What is the disruption gap? How does technology and communication affect your end of year figures? How can you oversee all processes without a digital transformation? This week, Finance Monthly heard from Matt Fisher, VP of Marketing at Snow Software, who gives us all the answers and then some.
With digital transformation becoming ever more crucial to business success, the way organisations procure IT is changing. “In 2016, just 17% of IT spending is controlled outside of the IT organization. That represents a significant decline from 38% in 2012. By 2020, Gartner predicts that large enterprises with a strong digital business focus or aspiration will see business unit IT increase to 50% of enterprise IT spending.” [1] Technology budgets are moving away from a central technology department towards being the responsibility of the business unit using it. From HR procuring its own payroll software to business development choosing the best sales programme, a visibility gap is forming between what exists in the technology estate and what CIOs can measure. This gap is called the disruption gap.
However, the CIO is not the only C-suite member the disruption gap will affect. If not handled correctly, it could prove troublesome for the CFO too. The reasons for this are three-fold:
Digital transformation
Digital transformation is now key for any CFO tasked with ensuring their business is future proof. It is defined as the application of digital technologies to fundamentally change and update all aspects of business and society. The benefits of digital transformation include lower costs and improved accountability with the replacement of physical or analogue processes and interaction with digital equivalents to save time. By empowering business units to identify their own digital needs, organisations will be able to maintain agility and competitive advantage. Crucially for CFOs, this also means the ability to make one thing: profit.
Losing financial control
While the role of the CIO is changing with digital transformation, a key role of the CFO remains the same: to guard against over-spend. However, with IT budgets moving towards individual teams, a gap is forming between the knowledge of how much a budget is and what it is being spent on. Gartner [2] estimates that “by 2019, annual spending on enterprise software licenses will decrease by 30% as a result of software license optimization.”. This is with IT controlling 83 per cent of the spend. Imagine what it will be like when 50 per cent of IT spend rests not with a handful of budget holders, but potentially hundreds.
Lack of visibility
With software spend disseminated throughout an organisation, it will become increasingly difficult for IT teams to establish a clear view over what software is deployed where and how many licenses are needed compared to those held.
This loss of visibility will, in turn, increase the likelihood of unexpected and unbudgeted costs hitting the financial team, either through unplanned technology acquisitions or financial penalties issued by software and infrastructure providers for over-use of applications and cloud resources.
On the flip side, by empowering IT teams to achieve 100% visibility of all IT consumption across all platforms, the finance and IT teams can collaborate to identify significant cost and efficiency savings which can have a tangible impact on the organisation’s bottom line.
Either way, it’s in the CFO’s best interest to find a way to manage the disruption gap now and avoid unnecessary costs later.
Take action today
Bridging the disruption gap has to be a high priority for IT and finance leaders. As leading industry analyst firm Gartner[1] advises: “the focus of the software asset management discipline needs to shift from compliance to cost containment, as reduced customer bargaining power produces escalating prices at SaaS contract renewal.”
To achieve this visibility, IT teams need specialist solutions that provide full visibility of software and hardware assets (both on the network and in the cloud, physical and virtual) and how they are being used. Traditional IT Asset Management and Systems Management tools will not suffice. These teams need access to the latest breed of inventory and optimization technologies designed for organizations heavily invested in Digital Transformation.
[1] Gartner, Metrics and Planning Assumptions Required to Drive Business Unit IT Strategies. Published: 21 April 2016, Kurt Potter, Stewart Buchanan
[2] Gartner, Cut Software Spending Safely With SAM. Published: 16 March 2016 ID: G00301780
Analyst(s): Hank Marquis, Gary Spivak, Victoria Barber
[3] Gartner, Software Asset Management Reaches a Tipping Point: SaaS Cost Management Eclipses License Compliance, 06 January 2017 ID: G00315121, Stephen White | Victoria Barber
Adaptive Insights has released its most recent global CFO Indicator report, taking a closer look at the reporting process and how CFOs can free their teams to deliver the value-added analysis desired by key corporate stakeholders. Alarmingly, CFOs report that their teams continue to spend very little time on strategic tasks—just 17%—and remain reliant on the standard processes and technologies that negatively impact their ability to deliver actionable information.
