What changes in a business transformation and why it matters to CFOs
Transformation is a big word, often used incorrectly to describe everyday change. However, unlike change, transformation isn’t undertaken to gradually improve processes or results, but takes the form of a largescale, often long-term project designed to have a serious impact on an entire business. It could be company-wide new systems; new geographies or markets to enter; new products to produce or a shift to a new supply chain. Business transformation can be operational, where a company adopts tech to streamline its functions more efficiently; a core transformation, where a business fundamentally changes how it does things; or strategic, where an organisation changes its entire business model or nature. Whichever type is implemented, there should be one person at the heart of the project: the CFO. While transformation specialists are of course crucial for the journey, a project is unlikely to succeed to its full potential without the leadership and expertise of the CFO. A digital transformation will often mean that the Finance function is first in the firing line, but it’s outside of their own function that the CFO adds further value, given their in-depth knowledge of the rest of the business. Unlike other executives, the CFO will know which elements of a proposed transformation will have the maximum impact on the bottom line and, given the need for speed, time lost analysing these means lost value to the business. Having the big picture numbers at their fingertips, the CFO will be able to gauge which projects will deliver the best value and benefits, rather than which will make the biggest splash. Here are three key reasons a business transformation needs CFO leadership: 1. Bottom line impact: A transformation is supposed to result in a substantial improvement, but the only way performance is measurable, and able to be communicated to stakeholders effectively, is relative to a baseline. Due to multiple moving parts such as market conditions, M&A or consumer demand year-on-year, it’s not enough to simply use last year’s figures as a benchmark. CFOs and the finance team can use their technical skills to gauge what to include in their projections and set a realistic baseline. It’s not always figures they will be focused on either – a strategic transformation may require vastly different metrics if a company is moving into a wholly new arena, for example. 2. Prioritising: The CFO is able to analyse each project within the transformation and see its path to the bottom line clearer than anyone else. This means that opportunities for value can be prioritised over those more visible projects that might have a more negligible, albeit still positive, impact. It is often the case that the greatest cost-saving might involve a minor change to an existing process, rather than a radical overhaul, which is where the CFO’s insight is vital. 3. Leadership: There is a huge people element to consider in any transformation, given the effect on the day-to-day working lives of employees or even their entire role. Some people’s jobs may become automated, others may have to be trained in new technology, or required skill sets may need to be brought in-house or work outsourced, all depending on the nature of the transformation. Communicating the project from the outset to get buy-in from everyone is important and there will be no one better placed to translate the figures into layman terms than the CFO. Very few transformation initiatives get an entire workforce on board immediately, so a CFO’s leadership qualities and soft skills will get an extreme workout as they not only lead the project and their own Finance function from the front but also attempt to change mindsets along the way. If your business has undergone or is partway through a business transformation, or you’re a CFO with advice to share, we’d love to hear from you. Follow us on Linkedin now!
Financial Reporting in a Pandemic
The majority of companies have been affected in some way by the global pandemic this year, whether their sector has taken a direct hit, such as in hospitality, tourism or retail, or an indirect one through delays in supply chain or a decrease in demand for products. There are of course numerous exceptions as the world pivoted online (video communications, online entertainment, wellbeing), but overall, most organisations will have suffered, reflecting the wider economy at large. Most finance teams have also had to switch to remote working and react to rapidly changing guidelines too, which makes the job of financial reporting more difficult than normal this year and possibly next. However, annual and interim reports are as mandatory as ever and trading statements still need to be issued, so it’s vital that businesses consider and include the impact of COVID-19 in all their financial reporting. It’s not only a platform to explain to stakeholders the effects of the pandemic on profitability, staffing and strategy, but also an opportunity to underline any positives that will help take a business forward and survive this period. There are too many fine details to list every element of reporting that may need to be reconsidered due to the effects of the coronavirus pandemic, from the deferral of filing deadlines to the recoverability of assets or the measurement of liabilities, but three key areas that will need close attention are: 1. Forecasting The pandemic has challenged even those companies with the most stringent contingency and disaster recovery plans in place, to the extent that forecasts or strategic reports are going to involve a considerable number of estimates at the moment. However, forecasting is important for stakeholders, particularly if any reports have been delayed, as they tell a story beyond the balance sheet. With so much uncertainty worldwide, reforecasting is advised every time new information comes to light, whether that be new government guidelines in terms of restrictions, new working conditions or new consumer behaviour. Forecasts are also a chance to show how the company is reacting and intends to react to the current situation, in terms of reducing costs where necessary, preserving cash, or looking at a new opportunity. 