Tim Wakeford, VP for Financials Product Strategy at Workday, offers his insight to CFOs looking to lead their business back to strength.
After a year where organisations were forced to continuously change plans and rethink their approach to business recovery, the future is finally looking less turbulent, with a potential COVID-19 vaccine on the way. One fundamental transformation 2020 brought to businesses, however, will continue informing the next year. Leaders will be looking to the CFO for insights on the business and guidance to decide their next move.
If the early stages of the pandemic have taught us anything, it is that companies need good quality data to make faster decisions. The question is, what data-driven insights do CFOs have to provide companies to deliver the best response to persistent change?
It could be argued that all data is valuable. Nonetheless, CFOs must focus on three particular data-led insights to steer businesses to recovery. They need to provide visibility into working capital, empower other leaders with data, and manage investor expectations with scenario planning. In doing so, they will be in a strong position for success in 2021 and be able to guide the business through any challenges the future may bring.
Gain greater visibility into working capital
The first priority all CFOs have in common is being able to share real-time visibility over their business’ financial inflows and outflows in order to manage cash pressures. This is because many businesses have seen revenues plunge during the pandemic, which had a negative impact on cash flow. In fact, 94% of the Fortune 1000 are seeing coronavirus supply chain disruptions and facing the reality that they will need to become more agile in managing inventory. The disruption of the second wave is heightening financial pressures and will likely mean that CFOs have to reassess their budgets again and again. Without a real time view of working capital, moments of disruption can lead executives to make decisions in a panic. This could result in significant inventory spend with non-preferential suppliers, which in turn reduces the potential for savings from contractual discounts, and is common during turbulent times. Having a 360-degree view of the organisation’s working capital, however, can provide a better handle on spend management, optimising costs and overall efficiency. This will help leaders avoid risks that can set them back, and help them to accelerate recovery.
The first priority all CFOs have in common is being able to share real-time visibility over their business’ financial inflows and outflows in order to manage cash pressures.
Empower the organisation to make data-driven decisions
Getting the right data-led insights into the business to guide decisions can be challenging during a constant state of change. However data-driven insights are absolutely key in empowering decision-making — even during the best of times. Providing the right data, to the right people at the right time, can only be done by breaking down the data silos still present in many companies. A global Workday study revealed that out-of-date information and siloed teams are the biggest barriers to agile decision making. On the other hand, 80% of technology leaders from more agile companies stated that employees have access to timely and relevant data without gatekeepers blocking access to such information.
The challenge is that, as many businesses have grown and evolved they have accumulated different technologies — systems that are often placed together and lack smooth integration or a single pane view of what is happening in the organisation. CFOs whose businesses have reporting scattered across different data sources will find that it is much slower and harder to monitor performance, identify variances, and surface risk. This is why CFOs and finance teams have to consider investing in overhauling their technology stacks. Our customer Equiniti, for example, found that having all HR and financial data in the same cloud helped identify challenges and respective solutions with much more agility and confidence during the pandemic. This way, they were able to fix gaps quicker, without slowing their recovery plans.
Manage investor expectations with scenario planning
The uncertainty and volatility created by the pandemic has led to markets swinging back and forth. In turn, this creates pressure from investor communities and has served to highlight one of the biggest challenges organisations face — determining the long-term future of a business. In the current state of constant change, CFOs and their teams cannot underestimate the importance of taking a strategic approach to investor relations. Besides sharing earnings reports, it’s the CFO and its team’s role to offer constant reassurance to stakeholders by communicating how management teams are dealing with the crisis.
Therefore, when talking to investors, leaders have three choices: withdraw, revise, or reaffirm guidance. A recent Deloitte report revealed that more than half of CFOs from public companies have chosen to withdraw from providing guidance. Although understandable, this could signal that leaders are unsure of their company’s prospects and have a downward impact on stocks.
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When faced with this lack of clarity, finance leaders must stay ahead of the curve and give invaluable insights to investors by undertaking scenario planning. Many of our customers are basing their entire recovery plans on multiple pictures of their budget using what-if scenarios, and it’s proven equally important for investor insights. CFOs can build scenarios to better understand what the future may look like in areas of particular interest to investors, such as covenants. Deploying these types of forward-looking processes will help businesses prove their stability, ensuring sustained recovery and emphasising their long-term objectives with clear metrics.