The CFO Indicator Q4 2016 report reveals that while 85% of CFOs say their teams have direct access to the financial and operational data needed to generate accurate reports, it is the non-value-added tasks—like data gathering, verifying accuracy, and formatting reports—that take time away from the strategic analysis desired by top management and other stakeholders. Most CFOs also cite data integration as the biggest technology hurdle to gaining actionable reporting information, given the increasing need to report on both financial and operational data typically housed in disparate, unconnected systems.
“Our survey validated the ongoing challenges CFOs face today—the need to provide greater strategic value while balancing the increasing volume and sources of data,” said Robert S. Hull, founder and chairman at Adaptive Insights. “Reporting efficiency plays a critical role here as CFOs want their teams to spend more time on strategic tasks yet recognise both the technology and process challenges associated with today’s reporting activities—namely, time-consuming, error-prone manual data aggregation. CFOs must address these challenges now if they expect to fulfill their roles as strategic partner to company management teams.”
The key findings in the report show that:
- Only 17% of the finance team’s time is dedicated to strategic activities. This number is down from the CFO Indicator Q2 2016 survey when the question was first asked and shows no progress for CFOs who also said they had a goal to double this activity by 2020.
• 60% of CFOs cite data integration as the primary technology hurdle standing in the way of gaining actionable information for reports, necessitating manual data aggregation that eats up time and leads to inaccuracies.
• 68% of CFOs expect a continued rise in report volumes. This rise will only serve to magnify process shortcomings, requiring CFOs to reassess their reporting platforms.
Manual data aggregation eats up time, causes errors
This quarter’s report shows more than half of CFOs (54%) say they generate reports by exporting data out of their ERP systems and into a Microsoft Office® application such as Microsoft Excel®, Microsoft Word®, or Microsoft PowerPoint®. Of those that report an inefficient process, 64% take this approach. For those who generate their reports directly out of their ERP system (21%), 41% periodically found their numbers to be inconsistent from report to report.
Because the lack of a centralised reporting system introduces inconsistencies in metrics, data, and calculations, finance teams must spend an inordinate amount of time verifying the accuracy of their reports. The report advises that to mitigate risk and save valuable resources, CFOs will need to solve the data integration issues standing in the way of gaining actionable information.
(Source: Adaptive Insights)
Macroeconomic turbulence is the process that sets in motion change from the largest financial institutions, down to the smallest of back pocket wallets. Here to provide practiced and proven guidance on how to navigate the macroeconomics maze around us, while keeping one step ahead, is Rob Douglas, Vice President of UK & Ireland for Adaptive Insights.
As organisations enter 2017, they find themselves in a chaotic macroeconomic environment. With a great deal of change in 2016, and much more in store for 2017 as the effects of Brexit, the new American government, and countless other factors take hold, it has the potential to be a volatile year. Indeed, in a recent CFO Indicator survey, eight out of 10 CFOs considered it likely or very likely that market volatility will continue.
To cope with these market conditions, finance teams are needing to become more strategic and visibility into business data—including both financial and non-financial KPIs—is key. In another CFO Indicator survey, we found that 45 percent of CFOs report that they are currently fulfilling the role of chief data officer, compared to only 16 percent who said that the CIO has this responsibility. It is clear that CFOs and their teams are well placed to become the strategic business advisor as data ownership is shifting to the office of the CFO.
Active planning
In a constantly changing environment, finance departments can become more agile by taking an active vs. static approach to planning. Specifically, finance teams must embrace a process that is collaborative, comprehensive, and continuous to adopt an active planning process. This active planning approach allows finance to shift into a leadership and guiding role, instead of being mired in the drudgery of back-office transactional tasks.
And, as teams embrace active planning, three clear benefits start to emerge:
- Better collaboration: Active planning encourages broader participation across the organisation, by leveraging technology that makes it easier to establish a single source of shared data and customised dashboards that give users ready access to information.
- Comprehensive capabilities: A single, comprehensive process drives optimisation widely across the diverse parts of the business, and the organisation. You can reap huge benefits from real bottom-up planning and develop a robust picture of the business.
- Continuous planning: Plans are produced rapidly and can be quickly iterated so ongoing, real-time planning and rolling forecasts become the norm. FP&A can provide insights to help the business respond rapidly to changing market conditions or competitor activity.
A holistic view of the business
CFOs are being tasked with not only understanding and communicating financial results but with helping the organisation to understand the operational drivers behind them–a key factor for business agility in a volatile market. This requires much more detailed analysis of business KPIs, many of which are non-financial, and therefore involves greater collaboration and integration across the business. As such, to be agile in 2017’s changing market conditions, the finance department must have a holistic view of the business.
