For CFOs, this is the new front line. Not only are they central to the effort to absorb the impact of disruption, but they are also expected to take a lead in formulating the business response. And a new survey from CIMA and Thomson Reuters illustrates the pressing need for finance to step up.
Across the US, senior finance professionals are coping with significant disruption from a range of sources. Technology (54%), regulation/policy (53%) and people issues (42%) are seen as the top disruptors to business. Automation is critical to this, with 81% of respondents citing the ability to save time on monotonous tasks, eliminating human error (75%) and introducing controls and transparency (54%) as the top three benefits of automation to their business.
But whereas previously the impact of disruption was often cushioned by other parts of the business, now finance is facing up to changes to business models, consumer habits and regulations. Whether that means restructuring internal systems and processes or channelling investment into new innovative ventures, finance can no longer sit on the sidelines and wait for change to hit.
But what do we mean by disruption, and how are finance leaders responding? That question was top of the agenda at a recent dinner held in New York by CIMA and Thomson Reuters. The event was designed to bring together CFOs from leading corporations and other organizations to discuss how their views of disruption have changed, and what they demand from their teams in response.
George Kyriacou, deputy CFO at the United Nations Development Programme (UNDP), said that looking back at previous waves of disruptive events have helped him face the new wave. "This has occurred many times in my career, and the responses I have experienced varied from adaption to abolition," he said.
"I saw the exponential rise in the adoption of ERP systems, only to see it crash following the Y2K scare (and the consulting industry significantly downsized in response), with a whole new generation of cloud-based services and apps emerge from the ashes."
As Brian Dumbill, Volvo Financial Services’ VP of Finance for the Americas, pointed out, disruption itself is a broad term that can mean different things to different people: "In today’s business environment it is often thought of as being technology-driven; for instance robotics, data/block chain-driven, e-commerce and so on," he said. "But disruption can also be a new way of offering products and services to customers via limited technological innovation, or even regulatory or government-driven behavior. It can also be a combination of several of those things, which makes it such a challenge to respond in the right way."
Dumbill sees innovation as the process of implementing new ways of doing things, of improving efficiency. His view is backed by a majority of US finance leaders, and with more than 75% of members agreeing the benefits of automation are profound, it’s clear the US is quite optimistic about automation. "It can include technology and may ultimately lead to disruption, but innovation on its own is not disruption."
Everyone at the event had their own tales of how their businesses had been affected by change. Robert Munday, a senior Finance Business Partner at utility company National Grid said that one of the effects of disruption on its business has been felt across the board, leading to a radical reshaping of the business’s model. "In my industry disruption is a real issue. Even though electricity is generated centrally and distributed outwards, now that people are generating power via solar and wind farms the flow is two-way. [Defining disruption] is tough, but anything that changes the current business model would qualify."
At National Grid now, Munday and his team are leveraging disruption: "We were previously divided into two parts – the UK and US; now there’s a third division, National Grid Ventures, and its entire remit is looking at the power generation needs and strategies of the future."
That fear isn’t limited to the threat of automation or business disruption. Growing political instability is also having an effect. According to the research, 70% of America’s members see social unrest as the main cause of disruptive conflicts in the next 25 years.
Kyriacou at the UN has seen this first hand, and his organization is under as much pressure to respond as any corporation. "While my current organization has established an Innovation Lab and teams dedicated to supporting innovation, their role is as an enabler for the innovation within our global network of people," he explained. "The challenge is not just to support and foster their successes but to help identify opportunities to refine and scale these innovations throughout the organization."
Avoiding the worst of that disruption is now the priority for many US businesses. Formulating a response, both personally and company-wide, is now a major pre-occupation for leaders in finance. But it’s rarely simple. "Adjusting to competition from ‘non-traditional’ sources requires a different mindset," argues Dumbill. "Today’s businesses require both the experience and knowledge to assess the risks but also the creativity and attitude to embrace the change and capitalize on new opportunities. Utilizing diverse skills and information we work to strengthen our core business while developing new products and services (both internally and with selected partners) to meet the challenges of disruption.
"At all times in responding we try to be analytical in nature and data-driven while carefully taking into consideration the needs and demands of our customers, which I think is a critical element for CIMA members to consider."
James Tobin, SAP FICO at AIG, agrees that finance is central to all decisions being made, pointing out that: "A new generation of employees are used to using technology to sift through a large amount of data available to provide meaningful information. Many menial tasks have been outsourced or automated so that the focus can be on adding value to the business and ultimately to decision-making."
And Tobin believes that finance leaders and their teams must embrace flexibility. "An organization in which employees have fixed rigid roles will struggle to combat industry disruption," he told guests, suggesting that, on the contrary, if there is a start-up mentality where rules and procedures are in place but can be changed based on market conditions, then more opportunity will be created.
"An early disruptor to the airline industry was Freddie Laker, whom Richard Branson used as a mentor. Ultimately, the industry changed to a tiered class model but it took time for the legacy airlines to make this change with much consolidation and some companies going out of business," Tobin said.
Trimble Inc VP Chris Gibson agrees that how finance leaders respond is crucial – and passivity is no longer an option. "The finance community has adapted well and accountants still do the important stuff, but they need to stay ahead of the game and utilize change to become more efficient. And certainly senior finance types are now more valuable to the business because they are able to interpret data and provide insight as opposed to simply keeping score. That’s a key distinction for a finance leader these days."
Some businesses are accelerating their innovation efforts to match the increasing speed of disruption. Indeed, Brian Peccarelli, president of Thomson Reuters Tax & Accounting (who co-hosted the evening) said: "I’ve been dealing with this for several decades, and each new iteration of technology delivers constant change: it allows us to do more. And while there’s a fear of accelerating disruption – people think machines may replace humans – that won’t happen. Automation will make our jobs easier and our performance better."
Peccarelli also pointed out that a vital part of the effort to respond effectively to disruption focused on involving and encouraging all employees from across the business to contribute ideas. "There is an open invitation to employees at Thomson Reuters to innovate and produce their ideas into reality," he said.
Tobin agreed: "Most decision-making comes from the data provided by finance: accountants are key to providing the correct data to ensure decisions can be made internally to address the external environment. Technology is the vehicle to ensure that information is provided in an understandable format for the business to make decisions quickly. SAP HANA is providing in-memory computing, which provides reports in a fraction of the time previously expected."
It's an approach that Tobin was keen to replicate at AIG where, although work focuses on new insurance products, innovation efforts could be encouraged to broaden their scope across the business.
"That is something I plan to take back to my manager to discuss," he said, reflecting the mood of the room: a determination to confront disruption head on and use it to maximum advantage.
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