By Lynne Sampson, Managing Editor, The Modern Finance Leader
Even with a potential vaccine on the horizon, the economic fallout from COVID-19 is likely to last another year or more. What should your company do to get ready for recovery?
It might seem counter-intuitive, but now is not the time to pull back on investments in innovation, M&A, productivity enhancements, or risk management. In fact, McKinsey & Company looked at organizations that fared the best during and after the last global recession in 2008. They found that companies that invested in M&A and innovation came out of the recession in much better shape than their competitors.
“In short, your business context is and will remain uncertain,” McKinsey & Co. writes. “But if you get moving now, you can ride the waves of uncertainty instead of being overpowered by them.”
As companies get ready to recapture growth, they’re looking at M&A, divestitures, new business models and more. Big moves like these need precision. You want to find the best M&A targets at the best price; model the impact of divestitures; and assess the potential success of new business models.
Big moves also require successful change control. You need to quickly integrate new companies, systems and employees; spin up new divisions; and seize new business models before your competitors jump on them—without compromising the security of your data or compliance. Here are 4 “big moves” that can position you to take advantage of recovery and growth.
In a poll of more than 1,000 respondents during a recent AICPA and CIMA webcast series, 46 percent said they were focused on new business models to prepare their companies for competitive advantage. Rapid changes in customer behavior during COVID-19 have made it clear that organizations must innovate to survive, compete, and reignite growth. We’ve seen companies launch new products and services practically overnight: pharmacies are offering vaccines, universities are pivoting to online education, and restaurants have moved from eat-in to at-home delivery.
Sandra Clarke, CFO of Blue Shield California, advises finance leaders not to postpone innovation during a crisis. “The needs are urgent,” Clarke writes. “Technology-enabled solutions will serve as a catalyst to driving innovation that can dramatically move the needle to more positive outcomes” for organizations and their clients.
When Broadcom acquired Brocade Communications to diversify beyond its core semiconductor business, it added a whole new category of products—and increased complexity—to its portfolio. This also meant tracking new revenue models, like the subscription services Brocade offered customers. To handle the new challenges, Broadcom moved their product lifecycle management (PLM) and revenue management systems to Oracle Cloud. Leading with innovation doesn’t come without challenges, but the easy availability of cloud applications can certainly help.
An economic crisis is an opportunity to acquire companies at below-market prices or divest under-performing divisions—so it’s no surprise that the summer of 2020 was the busiest in decades for mergers and acquisitions. According to Reuters, more than $1 trillion worth of M&A transactions were made worldwide in the third quarter alone.
In the rush to buy and sell, however, finance must act with precision. You must identify the best M&A targets, spin up new divisions, model the impact of divestitures, and integrate new companies, systems, and employees. A critical (and often overlooked) question you need to ask is, “How can we assimilate new data and processes to have a single, trustworthy source of financial truth?”
Western Digital faced this challenge when it merged three Fortune 500-sized companies—Western Digital, SanDisk, and HGST—along with their three on-premises ERP systems. When they looked across all three companies, they found duplicate cost centers, three IT departments, three HR departments, and more than 2,000 software applications. Eighty systems were being used just to process payroll.
Rather than try to move all these processes and data onto a single on-premise ERP, Western Digital decided to reimagine its business, implementing Oracle Fusion Cloud ERP post-merger.
“We were able to unify on a standard chart of accounts that went from a few thousand accounts down to around a thousand,” said Bill Roy, a senior director at the company. “We were able to cut down from 15,000-plus cost centers to around 3,000.” Now that Western Digital is live in the cloud with a single CoA, any future acquisitions will be easier to complete.
If big moves require precision, then you’d better be able to get accurate, reliable numbers as quickly as possible. An automated close can help you get information into the hands of decision-makers quickly, and help you evolve into a more data-driven company. Cloud applications featuring machine learning and intelligent process automation can help you close the books faster, and they’re flexible enough to easily accommodate change.
Here at Oracle, one of our more audacious goals is to close the books in one day. Thanks to the regular updates that our development team rolls out in Oracle Cloud ERP and EPM, we’re getting closer to this goal every quarter. Most recently, our finance team shaved 20 percent off the time needed for the quarterly close—in the middle of the pandemic, with everyone working from home. To date, we can:
Our eventual goal: an automated process where the books continuously balance themselves. “We want to achieve instant updates to financial accounts and data for immediate reporting,” said Paul Doyle and Anna Clare, senior finance executives at Oracle, in a recent article. “Quarter after quarter, we’ve significantly accelerated the close process, helping our leaders to respond rapidly to changing business and economic conditions, and giving our finance team more time to focus on strategic activities.”
Adding new companies, subsidiaries, and business models can be an opportunity to centralize and automate security and auditing. Finance leaders need to have a risk-aware culture from Day One to protect critical ERP and other sensitive data. This means managing risks at the beginning of a cloud ERP implementation, not afterward, and having risk reduction embedded into financial software. When making big moves, CFOs should ask themselves three questions:
AI and machine learning are increasingly being used to automate risk management within ERP systems, helping companies to:
Skechers has successfully transformed internal audit and compliance in the cloud, supporting the footwear company’s rapid growth. Despite global expansion and more than 60 business units, Skechers grew revenue from $810 million to $4.5 billion—while adding only two people to their auditing team.
Ashwat Panchal, vice president of internal audit at Skechers, said the automation and machine learning available in Oracle Cloud Risk Management has helped the team to scale exponentially. “We can do a lot more with fewer people,” Panchal says. “Without our standardized approach and risk management cloud, we would have 40 to 50 people traveling around the world, all of the time.”
CFOs and their teams were already under pressure to build digital finance organizations that could react to the pace of change and lead through uncertainty. Now, as they move toward a post-COVID economy, they’re partnering with leaders across the business to retool their organizations, maintain resiliency, and create a path forward. Big, innovative moves will help them get out in front of the competition. In a recent webcast, McKinsey & Company told the audience, “This is a time to shelve any sort of incremental thinking and seek out transformational plans that could boost revenues or reduce costs, not by 5 to 10 percent, but by 30 to 40 percent.”
“This is the time to really put your foot on the accelerator,” adds Oracle CEO Safra Catz. “People always think it’s risky to go fast. I think that it’s risky to go slow.”