The strategic role of the CFO for business recovery
The pandemic has shifted the role of the financial office for good. Everyone – from HR and commercial teams to investors – are now looking to the CFO for guidance and to spearhead the business through upcoming disruption. Armed with the right insights, plans and tools, the CFO will be able to lead their organisation to a swift recovery and prepare the business to thrive, whatever the future holds.
Simon Shaw, Head of Financial Services and Insurance at Software AG, outlines three ways in which larger banks can – and must – make their business models more agile.
In the months since COVID-19 reared its ugly head and changed the way we live, there has been a noticeable uptick in conversations around digital transformation and embedding resilience. In the banking sector, the focus had been on the increased demand for online banking and questions around how banking monoliths will adapt.
The reality is that big banks can adapt – albeit slower than other industries. That’s not to say that change isn’t happening; banks have been transforming for years to align with changing customer needs. However, it’s a distinctly difficult and complex challenge. In fact, one of the primary challenges with digitalisation in banking is that moving quickly doesn’t happen easily. Of course, CFOs and financial leaders would love to quickly pivot their operations to meet changing needs and new requirements, but in their current state, most incumbent banks don’t yet have that capacity.
To achieve digitalisation, banks are grappling with many moving parts. From regulatory requirements, to safeguarding customer data, to overcoming silos – and that’s before we consider the sheer cost of it all. I have identified three ways for established banks to pivot more quickly and efficiently in today’s climate.
1. Go Hybrid or Go Home
A significant challenge in the digitalisation of big banks is that their ecosystems simply weren’t designed to enable quick transformation. Changes that may seem simple, or are simple in other sectors, can require full programme rewrites when applied in banking. The legacy systems on which most large banks are built are clunky and inflexible. Since these systems don’t run in real-time, they’ll never compete with the efficiency and analytic capabilities of challenger banks. Yet, despite that, these established systems actually hold the key to future success in banking – data.
The wealth of data contained within a heritage system has the potential to entirely transform the customer experience. However, to do so, banks must be able to access and integrate that data at speed.
A significant challenge in the digitalisation of big banks is that their ecosystems simply weren’t designed to enable quick transformation.
Hybrid cloud presents the best of both worlds; it combines the operational stability of on-premise solutions with the scalability, reduced cost and data accessibility of the cloud. Breaking up isn’t easy but, according to IBM, banks that are outperforming their competitors are 88% more likely to have incorporated hybrid cloud into their business model. For banks with decades of data in monolithic technology stacks, turning certain data and tasks over to the cloud can significantly lighten the load on their ecosystem to improve efficiencies.
2. Visualising Opportunities for Change
Digital transformation has changed banking expectations. Customers want speed and convenience and banks are competing to deliver. Excellence requires efficiency, but that can be difficult to achieve.
Process mining identifies optimisation opportunities and strives for excellence in process performance. As the name suggests, process mining delves into the detail of what occurs as a process is actioned, revealing patterns, anomalies and the root causes for inefficiencies. With greater insight into processes, banks are able to make informed decisions and tangible improvements to quality and performance. To compete with the challengers, established banks need to embed the ability to adapt to changing business requirements and make transformation routine. The first step to this is visualisation.
If hybrid cloud is the vehicle by which digitalisation is achieved, process mining is the check engine light.
3. The Building Blocks of Better Banking
One of the biggest challenges to transformation lies in evolving away from heritage applications. Transitioning from old to new is daunting and can come with a hefty price tag. Microservices enable banks to transform piece by piece and scale at a controlled rate.
Transformation in data-reliant and regulation-heavy sectors will never be a walk in a park, however, microservices start small by design. This returns much needed control to banks and ensures complex changes are developed and tested independently before being integrated into the banking ecosystem.
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To fundamentally change business operations, the very foundations of that organisation need to be redesigned. This applies across industry, which is why, between 2018 and 2023, the microservices market is predicted to nearly triple as more organisations shift their transformation up a gear.
Microservices embed agility and efficiency from the outset, making digitalisation a cultural and technological change. By returning control and enabling a customer-centric and scalable design, transformation can add big value to big banks.
Agility is essential, but moving a monolith isn’t easy
In banking, where archaic systems and rigidity have been governing organisational change for years, digital transformation really means reinvention and growth. While the end-goal is easily defined – agility, resilience, scalability, digitalisation, etc. – it’s difficult to know what’s needed to achieve it. When the dependencies, regulatory requirements and price of change are thrown into the mix, it’s no wonder that change takes time in the financial sector.
