Volvo: Finance Needs to Bet on the Future to Thrive in Digital Age
Determined CFOs need to stay ahead of the game if they are to make an impact in an ever-changing market landscape, says Philippe Henriette, SVP of Finance, Processes and IT for Volvo Construction Equipment. Below Phillippe discusses the drive that’s needed to push finance into the digital age. The finance function has expanded from a […]
Determined CFOs need to stay ahead of the game if they are to make an impact in an ever-changing market landscape, says Philippe Henriette, SVP of Finance, Processes and IT for Volvo Construction Equipment. Below Phillippe discusses the drive that’s needed to push finance into the digital age.
The finance function has expanded from a laser beam focus on reporting, budgeting and control to include a more overarching strategic role. At Volvo CE we are no different to any other organization in our ambitions to allocate more funds to IT development and innovation. The market is changing and finance should have a clear view on how the digital spend turns into value for our customers. And to operate at its high-performing best, finance needs to have an overview of the ‘big picture’ and be prepared to invest in new technologies even without the promise of an immediate payback. The use of big data and predictive analytics to identify these new trends is a vital tool in this future focused approach.
We live in a fast-moving environment where digitalization is disrupting industries the world over, yet construction is a relatively conservative sector. At Volvo CE we have to think about how our industry might look further down the line and how we can adopt new technologies and new ways of working to shake up our traditional business model. After all, the demands of a customer today might be radically different tomorrow. And finance has a vital role to play.
Interpreting changing customer needs
We looked to the wider economy for inspiration to see how companies like Uber redefined
the way people buy and access services – a way of spending that is beginning to filter through into other industries. Owning an asset is becoming less important to customers who are shifting to a value-buying spending model. So if our business is to sell a construction machine, and its relevant parts and services, how can we adapt for the future? With the emergence of electrification and other technologies, shouldn’t rental services be generalized? Should we be selling our services by the hour? And it is already happening. This was the impetus behind us introducing a ‘power by the hour’ scheme for one of our key accounts. Our customer demanded to get the construction job done, but instead of purchasing our machines, they only pay the hours and value machines create. If this is the future construction business model, then finance cannot stand still. We need to be ready to support the business transformation from generating revenue on machine and parts to selling services.
Data-driven culture shift
Our aim is always to simplify things for our customers, and to do this we have to have a deep understanding of their needs and stay steps ahead of those demands. Shifting from a product centric to a data driven culture plays a key role. By putting data analytics at the heart of our research and development and turning customer and product information into insight we can be confident we are staying ahead of the game.
Equally, if we are going to provide the flexibility our customers require, we need to be brave when it comes to fixing a price point for our new services. I have learnt that we cannot test the waters by bringing new services to market without understanding how much it is worth. By doing this we would make it impossible to set a price when it proves a success. Instead we do our due diligence through data analytics so that we can be confident we are setting the right price from the very start. With this data-driven culture comes a huge responsibility on the part of the CFO to handle this information appropriately. We do this by ensuring we have proper systems in place to protect the data we use – an issue that is becoming increasingly important as digital technology leaps into the future.
ROI for a new digital era
Having an eye for future trends – and the risks and rewards that go with them – is one thing, but how can CFOs be assured of a profitable return on investment on these new innovations in the years to come? Developing the right set of measurements to monitor the progress of new digital offerings may not lend themselves to standard ROI calculations. It is essential therefore to adopt non-financial metrics alongside the usual measurements of cash generation and profit so that we have the big picture we need to drive the company through this new digital era.
We are working in a vastly different corporate landscape today than we were 20, 10, even 5 years ago. The finance function has navigated choppy waters during the economic downturn and is now learning to adapt to customer demand and increased innovation. This puts us in a unique position to act as a driving force for the digital revolution. The world is changing and it’s up to every CFO in every industry to stay ahead of the curve.