2. Asset impairments Companies also need to assess whether the impact of Covid-19 has resulted in an asset impairment, in addition to the regular testing of assets that takes place. If any trigger event has occurred, such as the loss of key supplier or disrupted production, the impact of the impairment must be calculated, as well as its effect on other assumptions such as cash flow or growth rate. Ceasing operations for a period or suffering a sharp decline in demand are events that would indicate impairment, and these circumstances must be noted in detail, as the impact on assets must be direct rather than generic. For example, in retail, the closure of a store due to zero footfall would be a direct impairment of an asset due to COVID-19. 3. Disclosures In the wake of the pandemic, disclosures will in all likelihood need to go above and beyond what has been typically disclosed in previous years. There is no standard format for this in times like these, because the impact on businesses has been unique to many, but it’s imperative that all events and their estimated financial consequences are disclosed in detail. Financial reporting taking place now may well be the first time that stakeholders will be able to see COVID-19 reflected in the numbers, in terms of assets, liabilities, income and expenses, so it will be crucial to be accurate in disclosures. How has your Finance team coped with any reporting in the midst of the pandemic? It is business as usual or are the team stretched? Let us know if we can help. Follow us on Linkedin now!
Adapt or die: if CEOs believe that digital will impact their industry, why aren’t many acting on it?
There are many things that can trigger change in an industry or sector. Some are slow burners that result in change over time; others can drive a dramatic, seismic shift almost overnight. Societal changes, such as the adoption of the internet by consumers, or the knock-on effect on the tobacco and advertising industries of the smoking ban, are relatively slow and sometimes only noticed in hindsight. Others, like changes in legislation, have a deadline on the horizon that everyone works towards, so aren’t that disruptive or surprising. The third type are the most interesting: the innovators that can render the old ways obsolete very suddenly. The move to a digital economy has vividly disrupted many sectors – consider how Airbnb has changed holiday accommodation or how Uber has revolutionised taxi services, for example. Research continually shows that CEO’s across all sectors, from finance to farming, retail to real estate, know that digital is going to disrupt their industry at some point. It’s in their end-of-year predictions, it’s in their competitor analyses, and written about in all of their industry press. Yet a worryingly low percentage of them have digital transformation at the top of their corporate agenda, and even fewer have actually embarked upon their digital transformation journey in recent years. It’s not like there haven’t been plenty of high-profile casualties acting to spur them on. The list of bricks and mortar businesses that have collapsed in the wake of their agile, online competition is huge – just take a look at the high street names from a decade ago that are no longer with us. Progressive, technology-focused organisations are reshaping the consumer marketplace everywhere, and companies that don’t adapt won’t survive. You don’t have to become a Google, an Amazon or a Spotify and be responsible for changing an entire market, of course, but you do need to keep up and not be complacent. Think of the three names that led the mobile phone market a decade ago and try buying a Nokia, Motorola or Blackberry product now... Thankfully, as encouragement, there have been plenty of success stories when companies have evolved. Apple used to only sell computers, now look where they are. Netflix used to rent DVDs as a competitor to Blockbuster before it took streaming to the masses and took data analytics to the next level. 15 years ago, Lego was in debt and unfashionable before it underwent huge transformation and moved into films and theme parks. Even Kodak, which filed for bankruptcy after digital photography almost wiped out camera film entirely, reinvented themselves by launching its own cryptocurrency. Post-pandemic, in whatever the New Normal becomes, the need to go digital and evolve to survive will be more focused than ever, particularly in consumer markets. As society shifts to an online life both for work and pleasure, businesses will need to adapt to meet their needs – almost every company will need to be a “technology” company. The progress that has been accelerated by COVID-19 is highly unlikely to reverse after lockdown, so those organisations that put digital first and innovate to permanently replace the in-person elements of their business will gain a significant advantage. If your business has undergone or is part way through a digital transformation, whether due to the pandemic or not, we’d love to hear from you. Follow us on Linkedin now!