Hybrid cloud, process mining and microservices create the foundations for development by embedding transformation capabilities into the very core of a banks system. While financial institutes will always be subject to a high level of scrutiny, strategic solutions that bring order, visibility and an ability to compete with smaller and more agile banks are truly transformative.
Andy Campbell, global solution evangelist at FinancialForce, analyses current trends in the financial services industry and how firms can keep pace with customer demand.
In the digital age, the finance function of old is no longer sufficient. Whilst generating reports, budgets, and plans will still remain core to finance’s day-to-day activities, the modern business landscape moves quickly, and the finance team needs to be similarly agile to keep up.
Digital transformation across businesses and whole industries requires finance departments which can support new business models, plan for agility, create outcome-based versus product-based offerings, and identify new joint venture opportunities. In short, finance needs to move away from bean counting and work more closely with internal stakeholders and customers to provide innovative experiences and organisation-wide value.
This is a radical transformation of what has come before, and requires a similarly radical shift in long-established mindsets both within the finance department as well as the rest of the organisation. If this change in mindset can be achieved, finance teams can start to take advantage of the data analytics solutions now more widely available. With a new level of visibility offered through rich, timely data and advanced analytical tools, businesses are making changes to embrace new models. The finance function is having to increase its agility in order to deliver and support the overall business.
The COVID-19 pandemic has played a significant role in this transformation. It has shone a light on business inefficiencies, and as a result, has acted as a catalyst for digital transformation, speeding up digital initiatives. We have seen more change in the last six months than we have in the previous six years. Additionally, the focus on managing cash more effectively to ensure survival has meant that the transformation focus that was typically centred around the front office - the way we deal with our customers - has changed. We are now seeing a growing interest in transforming the back office.
The finance function is having to increase its agility in order to deliver and support the overall business.
This will not happen overnight, and there are five key shifts that a business needs to make to transition from the traditional finance department to a digital office of finance.
Shifting from financial-only proficiency to enterprise-wide know-how
Financial metrics will always be important, but the modern finance leader needs to broaden and develop an understanding of KPIs in other areas of the business too. They should have knowledge of both customer experience and satisfaction, in addition to conversion rate optimisation and employee retention to round out existing analysis. This presents a massive contrast to accounting teams from years gone by, with the modern finance leader having evolved into a major business stakeholder. The focus is no longer just on the finance element, but also on creating and continuously strengthening healthy customer relationships and customer lifetime value.
Shifting from monthly reporting, to real-time decision-making
Today, monthly closes or quarterly reviews are too slow. Decisions need to be made using real-time data every time. Accuracy and speed are paramount when it comes to making sure that a business is successful. Understanding what is involved in creating and delivering a new offering - and being able to course-correct to maximise profitability or customer satisfaction - can no longer wait until the end of the month or quarter. As such, a business must invest in business intelligence (BI) and artificial intelligence (AI) solutions, so as to quickly derive insights about how the business is performing, and to subsequently act on said insights.
Shifting from static forecasts to rolling forecasts
If finance departments are to switch to a weekly or even daily forecasting schedule they’ll need technology to support their endeavours. Modern forecasts must account for several different models, constantly shifting sets of variables and the use of new technology like AI. This requires organisations to build agility across a number of business risk scenarios, such as price wars, natural disasters, or the current COVID-19 pandemic.
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Shifting from financial analyst to business model strategist
For businesses to remain one step ahead of the competition, they need to be constantly searching for new revenue streams. This could be considering how to turn services into products (or vice versa), or creating new offers or bundles for customers and presenting them in a different and unique manner. Central to enabling these new approaches is real-time data, as it provides visibility into both what sells, and what deliveries the highest margin. From this, they can then pinpoint the top performers and double down on them.
Shifting focus from product to customer success
Many sectors of the economy have already transitioned to a services and subscription renewals model. With this change comes a renewed need for businesses to redouble their focus on customer experience. Finance leaders need full visibility over each and every account in order to enable smarter decision making. This means becoming more engaged with their customers, so as to ensure satisfaction and retention. Customer onboarding, service delivery, support, or other post-sales functions: finance leaders must get closer to all of them. Only then can those deep insights into customer behaviour, as well as service and product quality, be uncovered so as to make sure that the needs of the customer are fully met.