Fundamentally, there needs to be a single source of trusted data that is always fresh and always live, meaning that you never have to manually recalculate to be sure the numbers are up-to-date or consistent across models and reports. To be truly effective, teams will need to integrate systems into a single source, including data integration from ERP, CRM and HR systems, to name a few.
According to the CFO Indicator, CFOs expect non-financial KPIs to comprise up to 30 percent of the total KPIs tracked in two years’ time, including data as varied as customer satisfaction, employee retention, supply chain contract renewals, and more. Once operational and financial data are assimilated into a single source of truth, it can be incorporated into reporting, planning, and forecasting. By bringing these together, the office of finance can help business leaders across the organisation to spot trends early, which will help mitigate risk and open up opportunities.
That said, identifying non-financial KPIs can be a difficult process. It requires the finance team to dig deeply into the business and to spend time engaging in analysis that leads to greater business insights. This can be done by a member of the finance team spending time in another part of the business or through training programmes that aim to generate broader business knowledge. It is important that both finance and business users are involved in everyday planning and forecasting. This inherently leads to collaboration and consequently better overall plans, budgets and forecasts, as well as organisation-wide visibility into KPIs and business performance. After all, the impact of missed forecasts can be felt far and wide, from resource allocations and supply chain management to shareholder confidence.
“What-if” analysis and multiple scenario models
The macroeconomic environment is a vitally important consideration for any business, not least because it is a factor which no business can control. A business can, however, plan and model for different scenarios to ensure that it can withstand a variety of potential consequences. In 2017, this could be a change in exchange rates due to the shifting value of the Pound or taking into account a different level of taxation due to amended trade agreements between the United Kingdom and United States.
Ultimately, ensuring a business can remain agile and withstand the tremors of a volatile market is no easy task. With data that stretches across the breadth of the business—incorporating both financial and non-financial elements—it is possible for CFOs to get a real-time, accurate picture of what the business looks like in the current environment. If done effectively, the true expertise of the finance team can then be put into play, as it has the data to analyse, model, and forecast for the future. Creating “what-if” scenarios, based on highly accurate and reliable data, will be invaluable to businesses in 2017 as they traverse an unpredictable landscape.
With CEO’s citing growth as top priority for the coming years, CFOs are to be strongly impacted. Finance Monthly here benefits from an exclusive outlook on the future of CFOs by Mark Nittler, VP Enterprise Strategy at Workday, who discusses the changing role of finance and how CFOs can better prepare themselves for the future.
The role of the CFO is going through a period of significant change. It’s no longer just a numbers game, but CEOs are calling on the finance team to play a bigger role in decision-making, technology, and data governance.
CFOs need to ensure they’re ready for such major levels of change, which are only exacerbated further by an intensely competitive digital business landscape. And despite CFOs now needing a more strategic approach to decision making, recent research suggests that many still rely on gut feel rather than hard data. Many also admit they neglect innovation and process improvement, and have not mastered how to manage and analyse the volume and variety of business data available to them.
So what are the business priorities impacting the focus of the finance function? This article looks at how CFOs can best prepare themselves – and their teams – to become a more strategic partner able to meet the changing needs of a modern organisation.
Multiple growth strategies
It will come as no surprise that many CEOs cite growth as their top priority for the next three years, a move set to strongly impact the CFO. It’s now expected that CFOs will play a core part in driving growth strategies across the company, which makes good business sense given the insight they have into every part of the organisation.
This growth will be the result of numerous different approaches – from organic growth to geographic expansion and acquisition – so the CFO will need to drive multiple growth strategies. In today’s dynamic business environment this will be no easy task, but it’s vital CFOs embrace this new role, supporting the CEO in the pursuit of growth and becoming a strategic partner to the business.
Regulation, regulation, regulation
The CFO has an important part to play when it comes to the regulatory environment. This not only applies when considering how to adapt to new regulations but also to ascertain where the potential value lies for the business. CFOs have the ‘big picture’ view and should look at incoming regulation beyond the core issue of compliance – how these could potentially provide more insights into the business or streamline additional processes, for example.
One example here comes from the changing reporting requirements within financial services. These requirements led to more standardisation across the industry, and a new focus on building data-warehouse environments to meet these regulations. For many organisations, this actually presents an opportunity to better understand the company’s data and in turn grow the business.
