How CFOs Can Avoid Self-Sabotage in Digital Transformation
It doesn’t take an expert to understand the foundational significance of the finance department in an organization. Given the level of importance of this business aspect, what a CFO does holds a lot of gravity in the success of an organization. If these finance chiefs make what may seem to be a small mistake, this can have serious consequences for their entire company. The responsibilities CFOs have today have grown more complex given the relatively recently digitized nature of corporate finance. It’s safe to say that during this development of new tools, there have been some major screw ups that have nearly (or actually) sunk businesses. That considered, if finance leaders want to succeed in keeping up to date with the latest technologies, they should understand these serious mistakes if they want to avoid the trouble past CFOs have encountered.
Undefined and/or Overambitious Goals & Expectations
Due to the high ambition that is common among those filling executive positions, many finance leaders make the mistake of attempting to do too much, too fast, and too soon, with a completely unrealistic expectation of what the results will look like.
What often makes this even worse, is the fact that many of these lofty goals set by CFOs are vague and unclear, or perhaps lack a unified understanding by the other members of the finance team and organization at large. It is unfortunate that often in a large business, the role players directly involved in transformation efforts have a very different idea of why they’re doing what they’re doing.
When stepping up as a leader with a new approach to work, you need to ensure that you focus on making incremental changes one step at a time. CFOs should commence digital transformations should begin with a limited MVP, and share any positive results, even if they are small. The latter will serve as an incentive for management, stakeholders, and employees to be persistent in the digital transformation. This way also enables you to more easily analyze where you stand in the process in a step by step manner. Additionally, you should clearly set your objectives, and thoroughly ensure that you team members and subordinates are all on the same page about the end goals and what their roles and responsibilities are in the process.
An example of the consequences of overestimation was Hewlett Packard fairly recently. Hewlett Packard spent $160 million on its digital transformation project. The damages to the company that they claim were caused as a result of the failed implementation were nearly five times that amount because they spent $160 million expected to get a certain ROI. In this case, they actually lost five times that amount, which isn’t the type of ROI that most of us are looking for when we go to implement new technology. One of the interesting quotes from the CIO of HP at that time said “we had a series of small problems, none of which, individually, would have been too much to handle.” Together, they created the perfect storm and that pretty well sums up what happens with a lot of these failures.
Viewing Digital Transformation as a Destination and Not a Journey
In the era of technology, there has been an unfortunate trend of CFOs treating their digitization efforts as any other project they might undertake. It isn’t uncommon for finance leaders to conclude that their upgrades from years ago are working just fine, and shoot themselves in the foot by stubbornly sticking with an increasingly irrelevant technology.
For better or worse, the need to acclimate to developments in work related technologies is not going away anytime soon. When this dynamic in the corporate world emerged years ago, it was retrospectively clear that digital transformation was going to require ongoing efforts for years to come, as tools like spreadsheets, financial software, etc. were and still are constantly being upgraded and changed. Simply put, digital transformation should be seen as the endless process of keeping up with technology. It’s important to set and achieve goals, but equally as critical to never remain complacent with a particular tool, and to not get too comfortable/settled in with the status quo of the technology your finance department is using.
Underestimating the Importance of Culture Change Within the Organization
When undertaking a digital transformation project, you will definitely not have good results if you elect to undergo transformation purely based on the discretion of yourself and the rest of the executive board. That considered, you should be sure to engage everyone in the company with a big adjustment such as this, and invest in the training and reskilling of all employees. Most, if not all members of your organization will need to start thinking differently and become fully immersed in the new technologies integrated into your work. You’ll want your new tools and work culture to be in perfect alignment with one another.
An example of the results of poor clarity and communication within a business in this process was Haribo in 2018. The general gist and summary of what happened there is that the company wasted hundreds of millions of dollars trying to implement SAP in 2018, they finally – well, sort of implemented SAP. Haribo immediately ran into supply chain problems such as, they couldn’t track where their inventory was, they couldn’t track raw materials, and they couldn’t get the inventory to stores in time. As a result, their sales dropped roughly 25% shortly after the transformation.
Neglecting to Engage the Top Management With The Process
Given the fact that CFOs are executives, they need to leverage their position in order to influence and cooperate with others in the organization that hold a similar or greater amount of power. The top management needs to comprise digital leaders who can implement the changes we have been discussing above. A common digital transformation mistake is when the top management is enthusiastic about the idea of technology and innovation, but lacks the commitment required to follow through with the vision.
The process will entail a higher cost, increased effort, periods of change and the redefinition of various organizational processes. The top management should be ready to face the temporary challenges they might face while creating a digital-ready organization as they should have full conviction in the process they have undertaken. When done right, the benefits of digital transformation will outweigh the costs heavily and help the organization immensely in the long run.