Michalis Michael, CEO of DigitalMR, explores these findings and what they mean for the future of banking.
When we are finally on the other side of the coronavirus pandemic, several key sectors will be remembered positively for the way they took charge and handled the crisis, from healthcare to supermarkets and logistics companies.
Banks, on the other hand, are unlikely to fare as well in the eyes of consumers. A social intelligence report compiled by DigitalMR analysed customer sentiment amongst the top 11 global banks during the period of February 2018 to April 2020 and found customer relationships hit an all-time low during the peak of COVID-19.
In today’s digital world, dissatisfied customers can switch provider with the click of a button and, if banks are to emerge stronger, they must take heed of lessons from the lockdown period and prioritise customer experience in a way that they have never done before.
Here are five of the main customer service lessons banks should take from the coronavirus lockdown according to artificial intelligence.
1. They need to be adaptive
The banks that received the most positive sentiment during lockdown were those that were reactive and quick to adapt their approach in line with what their customers truly needed. Unfortunately, they were in the minority and, despite so much bank advertising claiming to be "by your side" and "in this together", many failed to practice what they preached. In such times of adversity, banks needed to truly demonstrate they were listening to their customers by providing personalisation and products that reflected their needs at specific moments in time. Moving forwards, they must take a more customer-centric approach and provide real solutions in response to new and emerging challenges their customers are facing.
The banks that received the most positive sentiment during lockdown were those that were reactive and quick to adapt their approach in line with what their customers truly needed.
2. Digital is king
Our world today is undeniably digital, and the pace at which disruptive technologies are arriving is accelerating. Arguably, digitalisation in the banking sector moved at an even rapider pace during lockdown, when even those unfamiliar with online banking were forced to bank from home as banks scaled back physical channels and human-led advisory. Despite this, many banks did seemingly little to speed up and optimise their digital processes to account for a surge in online enquiries and applications for Government support, such as the Coronavirus Business Interruption Scheme [CBIS]. To put themselves in better stead post-coronavirus, banks must become innovative and embrace digitalisation so their responses to emergencies like COVID-19 are quicker and more effective. There is no getting away from the fact that digital transformation is vital if they are to be fit for purpose when it comes to lending in the future.
3. It pays to be efficient
Our analysis of customer sentiment throughout lockdown shows that lengthy wait times to speak to a customer service adviser was one of the main frustrations, with some customers experiencing waiting times of four hours plus, and banks like Barclays pulling their customer service functions completely.
Crisis-stricken customers need quick support and solutions, and banks must work hard to address efficiency if they are to improve customer experience moving forwards. Much of this will be achieved by enhancing digital self-service for customers and implementing immediate measures to ensure they have the operational capacity to act quickly. COVID-19 has proven that automation and using data to make efficient decisions is essential for handling increased demand for credit and delivering faster decisions.
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4. They must act in times of need
Despite the Government saying in March that banks were required to grant temporary reprieves on mortgage repayments to help families struggling financially during the crisis, our research shows that many failed to issue them. Whilst payment breaks are not a long-term solution for those in financial trouble and could raise bank liquidity concerns, customers in distress need to know that they can turn to their bank for extra support. Many consumers will be considering a switch post-lockdown, so it’s critical that banks offer the trust and services that they demand.
5. They must adapt their fraud strategies
Another key concern amongst customers during lockdown was inconsistencies surrounding fraud, with many consumers worried by their bank’s lack of response to fraud calls, and banks such as HSBC reported to have been overzealous with fraud concerns by cancelling cards when not required. According to Proofpoint, a cloud security and compliance specialist, 80% of accredited banks were unable to say they were proactively protecting their customers from fraudulent emails, and 61% have no Domain-based Message Authentication, Reporting and Conformance [DMARC] record whatsoever, putting customers at heightened risk during the pandemic. To regain customer trust, banks will need to enhance their fraud detection activities to mitigate new financial crime typologies, as digital transactions increase and electronic payment growth accelerates.
Whilst our findings related to banking customer sentiment during lockdown are somewhat scathing, banks can still emerge stronger from the crisis if they learn from their shortcomings, implement the necessary immediate measures and take advantage of opportunities. By embracing digitalisation and using artificial intelligence to inform their responses to customer needs, banks can successfully navigate the new normal, support disproportionately affected customers and renew consumer confidence.