CFO decision making
Modern businesses are under constant pressure to operate quickly and efficiently, and CEOs are demanding more real-time data from their CFOs in order to make the best possible decisions. In turn, they’re looking for analysis and insights from the finance function, as well as guidance on future strategy.
As a result, the finance organisation will need to spend more time on insights and analysis, and less time on processing transactions than it has done in the past. Looking at historical data alone is no longer enough. Finance now needs a holistic view of the business, combining various streams of live and historical data, if they’re to better understand the business as a whole. They will then be able to provide insights into how various parts of the business – such as HR and finance – impact each other, and advise on future strategies based on these insights.
Ongoing transformation
A recent KPMG report found that one in three CEOs see experience with transformation as one of the top attributes for a CFO. And with business leaders focused on beating the competition and ensuring their products or services stay ahead of the curve, the pressure is on for CFOs to support in business innovation and transformation efforts.
Organisations are being disrupted from all sides, whether it’s changing consumer demands, new regulation coming into effect, or innovative competitors coming onto the scene. This also comes largely from changes within specific industries – from the growth of omnichannel in retail to the evolution of connectivity in the automotive industry.
These changes often push businesses to innovate if they’re to remain competitive and continue to grow, and the CFO can support considerably on this journey. The CFO and finance team can identify growth opportunities and inform key business decisions by providing the relevant insights and data they have access to. The finance function should also be able to scale quickly – entering new markets, for example – in order to support certain areas of growth.
The current burden of transaction processing and audit and control tasks felt by many finance teams leaves little room for strategic partnership and the ability to influence decision-making. As such, it’s vital that organisations across the globe embrace new ways of thinking about the role of finance in today’s highly disruptive business landscape, and that CFOs keep these considerations front of mind if they are to be successful with new future growth strategies.
Over the past year, and in recent news, we’ve seen a consensus that the pay of corporate executives is ‘too high’, and investors, fund managers and shareholders are increasingly ready to take firm action against plans to boost the remuneration of top bosses.
More recently, David Cumming, Head of Equities at Standard Life, a UK investment firm, said his company "could not justify" pay going any higher. He told the BBC that investors must do more to signal their unhappiness.
"We continue to see too many proposals that would bring a substantial increase [in pay], and we have to signal that we are not happy with that,” he said.
This week, Finance Monthly’s Your Thoughts looks closer at this topic, and hears the views of Martin Pratt, Partner in the Employment Law Team at Gordon Dadds, surrounding the matter.
The High Pay Centre think-tank calculated that the median FTSE 100 CEO had managed to clock up the £28,200 2017 UK average earnings by lunchtime on Wednesday 4th January 2017. A week later Blackrock wrote to public company chiefs threatening to veto excessive pay or pension proposals. This month, top Standard Life fund manager David Cumming said that his firm “could not justify” top executive pay going any higher. Theresa May’s government has issued a Green Paper with ideas to curb it.
That there is a problem with unjustifiable pay inequality between those at the top and those at the bottom of our largest companies, now seems widely accepted. What is not so widely agreed upon is what to do about it.
When launching her campaign for the Conservative Party leadership last July, Theresa May put forward one surprisingly, and ironically, European proposal to deal with the issue - workers representation on boards.
The proposal for workers in the boardroom, German style, was notably absent from November’s Green Paper on the topic. Another proposal touted at May’s leadership launch, binding shareholder votes on remuneration, was actually introduced by the coalition in 2013 for listed companies, with a requirement for a vote on pay policies every three years. The Green Paper suggests that since 2013, not a single FTSE 100 remuneration policy has been rejected by shareholders. That is not a great advert for shareholder activism. Perhaps shareholders have not, thus far, agreed with the consensus that executive pay is problematic.
The comments by Blackrock and others mean executive pay proposals may not get an easy ride from institutional investors next time. But that is not certain. The Green Paper makes proposals making shareholder oversight more meaningful, but the fragmented membership of listed companies makes concerted shareholder action to curb pay difficult.
The Green Paper makes much of a transparency requirement – forcing companies to publish the differential between their highest and lowest paid employees. This “name and shame” approach seems to rely upon the idea that companies will be so embarrassed by the pay gap between top and bottom that they will do something about it. That is, at best, a speculative assumption. At worst it will stoke the fires of resentment and negativity about corporate “fat cats” without actually dealing with the underlying problem.
