During the dawn of the Internet, former GE CEO Jack Welch used the term “destroy your own business” to encourage business unit managers at his company to find new, web-enabled ways of running their business units. Otherwise, the risk was that new market entrants, not being burdened by legacy systems, might develop new business models and offer competition that could destroy GE's business.
Fast-forward thirty years, and GE is once again destroying its own business, responding to the rise of the digital era by reinventing itself as a software provider for the Industrial Internet, using data and analytics to make planes, trains, automobiles and everything else on the planet run more efficiently.
GE has recognized what many are just learning: that the companies creating the most value today aren’t those who hold the most physical or financial assets, but rather those who control intangible assets—such as intellectual property from software, patents and copyrights; customer capital from buyer data; insights from transactions; and human capital in the form of talent and co-creation networks.
Consider how Uber has become the world’s largest car service with no cars—now valued by investors at $51 billion—or how Airbnb now has a 12% penetration in the global travel market, without owning any real estate.
GE and Uber were just two of the companies that spoke at Oracle’s Modern Finance Experience, together with Geoff Colvin, Senior Editor at Large at Fortune. The theme of the Modern Finance Experience was "21st Century Finance," based on the new rules for the “frictionless economy” that Colvin described in his October 2015 Fortune report.
"Companies are forming starkly new, more fluid relationships with customers, workers and owners; are rethinking the role of capital (as traditionally defined), finding they can thrive while owning a lot less of it; are creating value in new ways as they reinvent R&D and marketing; and are measuring performance by new metrics because traditional gauges no longer capture what counts."
Investors are looking at the Ubers and the Airbnbs—disruptive startups that have their pulse on the digital consumer, are making money, and are getting the stock valuations that traditional companies aren't.
It's wrong to assume that this shift has been driven by technology alone. What's really happening, according to Colvin and other thought leaders, is that investors have realized that people, knowledge and relationships hold more upside potential than tangible assets.
No matter how old a company is or how it makes money, its future depends on how leaders respond to the new definitions of value. The big challenge for CFOs is identifying new metrics that describe the impact of intangible value drivers on the business, so that leaders can make well informed decisions. This task will take CFOs into areas of the business they may never have touched before.
Oracle recently partnered with the Chartered Global Management Accountant (CGMA) group to survey 744 financial professionals on this topic. The top five value drivers that the respondents chose were all intangibles: customer satisfaction, quality of business processes, customer relationships, quality of people (human capital) and reputation of brands.
Three of the value drivers are customer-facing, and CFOs typically don't own or report on those KPIs. Those metrics are typically reported upon by sales and marketing.
I recently met with a small group of CFOs from midsized companies, and their top priority for 2016 was meeting more customers; their second was to improve relationships with sales and marketing leaders. Every time I talk to a CFO, invariably the conversation turns to, “How do I get the right KPIs?"
This need for new performance measures is the crux of what the Modern Finance Experience was all about. The hands-on, interactive workshops and educational sessions gave finance and IT professionals actionable ideas on how to develop the right KPIs and build a modern finance function with digital technologies. The business strategy track explored strategic partnering, next-generation reporting, and delivering finance excellence for less; while Winning with the Cloud shared implementation and change management best practices to maximize the value of your cloud investment.
In addition to Geoff Colvin, keynote speakers at Oracle’s Modern Finance Experience included: Michael Lewis, journalist and best-selling author of The Big Short, Flash Boys, Moneyball and The Blind Side; Oracle co-CEOs Mark Hurd and Safra A. Catz; and finance leaders from across the United States, including City of Detroit CFO John Hill, GE Healthcare CIO James Richards, American Express EVP Linda Zukauckas, Uber Chief Accountant Karen Walker, and LinkedIn Finance VP Richard Wong, among others.
Also on the agenda was a Women in Finance networking luncheon hosted by Safra Catz and sponsored by Cognizant. Linda Zukauckas and Karen Walker joined Safra to share their career journeys and commitment to diversity in finance, along with the AICPA’s incoming chairperson Kimberly Ellison-Taylor.
The Modern Finance Experience has become one of the must-attend events for CFOs and finance teams wanting to maintain their position as the go-to resource for quality data to feed strategic decisions. If you missed the event, you can still read the results of the CGMA research in the paper, The Digital Finance Imperative: Measure and Manage What Matters Next.