Tim Wakeford, VP of Product Strategy at Workday, outlines the benefits of agile financial planning and the research backing it.
It’s hard to be certain how long the economic impact of the COVID-19 pandemic will last. Recent predictions estimate 2025 as the finish line for recovery, but this isn’t the first and won’t be the last forecast we see. However, as we adapt our strategies to recover, one thing remains clear: COVID-19 will have a lasting impact on how businesses make plans worldwide. I’ve been talking to many customers to understand what they’ve been doing to weather the storm and what they’ve valued the most is having the agility to respond quickly to changes.
Agility to gain business resilience
Being agile when faced with change has always been a defining characteristic of companies that respond well to competitive threats. A Workday study on organisational agility showed that top-performing companies were ten times more likely to react quickly to market shifts, proving that agility is often a synonym for performance. During the pandemic, agility has emerged as the defining attribute of organisations which are responding well to the current crisis. Moving forward, it will be the essential tool to draw a much needed resilient course for growth.
To build agility into an organisation, processes need to be transformed. Finance sits at the heart of this transformation, simply because it touches every aspect of a business. The finance department is responsible for the budgeting and forecasting of activities — all essential planning processes that will map recovery. Three out of four finance executives admit their planning processes have not prepared them for economic disruption, let alone a global pandemic. They have found the key to respond better to this and any future crises in adopting three agile processes: scenario planning, continuous planning and rolling forecasts.
To build agility into an organisation, processes need to be transformed.
Scenario planning to anticipate impacts
From the moment companies started to send employees home and supply chains were interrupted, the future became more uncertain and organisations were forced to ask themselves “what if?”. What if our workforce has to work from home for the rest of the year? What if our supply chain is interrupted for 60 days? With tools that provide the ability to build-out scenarios, businesses can ask these questions and understand what different versions of their future might look like. With roadmaps laid out, they’re able to not only identify future risk but also look for new opportunities. During the first months of the pandemic, we’ve seen organisations create up to 30 times more build-out scenarios than usual in our platform. The value of this strategy has been proven beyond financial planning: Oxford University, for instance, has an approach to scenario planning used by scientists and policymakers when facing situations of global impact.
As we move towards recovery, the future is just as unclear. A recent survey conducted by Deloitte showed that 89% of CFOs now feel there is a high or very high level of uncertainty facing their business. The more finance teams apply technology to model different future scenarios, the better prepared and more confident they will be to quickly adapt their strategy to these uncertain outcomes. Planning based on assumptions is better than not planning enough, and technology can make this process seamless without weighing on anyone’s time. One of our retail customers, for example, is planning their recovery by using multiple pictures of their budget based on different assumptions, all sitting in the cloud platform, to avoid any version control issues that offline spreadsheets can bring up.
Continuous planning to avoid obsolete budgets
A survey conducted by the Association for Financial Professionals in 2019 revealed that the average annual budget takes 77 days to be prepared. Think back to where the world was 77 days ago to understand that this is simply not a sustainable process. Forward-thinking businesses no longer approach financial planning as a one-time annual or quarterly event. Episodic planning quickly becomes obsolete and wastes valuable time.
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By deploying a continuous active approach to planning, leaders are able to quickly adjust budgets adapting to any shift in the marketplace or change in the organisation — something fundamental in the current scenario. We have found that companies that implement continuous planning are 1.5 times more likely to be able to reforecast within just one week, a level of agility that helps businesses avoid budget freezes.
Rolling forecasts to roll with the punches
Rolling forecasts are just as important in the toolkit of agile finance planning. They are a strategic way to approach forecasts because they are guided by key business drivers. We’ve found from our customers that they can help accurately predict changes from four to eight quarters in advance. By being able to visualise a consistent horizon, finance leaders gain the confidence to make critical decisions. In addition, the rolling aspect of the forecasts offers an invaluable way to course-correct quickly.
To survive a time of escalating uncertainty, agility is a safe harbour for any organisation. By deploying continuous planning based on build-out scenarios and rolling forecasts throughout the recovery, leaders will be better equipped to make forward-looking decisions, and not only recover but do it with a competitive advantage. Ultimately, the changes in planning processes implemented during this crisis will prepare businesses for any future storms they might face.
