By Chris Germann, VP, Cloud Applications Strategy, Oracle Digital
As Harvard Business Review declared in Nov. 2017, “Your strategy won’t work if you don’t identify the new capabilities you need.” For businesses embracing the potential of digital business, it’s not enough to buy the technology and turn it over to the millennial-run marketing team. Chief executives must own the vision and build critical organizational capabilities that lift the entire organization to compete in the digital economy.
Here are five capabilities that you, the CFO, must develop in your organization to drive growth in the digital economy.
The most impressive business transformations to me are those that happen when CEOs and CFOs of "traditional" companies discover new business models, or new ways of creating value for customers and shareholders. The most general example of digital business is retail customer experience. Walking by a store and having a discount coupon pop up as a text message on your phone, for example, combines mobile, physical location data, and analytics of the customer’s buying history. A manufacturing company shipping parts that arrive at the hour specified—not the week or day—uses mobile platforms, complex logistics data and cloud integration which create premium service and highly-valued partnership.
But these examples don’t just happen—they are conceived by visionary leaders who see the unlimited opportunity to identify digital engagement, either B2B or B2C, where new value is unlocked or created. Innovative employee engagement and a creative culture further produce the long term vision needed in the new digital universe.
In a 2017 McKinsey B2B software purchase decision-maker survey, 92% of businesses are "already in transition," "definitely migrating" or "considering migrating" to subscription-based products. Nucleus Research recently conducted an analysis of the costs of subscription-based cloud services vs. on-premises products. They found that the cloud delivers 3.2x the return on investment over similar on-premises applications.
Businesses clearly see this as an opportunity to "right-size" their investment in software and be rid of “complex perpetual contracts, eliminate unused licenses, and negotiate a subscription contract aligned with true needs of the business.” Automatic updates to software, increased security and long term partnership that drives customer success all add to the value received by the customer. At the same time vendors are running to offer subscription based-contracts, enterprises should also be running to acquire the long term financial benefits of this new business model.
Information-rich industries (e.g., tech, retail, pharma, healthcare, financial services) use subscription-based operating expenses to acquire third-party data as the lifeblood of new digital products and services. Instead of hard assets or amortized enterprise software, data providers and SaaS application subscriptions become part of the mission-critical flexibility needed to compete and win.
If you have access to it, then your competitors have it. It’s not ownership of assets that differentiates information-based businesses today—it’s how fast you can move with the information you can acquire. Whether it’s fintech companies using consumer data to target certain demographics, or capital-intensive industries (e.g. oil & gas) using geologic data to mine natural resources, the capability of CFOs to strategically transform the business from capitalized to operating expense structures will increase agility and build rapid change into the culture of the enterprise.
For many CFOs, the principle value of the cloud comes from staying up to date on the latest technology and best practices; reducing costs (and risks) associated with running your own computing infrastructure; and delivering flexibility and scalability to business processes. But cloud sprawl—buying numerous cloud-based applications across the enterprise—may actually increase costs in the long term.
To further reduce cost and risk, integrated application suites on the same cloud platform (e.g. ERP, HR, CRM) provide consistency for IT operations and business users, as well as reduced overall integration expenses. Engineers in cloud environments spend as much, if not more time reconciling data across multiple cloud environments as they did with on-premises software. So single data models and integrated software platforms reduce long-term integration expenses and free up technology staff to work on value-producing business problems.
All industries are or will be impacted by the merging of physical and virtual worlds. However, some finance organizations move slowly to new technologies and can become a drag on business decision-making. Change will happen to industries as leading companies using digital technologies to disrupt existing business practices and eliminate stagnant competitors.
Leading CFOs are embracing the opportunities and gaining new understanding of the role of technology. As Jackie Combine, CFO Tech and Operations at Thomson Reuters wrote in a recent column, “With understanding comes insight, and with insight CFOs can add more value in the boardroom and help drive the technology-related changes needed for firms to stay ahead of their competition.” Contemplating your next move is not an option in this new world. Further, organizations attract top young talent when they are trying new things and striving to overcome inertia.
Digitally native and fast-moving companies will have already have these capabilities in their DNA. The challenge for the several hundred thousand other businesses, is to own your vision and establish a financial culture that breeds speed and scalability; digital business requires all areas of the organization, especially finance, to support and sustain the transformation.