maturity with respect to innovation. In some sectors, such as retail, media and banking, digital technologies have been extremely disruptive while others, such as travel and hospitality and pharmaceuticals, have until recently remained relatively untouched. However, CFOs need to be constantly on guard because the picture changes daily. The inescapable conclusion is that whatever their current status, all businesses will eventually become digital businesses.

However, CFOs are not compelled to wait for innovation on the customer-facing boundaries of the business. Regardless of industry, countless internal processes stand to benefit from innovation, courtesy of, say, cloud enterprise resource planning (ERP), and embedded social and mobile tools.

For example, cloud ERP enriched with “socially aware” capabilities provides fertile territory for innovation through supporting business agility and operational effectiveness. Organizations seeking to test new markets, support new product ventures or simply reorganize for enhanced competitiveness can leverage the flexibility of cloud deployments to support rapid change.

On the other hand, social tools embedded in modern ERP encourages collaboration and knowledge sharing, enabling CFOs to track and understand customers at every stage of their journey through the “quote to cash” cycle, to carve time out of the “record to report cycle,” or perhaps to share critical performance metrics with vendors in the supply chain to reduce costs and enhance dependability.

But innovation is also about data-driven insights that allow CFOs to reveal untapped areas of performance and expose new opportunities for competitiveness. Fully integrated Enterprise Performance Management (EPM) systems in the cloud encourage collaboration and allow organizations to share and exploit knowledge to accelerate time to insight and reduce the time to take decisions.

In the digital era, CFOs are uniquely positioned to enhance their organizations’ competitiveness and profitability — even if their industry is not at the forefront of digital developments.

And whether their efforts are directed toward internal process transformation or more edgy disruption of business models, smart CFOs know that enterprises with a strong digital capability and management commitment are outperforming their rivals in revenue generation, profitability, and market valuation — sometimes by a considerable margin.