Below Finance Monthly hears from Adam Rice, VP Product Development, Centage Corporation, who touches on the need to expand budgets and care3fully account for said upgrades.
For many businesses, the third quarter is budget season. It’s a busy time for the finance team, as they meet with department heads and general managers to predict what the coming 18 months will look like for the business. As preoccupied as they are, I think they would be wise to take the time to upgrade to a cloud-based planning platform sooner rather than later. Why? Because in the end they will save themselves time, work more efficiently and achieve better results. Specifically, a cloud-based platform will enable the organization to move to a solid financial plan with a rolling forecast, updated on a monthly basis. And when you think about it, a rolling forecast is far more accurate than a budget created in July 2019 that attempts to paint a picture of what December 2020 will look like.
If changing horses in the middle of the race sounds daunting to you, consider all of the circumstances small to midsize companies face in today’s business environment.
SMBs Need to Step-Up to Global Challenges
SMBs have long been the backbone of the American economy and we count on them for job growth. According to the U.S. Small Business Administration, small businesses employ 58.9 million people, accounting for 47.5% of the country’s total employee workforce.
Technology has fostered competition from all over the globe. Manufacturers are competing with countries where labor costs are low, as are retailers that are now competing head-to-head with ecommerce sites that offer international delivery. For example, the Alibaba Group, which owns AliExpress, earned over $30 billion in sales in a single day in 2018.
This kind of competition means that SMB leadership teams need to make better decisions faster. What is the impact of opening a new sales office in the Northeast, or applying for a loan to expand manufacturing capabilities on the P&L? What happens if we assume 20% sales growth but we only realize 17.5%? Business managers need to see the cause and effects of their decisions on the company’s financial statements - a feat that’s nearly impossible using a spreadsheet.
On the other hand, a cloud-based system allows financial teams to do what-if scenario planning quickly and easily. As with all things cloud-based that include intelligent APIs, it’s simple to connect multiple data sources together and then overlay analytics and data visualization to make smarter decisions.
Streamlined Implementation and Upgrades
SMBs have limited IT resources and they need to be extremely selective as to which platforms to purchase as a result. Investing in a project that ultimately fails can have devastating consequences, potentially threatening a company’s viability.
Cloud-based solutions tackle these challenges in multiple ways. For instance, many offer out-of-the-box workflows for financial reporting, forecasting, scenario validation and so on, which means implementation is streamlined. Upgrades happen automatically, which means IT resources are spared and end users get to automatically take advantage of new features and functionality. This is a critical consideration as many platforms are beginning to add artificial intelligence and machine learning to key tasks, such as compliance.
Scaling is also much easier, as native cloud-based platforms can scale up and down as a business grows or as seasonality affects demand.
Inherent Agility
Cloud-based systems often act like data warehouses, centralizing multiple data sources and tracking a wide variety of KPIs and metrics. This is critical functionality for business managers seeking to connect the dots and assess the cause and effect of their business decisions. And if the data is always on, meaning it’s pushed to the platform automatically, managers have up-to-the-minute insight into the health of the business.
Many platforms come with data visualization tools or dashboards that allow users to slice and dice information in myriad ways. The benefit here is that it allows all managers to view the data in ways that are meaningful to them. For example, the head of sales can monitor the key metrics that they care about with a higher degree of accuracy, and most importantly, drill down into the data to uncover the source of anomalies.
In fact, the data visualization tools allow the financial team to provide data-driven answers to the tough questions that CEOs, boards and leadership teams ask daily.
SMBs are on growth paths; increasing the size of their market share is always a top priority. As the business grows, and as planning becomes more complex, well designed cloud-based platforms can handle the complexity. These platforms let financial teams see into the future, test the impact of multiple scenarios and ultimately make faster decisions with confidence. They’re also far more likely to adapt to evolving business needs and goals. So while it may take a bit of work to transition this budget season, it will be time well spent.
The customer pain point defined by the limited function of outdated banking monoliths was realised some time ago. And, as we look at the state of the market in 2019, there are many vendors out there all vying to do the same thing: to bring banking to the state of digital usability that other industries such as e-commerce and entertainment reached a long time ago. Below, Finance Monthly hears from Tobias Neale, Head of Delivery at Contis on the three key areas to look at in order to be a successful FinTech in 2019.
