Maximizing Digital Transformation as a CFO in a Resurging Pandemic
During the span of this devastating and stubbornly persistent pandemic, digital investments and transformation are proven to be the top priorities of today’s CFOs. In a survey conducted by Rimini Street, an overwhelming 95% majority of these finance leaders stated that technology investments were critical to recovering from the business impacts of the pandemic. This priority is particularly interesting to note given the explosive growth of IT investment in recent years. Assuming the years-long trend of investing in technology continues, CFOs will spend a record amount of money on IT in 2021. Global IT spending hit $3.7 trillion in 2020, and is expected to hit nearly $4 trillion this year. Given the significance of this phenomenon in corporate finance, CFOs should be aware of the best practices to adopt in tech spending, and the worst mistakes to avoid moving forward with this trend.
2 Mistakes to Avoid in Digital Transformation
1. Poor Adaptation to Changes with New Technologies:
Dramatic technological transitions have the potential to seriously shake up company stakeholders, be they board members and investors, or customers and staff. A financial executive needs a solid plan to unify all stakeholders around digital transformation efforts and IT spending, according to CFOs and experts in business technology.
"Soft skills, communication, engagement are not part of the DNA of the CFO, but they're extremely important," Kearney CFO Christine Laurens said. "I've seen it myself over and over again — underestimating change management is one of the biggest mistakes" a CFO can make when leading a digital transformation.
2. Underestimating digital transformation:
While CFOs shouldn't shirk their role to carefully review budget requests, they need to be ready to back bold, creative initiatives with ample capital. Anthony Coletta, CFO at SAP North America, among a number of prominent finance leaders, emphasized the criticality of proficiency in digitization, and understanding its weight in modern finance.
"You need to take an aggressive position," Coletta said, noting how at the start of the pandemic some bricks-and-mortar retailers gained by adapting to social distancing mandates through heavy investment in e-commerce, delivery and curbside pickup operations. "You can lose ground to the competition and your first-mover advantage if cost savings becomes the No. 1 factor," he said.
3 Best Practices in Digital Transformation to Start Now
1. Conduct Stress Testing:
Given the volatility of the past year and a half, CFOs should consistently pressure-test the assumptions, decisions, and scenarios that are suitable for business during the COVID-19 pandemic. Such reviews are of the utmost importance, considering that different parts of a business will have similar questions related to crisis management during the pandemic, and the company needs to be unified in their efforts to deal with this. For example, sales and marketing teams must share an expectation of the prospects of a sustained economic return, and when the new normal will end. Thus they should know how to budget for travel and expenses. Finance teams will need to determine which projected economic scenarios actually materialized, and then strategically analyze how various initiatives launched during the pandemic have impacted corporate performance.
Senior-leadership should also conduct independent stress tests of different company strategies, so that they are able to decide which bold moves might be pursued, both organically and inorganically. Some companies are rethinking their M&A strategies and pursuing acquisitions, partnerships, and divestitures along their supply chains. Those in more stable industries are looking at launching new products and investing in new technologies and business partnerships in the continuing new normal.
2. Assign finance talent to the highest-priority areas or topics:
For the past year and half, finance workers have experienced a lot of changes in their work. They have had to operate at a faster pace, with shorter reporting cycles, and remotely, all while contributing to critical planning and budgeting decisions. Much of the work was instinctively tackled by small squads that came together to solve immediate, high-priority problems . Often, the solutions involved one-time, ad hoc analyses and insights, which all proved difficult for a number of finance teams.
In the years to come, digital transformation may take some of the pressure off finance workers in handling the stubborn presence of COVID-19, and other future crises. Finance-team members may still need to embrace agile work groups, but if they are handling modular budgets and operating under a contingent resourcing approach, they will have to transition from a reactive to proactive approach to their work.
In order to prevent burnout, CFOs and finance leaders must prioritize accordingly. They should rely on top-down and 80/20 approaches, entailing clear directions to staffers, for instance, on expected analyses, outputs, and timelines. CFOs can set such priorities using a driver-based model that breaks down the P&L (from revenue to cash) and links it to operational KPIs. Such models provide finance leaders perspective on what really matters and the projects, topics, and initiatives that will require finance teams’ immediate time and attention. The model can also shed light on the opportunities CFOs have to accelerate positive trends and hinder negative trends.
In sum, CFOs need to lead with empathy. They establish clear communications plans, such as “pulse checks”, and weekly meetings to analyze the performance and results of their teams and projects.
3. Hold back some spending centrally:
In most companies, budgets have traditionally been set for a year. However, during the pandemic, many organizations have had to be more flexible, confidently shifting resources as needed to survive. To monitor the situation in real time, for instance, they have deployed spending control towers, cash war rooms, and dashboards.
CFOs should maintain that flexible approach in 2021 and onwards. They’ll need to take an adjustable approach to budgeting, integrating various contingencies and options. Budgets should also include centrally controlled pools of funds to be used in order to react to certain difficulties. An example: when demand increases in certain countries, customer-retention rates drop, and specific product, service, or geographic scenarios materialize. The central funds should be concentrated on supporting variable-cost categories, and can also be released in stages throughout the year to support R&D projects, capital expenditures, and hiring initiatives.
Through such an approach, projects are broken down into stages, and each stage is dictated by a go or no-go decision. The overarching goal is to allocate resources with greater flexibility in order to direct funding in accordance with developing business and industry demands.