Business Case Alignment to Enable Digital Transformation
Digital transformation is the process of adopting new technology to improve an organisation’s processes to remain competitive in an evolving business environment. Regardless of industry or sector, critical decisions are almost always based on data produced by technology, so it’s no surprise that digital transformation is often cited by CEO’s as being near the top of their corporate agenda. That said, most CEO’s don’t have a technological background and are often approached to invest in new tech with the promise of revolutionising growth. So, how can you make the best business case for a digital transformation to pitch to the board? Here are the common steps that case studies, anecdotes and research suggest you take: 1. Outline the need for change Detail what impact a digital transformation would have on the organisation and the difference it could make to the business, its employees and its clients and customers on a macro level. 2. Identify the drivers Specifically, what needs to change and why. Whether it’s to answer demand for products or services; to improve staff retention; or to increase revenue, identify what is driving the project and therefore what needs to be measured to show success. 3. Show the journey A digital transformation project needs a roadmap that will show the board exactly how you plan to get from A to B. It needs to include milestones that can be celebrated with stakeholders, as well as points where the metrics can be measured to track progress. 4. Detail your communication plan A digital transformation affects everyone internally and possibly clients or supply chain externally. The board need to be reassured that the project will be communicated effectively from the outset and that a certain level of transparency will maintain momentum and keep everyone engaged throughout the journey. Highlight potential barriers and contingency plans, but don’t forget to publicise the successful milestones along the way. 5. Forecast the results The board will want a certain ROI, so it’s important that there are metrics and a benchmark in place to assess the transformation from day one. Be as detailed as you can and realistic in what they can expect from their investment and reassess this throughout the project. While some of the benefits may not be tracked in terms of hard numbers, they should filter down to improve the bottom line – which is where the board will be looking. If these steps secure a green light for your intended transformation project, it’s important to continue to monitor results outside of their requested metrics to take back to the board afterwards too. If the project’s legacy is a newly highly skilled workforce after the training that has taken place, or an unexpected Follow us on Linkedin now!
Structuring your business case for hiring during a pandemic
In times of crises that ultimately affect the bottom line, it is common for businesses to trigger an immediate hiring freeze while they spend their resources fighting fires elsewhere. In the current global pandemic, the focus logically shifted during lockdown to remote working and its associated tech implications for staff, processes and communications. Some organisations had to transition thousands of employees and it was understandable that recruitment became less of a priority. But what happens when there is no clear end in sight? How long until a freeze becomes a problem? While it can be difficult to consider the long-term future when there are short-term problems, it’s vital that organisations do. In the last recession, those who didn’t unfreeze after a period of time suffered. The top talent in the market had already been snapped up as the upturn approached. This time, while there may be a ‘new normal’ to factor in, there will still be fierce competition for key candidates in all sectors once recruitment begins again in earnest. Companies that start addressing their hiring needs now will gain an advantage, both in terms of the quality of talent they are able to find and the associated costs. If you know the time is right to restart your recruitment plans, you may need to put forward a stronger justification than before to get sign-off from the decision-makers, as your hiring processes will inevitably be different now and may involve additional investment. Here are some key points you should make to help make your case: 1. Think strategically: align your recruitment project to the bigger picture company strategy and highlight how your plans will help achieve those aims. 2. Expand strategically: produce a competition analysis to show how your budget will result in a competitive edge by securing top talent early or targeting niche talent better. 3. Think financially: think in terms of the numbers when you’re dealing with stakeholders. They will want to know how your proposal compares in terms of ROI against other ways they can spend the budget. 4. Expand financially: stress how recruitment can get more expensive when delayed, especially if your competitors are also hiring. Landing and developing talent earlier can be more beneficial. 5. Speak financially: change your recruiting jargon to business language to resonate effectively. Forget quality of hire, turnover rates or retention, and talk in terms of the real impact on the bottom line. 6. Back yourself: let the decision-makers know how invested you are in the outcome of this new recruitment drive and show them you’ve assembled a hiring team who are prepared to be accountable. 7. Back your plans: all new processes need to be innovative and future-proofed, so emphasize how your plan addresses any latest trends in recruitment or candidate experience. If you’ve reached that point where hiring and growth plans are back on track, contact us today. Follow us on Linkedin now!
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