Ultimately, all organisations will become digital businesses. What remains to be seen is which ones will use the opportunity to become leaders in their respective industries
Determining the true market value of an enterprise is becoming increasingly complex. Indeed, property, equipment, and other tangible assets that once accounted for 80% of a business’ total corporate value on the S&P500 Index, now only count for 20%. Instead, so-called “intangibles” such as data, talent, and intellectual property have become the hallmarks of most successful organisations, and as such account for a sizeable portion of their market worth.
CFOs that continue to allocate almost all of their budgets to tangible assets and carry on using legacy systems rather than investing in modern digital technologies are putting their company’s management and shareholders at serious risk. Essentially, they are guaranteeing that the business’ performance will lag behind those competitors that have embraced the strategies and technologies required to excel in today’s increasingly digital economy.
On the flip side of this, the shift to the digital enterprise presents a significant opportunity for CFOs to demonstrate their strong strategy and leadership skills and guide businesses through their digital transformation. According to Gartner, CFOs still have more influence over IT spend than CEOs or CIOs. It will therefore fall to them to rebalance investment portfolios towards the intangible assets that are proving to be the cornerstones of business success.
Ultimately, all organisations will become digital businesses. What remains to be seen is which ones will use the opportunity to become leaders in their respective industries. Here’s how CFOs can take charge of this digital transformation and to maximise its value for the entire organisation while driving down risk:
Get a handle on the intangible: To begin, the CFO must play the role of educator. The definition of intangibles—in terms of what these represent for businesses today—remains elusive to many. In fact, some organisations don’t even have a means to factor these elements into the balance sheet. It will be up to CFOs to help the business measure the worth of their intangible assets. This will help management teams develop a broader vision of the business and better quantify the organisation’s digital potential so they make more informed IT investment decisions.
Tap into the power of the cloud: While data and access are among the most valuable intangible assets for businesses today, the cloud is what helps organisations get the most value out of these. Forward-thinking business have clearly caught on—between 2013 and 2014, cloud use among enterprises doubled for business analytics, integrated financial management applications, and budgeting and planning applications. And rightly so—when approached with a well-defined strategy and the right business solutions in place, the technology helps companies consolidate and speed up their IT while lowering their costs. That being said, it will fall to CFOs to oversee cloud investment strategies, as businesses risk losing out on the full potential of their data and applications if they are not prepared to operate in the cloud.
Rethink ROI: CFOs will also need to help the organisation measure their return on investment in the digital space, which can be a less concrete exercise than determining traditional ROI. Activities in the digital space, such as social media engagement, do not necessary lend themselves to traditional ROI measures, and CFOs will be relied upon to develop new metrics, risk and performance measures in order to monitor the organisation’s success. For example, when assessing the health of a new digital initiative a company may examine social metrics and real-time sentiment analyses in combination with proven measures such as cash generation to get a complete picture of how it is performing.
Drive change, but don’t let the wheels fall of the car: Finally, businesses need to recognise that just because they are operating in a less tangible space doesn’t mean they can approach IT transformation any less strategically. To succeed, they will need to apply careful planning to even the most aggressive IT transformation. Deloitte’s David Pleasance put it well when he argued that while companies need to innovate and move quickly they also need to ensure “the wheels don’t fall off the car” in the process.
Given their visibility into operations across the business and their adeptness at managing risk, CFOs must play an integral role in keeping an organisation on track as it races towards change. They are ideally placed to gauge how much change the business can absorb and how quickly it can grow, and can help ensure the company maximises its potential throughout its transition. Strategic CFOs also leverage their business partnering skills across the C-suite to ensure that investments in digital transformation pay off.
As Keith Kravcik, EVP and CFO, Ovation Brands, said: “The CFO is the glue that brings everything and everyone together. In that role, you are the collaborator and the alignment person with the other C-suite executives to make sure that there are no gaps in strategy, in decision-making, in execution. No one else can really touch all the parts of the enterprise the way that the CFO can.”
The best finance executives will serve as both architects and curators of a measured and successful digital transformation, and will empower companies to successfully manage the intangible assets at the heart of their modern businesses.
The writer is managing director, Oracle India