Finance disrupted: How should the CFO respond to a business environment in turmoil?

 

As we edge toward the third decade of the century, business-as-usual methodologies no longer keep pace with the tides of innovation and unprecedented change. According to KPMG LLP’s (KPMG) U.S. CEO Outlook 2017, one in three chief executive officers (CEOs) believes that their sector will see a major disruption in the coming three years as a result of technological advancement. “CEOs see this time as a once off opportunity and investment and are looking into what needs to be accomplished to distinguish their companies from their competitors,” explains Lynne Doughtie, chairman and CEO of KPMG.

 

The same thought process that it is no longer “business- as-usual” is also applicable to the business environment in Zimbabwe. Post-independence the country’s business climate has been characterised by both economic prosperity and volatility. Zimbabwe with its rich mineral resources, vibrant agricultural potential, roads and infrastructure was once dubbed “the bread basket of Africa”. However, due to unprecedented changes arising from social, political, economic and technological factors, the country has experienced severe economic decline. This economic decline gave rise to hyperinflation and resulted in the demonetisation of the Zimbabwe dollar and the introduction of the multicurrency system which brought about some economic stability in 2009. The multicurrency system which has been in existence for close to a decade was recently discontinued in 2019 and the Zimbabwe dollar reintroduced as the functional currency for the country.

 

In an effort to address the economic challenges that have been prevalent over the last two decades the government recently introduced some policy measures which have been received with mixed reactions by the market. These policy measures were contained in a Monetary Policy Statement issued by the Reserve Bank of Zimbabwe, the Transitional Stabilisation Programme and the S.I. 2018-20 issued by the Ministry of Finance and several statutory instruments issued in 2019. The new policy measures, although issued in good faith, may present some reporting challenges to the finance functions of companies operating in Zimbabwe.

 

Changing demands on finance

The role of the finance function in any organisation has always been viewed as exciting and financially rewarding. However if the environment within which the finance function is operating is in turmoil, the role of the CFO becomes more challenging and less attractive if approached conservatively. The dynamic nature of contemporary business urgently calls for a new breed of finance professionals to take up roles in the finance function. The reality, however, is that most finance teams are not prepared to meet these wider demands. According to Jim Carroll, a futurist and trends and innovation expert “The finance function, by its very nature can be perceived as conservative, detail-oriented, rule-oriented, and structured,” To make the transition to a more forward-looking model requires a lot of innovative thinking. Unfortunately many finance functions are not structured to support the challenges that are currently being faced in the market.

Indications are that the various policy measures, coupled with an underperforming economy have “disrupted” the day to day operations of the finance function. While the ordinary person is worried about where to buy their next loaf of bread or bottle of cooking oil, behind the scenes the CFO finds himself with the unenviable task of finding innovative solutions to tackle the following:

·     Dealing with the impact of foreign currency shortages on production processes.

·       Accounting for the daily increases in the price of commodities through continuous adjustments to the company’s invoicing and costing systems.

·      Accounting for variances arising from the different currency valuations taking place in the market.

·    Dealing with the technological impact on the organisation’s accounting system as a result of the turbulence that is currently taking place in the market. These processing challenges include the daily adjustment of prices in the system, processing payments and receipts in one system, but using the four tier pricing system (mobile money, swipe, value in United States dollar and the Zimbabwe dollar).

·     The inability by some of the obsolete accounting systems being used in Zimbabwe to accommodate some of the challenges highlighted above as they were not designed to accommodate them.

Over the next decade, the finance function will have to disrupt itself to meet the demands of its customers, regulators, corporate boards, sales and marketing departments, suppliers, and internal and external auditors. These stakeholders increasingly expect finance to serve as true business partners and to move away from the traditional back-office department focused transactional processing and historical reporting.

 

How should the CFO respond?

 

Today’s rapidly changing business environment requires finance to address disruption head-on or risk being left behind by more aggressive competitors. Leading chief financial officers (CFOs) are focusing on leveraging disruption into opportunities for competitive advantage and growth whilst improving their delivery of products and services to their stakeholders. With the much anticipated economic growth expected in the country, Zimbabwean CFOs can take a leaf from some of these global initiatives.

 

Experience shows that CFOs are deriving specific benefits for their companies by focusing on these key areas:

 

 

Innovation and investment

 

CFOs need to maintain a firm grip on the numbers while preserving a focus on market opportunities, threats, sector disruptions and customer retention. That means serving as creative strategist while continuing to oversee capital allocation and ultimately, playing a key role in enabling innovation across the organisation. In essence, CFOs need to think like venture capitalists. They must first understand the trends and economics that are driving market disruption in their sectors. They can then manage innovation investments as a portfolio, using metrics aligned with the organisation’s overall strategic objectives and governance program.