Naturally, like any crowded marketplace, brand differentiation is vital in order to stay competitive in FinTech. After all, when there is an approximated £20 billion in annual revenue up for grabs in the UK alone, it makes sense that there are plenty of incumbents as well as new players joining every year, aiming to get a piece of the pie.
So, what truly makes a successful FinTech company stand out right now? Where are the areas that brands can truly get ahead? Also, and perhaps most importantly to consider, does FinTech look set to eclipse traditional banking altogether, or is there a way the two can grow closer?
Innovation
Building new infrastructure for financial services is not a new venture – the big payment giants have been shaking up the financial solutions market through regular technology investment projects for some time. However, given the recent wave of innovation instrumented by new and emerging rivals, it is increasingly evident that innovation has gone mainstream – beyond the big banks – and that continuous development is integral to keep pace for everyone, whether new or established. These new entrants, who put technology innovation at the forefront of their business, recognise that it is not just a case of creating technologies to contend with the big banking and payment giants, but also creating with them in order to integrate with and support them.
Agility
FinTech moves fast, and the pace at which a service provider can be disruptive is that which sets competitors apart. Start-ups have the advantage of being free of legacy systems that often prove a huge inhibitor to modernising quickly enough to keep pace for their long-standing and well-established counterparts. As a result, new entrants will do well to take advantage of this agile upper hand by ‘moving fast and breaking things’ with mobile-focused products. By quickly adapting to fill gaps left by traditional banking providers they can deliver services in record time.
Customer service at the core
In recent years, customer trust in the banking and payments industry from both the has been put to the test thanks to disruptions and data breaches affecting both businesses and consumers alike . This means that there is ample room for disruptors to capitalise on the need for a reliable and trustworthy provider that offers great services, extensive support and guidance, particularly for prospects that are looking to establish their first increment of banking services into their ecosystem.
What is important to remember is that disruption is not all about overtaking older established rivals – part of what makes a successful FinTech in 2019 is the ability to integrate with these institutions and move digital transformation for the industry and shared customers. Keeping innovation, agility and customer service at the core of a company’s proposition is what will truly define those looking to follow the success of companies like Monzo and Revolut, in 2019 and far, far beyond.
For an Agile transformation to be truly successful all departments within an organisation need to be part of the journey. For finance teams this can be a particular challenge as historically change happens infrequently within finance practices.
Often finance departments are blamed for slowing innovation. In today’s marketplace the ability to pivot and quickly try new ideas has become critical to success. Below, Paul O’Shea, CEO of Kumoco, the management consultancy that specialises in Agile working and cloud consulting, looks at some of the simple steps finance can take to become an enabler of innovation
- Adopt a VC model for funding projects
Finance departments usually do not have a culture of reviewing value generated by projects as they proceed. Typically they engage at the start to approve budgets and at the end of projects to review ROI and manage depreciation. Working in an Agile way requires continual assessment of the value being delivered. This means that projects that are not delivering value can be identified and stopped earlier. Conversely those that are, can be promoted and additional investment assigned.
In practice this means finance departments should be encouraged to adopt a venture capital model. An initial budget should be allocated to kick-start a project, then value delivered is continually measured to trigger further releases of funding.
A finance department usually works to longer-term goals and does not have a culture of reviewing projects as they proceed to make sure what is undertaken is still valid and has not been overtaken by changes in the business or the market in which it operates. However, a more flexible approach is increasingly necessary as the pace of change in economies and markets has never been faster and companies need to be fleet of foot to survive. Finance departments should be encouraged to perhaps adopt a venture capital model, nurturing projects over defined periods of time. They could provide an initial budget to kick-start a project but then continually assess the project’s progress and validity before releasing further funds for subsequent stages to ensure that what is being funded is still relevant and is valuable for the business.
- Embed the finance team in projects
Typically finance departments sit apart from actual project teams.
This is in direct opposition to an Agile way of working, which involves continual assessment and development, to drive efficiencies and ensure projects are on track and are meeting evolving goals. To address this, businesses should consider embedding finance department members in the project team so they have a better understanding of the work being done and the strategy and goals. Finance team members could also benefit from Agile training where they receive an introduction to Agile and to understand its ethos and integrate more effectively with project teams.
- Use a range of metrics to measure value
Assessing value is not easy. A 2017 global survey by the Scrum Alliance showed that for 41% of participants[i], measuring value was their greatest challenge. To help finance departments correctly assess the value of Agile projects to a business there should be regular reassessment, the metrics should be standardised and value should be measured not solely by financial gains but through a range of key performance indicators (KPIs) to have a more holistic view of the benefits of the project on a business.
- Foster an Agile finance function
As well as the above measures, which apply across a business, fostering an Agile approach in finance departments is also a key part of helping to encourage an Agile and lean way of working in an organisation.
Adopting Agile will help finance functions to increase efficiency and speed through simpler data management by accelerating financial processes such as capital expenditures, resource allocations, reporting and analysis, leading to fewer controls and more real-time information. The result is more timely and actionable financial information that allows managers to be more Agile and responsive and avoid problems and recognise opportunities that will help to transform a business. This is supported by the 2017 CFO Indicator Report that found that 36% of CFOs would like their teams to spend less time on report preparation and data collection more time on forecasting and scenario analysis.
Simple techniques could be embraced, such as understanding how Kanban, a process designed to help teams work together more effectively, can help streamline processes and drive efficiencies. It may also be useful for the finance department to have a Kanban board, updated daily, so that everyone can see and understand how and why these tools work.
CFOs and their teams should also monitor and analyse non-financial KPIs, including customer satisfaction, customer relationships and brand reputation, which can be used to make more accurate forecasts, minimise risks and identify new opportunities.
- Training & preparation
Finally, finance departments should also make themselves transformation-ready and educate staff on the key role the finance function plays in helping to develop an Agile ethos in a business focused around developing a strong customer-centric culture, making a company more flexible and able to achieve goals that are rapidly evolving. The truly Agile finance function has the adaptability, skills and nimble effectiveness to help transform businesses of whatever size or sector - and take them to new heights.
Adaptive Insights recently released its global CFO Indicator report, which explores the pace of finance, its impact on agility, and what CFOs need to do to shorten their organisations’ time to decisions. Alarmingly, 77% of CFOs admit that major business decisions have been delayed due to stakeholders not having timely access to data and report significant delays with respect to tasks like reporting and ad hoc analysis.
“Corporate agility requires that organisations plan for multiple outcomes, particularly as economic conditions become increasingly uncertain, turbulent, and competitive,” said Robert. S. Hull, founder and chairman at Adaptive Insights. “CFOs can improve their organisations’ agility by accelerating the speed of scenario planning and analysis. By giving key stakeholders more immediate access to data, finance can dramatically improve decision-making—the key to maximising corporate performance.”
The report warns CFOs that the current pace of finance could threaten corporate agility and provides views on the practices that should be adopted to create a more forward-looking, agile environment.
Key findings in the report show that:
- The finance team is spending over half (53%) of its time on reporting and data gathering alone. This leaves many organisations looking back at history, rather than forecasting forward
- CFOs would like their teams to spend less time on report preparation and data collection (36%) and more time on forecasting and scenario analysis (40%). More and better analysis will lead to improved agility
- CFOs (49%) believe predictive analytics will most contribute to agility, followed closely by dashboards and analytics (45%). CFOs desire to transition away from historical reporting, and toward a more forward-looking approach
The need for speed…in reporting and ad hoc analysis
This quarter’s report reveals that key decisions around such things as capital expenditures, resource allocations, and investments have been delayed because stakeholders don’t have timely access to data. With shrinking product and innovation cycles—not to mention ever-increasing global competition—these delays can mean the difference between the success or failure of the business.
CFOs (47%) report that it is taking 11+ days to get reports into the hands of stakeholders, yet they (56%) would like it to take no more than five days. Ad hoc analysis is also taking longer than desired, as CFOs (60%) say this task takes up to 5 days, yet they would like it to take no more than a day. Reporting and ad hoc analysis represent two key areas that can be improved to enable better agility.
The impact of technology on agility
The desire to move toward a more analytics-driven organisation appears to be impacting CFOs’ decisions when it comes to implementing technology. Dashboards and analytics top the list of future purchases, with 45% of CFOs saying they will invest in this type of solution by 2020, followed closely by budgeting and forecasting tools (40%).
Discouragingly, it appears that most organisations continue to depend on point solutions that do not provide the integrated access to data that SaaS solutions can provide. CFOs report that, on average, only 33% of their organisations’ infrastructure is SaaS today with a desire to get to 60% by 2020.
(Source: Adaptive Insights)