 

Extreme automation

 

Finance professionals must embrace technology disruptors to transform their operating models and unlock the benefits of extreme automation. Leading finance organisations are already reaping the rewards of cloud enterprise resource planning (ERP) and robotic process automation (RPA) from reduced costs and risks to heightened efficiencies and improved cybersecurity. With a baseline technology infrastructure in place, these organisations can look to future investments in more advanced technologies. Successful finance functions will make good use of block chain where available, data analytics, and other enabling technologies, while emerging technologies will change the nature of shared services centres. Furthermore, businesses can exploit artificial intelligence for sharper predictive insights and better deployment of capital.

 

Insights and analysis

 

As the only person in the organisation with both the permission and the duty to integrate strategy, finance and analytics, the CFO is uniquely positioned to define the analytics agenda. According to the authors of Advanced Analytics and the CFO, a Harvard Business Review Analytic Services white paper sponsored by KPMG. “Finance leaders will need to capitalise on their unique position in the company to pursue a data and analytics agenda closely tailored to their Companies’ needs or risk the finance function’s relevance as a strategic and business partner,” As traditional and historical analysis becomes fully automated, analytics capabilities will shift from descriptive (analysis of past data to find out what happened) and diagnostic (analysis of why it happened) to predictive (what will happen in the future) and prescriptive (what we should do about it). A powerful technology toolbox also strengthens finance’s ability to identify and make investments in the right projects to drive innovation. “Tech Innovation to Reinvent the CFO Suite,” an article produced by KPMG and Bloomberg Studios, notes that the increasing ability to automatically analyse very large data sets will help CFOs decide whether to invest capital to expand capacity.

 

Organisation and talent

 

The renewed groundswell of digital transformation will turn finance into a business support function that combines strong analytical and strategic capabilities with traditional accounting skills. “Skills requirements are changing really fast,” says Jim Carroll. “How can we make sure that we get the right skills, at the right time, for the right purpose?” By redefining the skills, roles, and structure of its workforce, finance will be able to attract, retain, and develop talent to match its evolving needs. In the future, it will require both strategy and finance skills, process and control leaders, and the ability to collaborate and build relationships across formerly siloed departments. “The more integral the finance function is to the business, the more the silos to break down. Leading organisations already have finance sitting with the teams they support as opposed to sitting in a centralised finance function.”

 

Service delivery model

 

Extreme automation will dramatically change the size, structure, and delivery model for finance, separating human expertise from automated execution and simplifying the organisation’s operations. Finance organisations must assess what new work needs to be done, how those demands translate to the skill sets of their workforce, and how to manage processes end to end, rather than in a silo. They will need fewer people with higher skills, less hierarchy and fewer offshore locations. A smaller finance team will represent a diverse range of high-level skills of employees who are freed up by intelligent automation to work on tasks that add real value across the organisation.

 

 

Risks and controls

 

An estimated 60 percent to 70 percent of manual controls performed today will be automated over the next five to ten years. And it is no wonder extreme automation promises to improve

controls while reducing internal and external compliance costs. This can be achieved by maintaining a flexible control environment that supports innovation, automation, and other organisational changes. Despite the potential benefits, disruptive technologies also pose significant challenges. From process integration and system compatibility issues to data protection and privacy concerns, risks must be proactively managed and continuously monitored.

 

Call to action

As the process of preparing compulsory reporting becomes increasingly automated, finance functions have more time to solidify their position as valued business partners, using advanced analytics to model future scenarios and map the best outcomes for the organisation. “That’s very much about the head of finance or CFO sitting on the board, being part of setting the strategic direction of the organisation, and then monitoring the performance and achievements against targets,” says Louis. To drive this process, CFOs need to take steps to disrupt their finance functions or face a talent drain as well as an inability to grow revenue or deploy capital effectively.

 

The key to success is to create a blueprint for how the finance organisation can turn disruptors into opportunities. Such an effort involves taking steps to:

Set organisational strategy by understanding future trends

Scan signals of change to better understand and prepare for potential disruption with innovative solutions.

 

 

Build a portfolio that enables the business to make smarter bets

Use a venture-capitalist approach to balance riskier investments in disruption with ongoing investments to sustain the core.

 

Establish a strategic framework based on a disciplined process

Align investments to strategic, operational, and financial plans to help ensure the organization is nimble and competitive.

 

Use appropriate metrics and models for evaluation

Utilize financial metrics that blend customer, operational and risk assessments; effective metrics will yield opportunities for learning and strategic fit.

 

 

Adopt strong governance to drive alignment

Deploy scarce capital and labour with a structure that drives alignment from the C-level through operations to prevent mismanaged resources.

The current generation of CFOs

 

Conclusion

 

In conclusion, as Zimbabwe embarks on the road to economic recovery the CFO’s days of bean counting are over. It is now time to be innovative and fully exploit the opportunities available in the market that can grow the bottom line and move the country forward.