All of the policy solutions put forward thus far are tinkering around the edges. If the government genuinely believes there to be a problem, then radical measures are needed to address it. The traditional method of ensuring that the highly paid contribute to the common good is via taxation. That is an anathema to any Conservative administration, but it would at least have the benefit of adding to public coffers, which simply putting an upper cap on salaries, as proposed by Labour, would not.
Or perhaps we are approaching this from the wrong angle. Instead of pushing down the salaries of the highest paid, more attention could be paid to pushing up those of the lowest?
We would also love to hear Your Thoughts on this, so feel free to comment below and tell us what you think!
According to a survey of nearly 1,000* senior finance professionals, non-financial data may be the game-changer for forecasting success. This finding was revealed as CFOs admitted that non-financial data capture ranked only fifth in their top five priorities, despite the proven benefits when planning, budgeting and forecasting.
The Future of Planning, Budgeting and Forecasting Survey, carried out by the FSN with members of its Modern Finance Forum was commissioned by Advanced, the UK’s third largest software and services provider, to understand how financial decision makers can get ahead with better data-driven decision making.
The findings revealed that CFOs who make better use of non-financial data are:
- more than 1.7 times more likely to forecast earnings within plus or minus 5%
- two times more likely to be able to forecast beyond the 12 month time horizon
- two and a half times more likely to be able to respond to market change
“The survey shows the latent potential of non-financial data to transform the accuracy of business forecasts. It’s no exaggeration to say that it is a game-changer yet CFOs rank it a lowly fifth in their priorities for the forecasting process,” says Gary Simon, FSN’s chief executive officer and the leader of the Modern Finance Forum on LinkedIn.
“The current business climate is characterised by huge business uncertainty yet the effective use of non-financial data allows businesses to extend their planning horizon, improve forecasting accuracy and improve decision-making.”
“It’s clear that many CFOs are missing a trick when it comes to recognising the value that a connected business can offer. Connected CFOs will ensure every board member - but especially the CEO - has an integrated and real-time view of the projected financial performance of the business. However it is vital that this financial insight is inextricably linked to the operational performance of the business, informed by areas such as people skills and the development and impact of digital transformations for example. This is the silver bullet to give every organisation the best chance to drive efficiencies, productivity and growth across every aspect of the organisation, comments Andrew Hicks, CFO at Advanced.
A full infographic reveals further results from the research, such as the top four priorities for CFOs being:
- Greater simulation and scenario planning
- Engagement with more non-financial stakeholders in the PBF process
- Shift to rolling forecasts
- More sophisticated analytical techniques
*There were 955 people of the Modern Finance Forum who responded to the survey were senior finance professionals covering 23 countries and 13 industry sectors. Approximately half of the respondents were from organisations with more than 1,000 employees.
(Source: Advanced)
Jekaterina Stuge is the chief financial officer of Amber Beverage Group (ABG), a company that consolidates Baltic operations (Latvia, Lithuania and Estonia) of the SPI Group, globally known mostly for the production and distribution of the Stoli and Moskovskaya vodka brands. Jekaterina joined SPI Group before ABG was created and one of the first projects that she worked on was the creation of the unified Baltic holding company. Main objective for the creation of the holding was to establish a strong vertically integrated operation covering production, distribution, logistics and retail, all sharing the common goal of being the leading beverage production and distribution company in the Baltics. The organisation’s objective was centralisation of all administrative functions within Baltic companies under one roof, so that subsidiaries could concentrate on their primary business objectives. Here Jekaterina tells us more about Amber Beverage Group, the advantages of operating within the Baltic region and introduces us to the ins and outs of her role, as well as her recent accomplishments.
Please tell us more about Amber Beverage Group?
The Amber Beverage Group (ABG) consolidates the majority shareholding of the beverage production company Latvijas Balzams JSC, and the 100% owned distribution and logistics entities Amber Distribution Latvia SIA, Bravo SIA, Amber Distribution Estonia OU and Bennet Distribution UAB. Previously, the Baltic companies of ABG had operated under the direct supervision of SPI Group HQ in Luxembourg.
To achieve successful consolidation and integration, we have made significant effort to create engaging and ambitious culture amongst our managers and staff. During the process of restructuring, we concentrated on taking out all administrative support functions from operating companies and creating a holding company that will provide shared services of Finance, HR, IT and Central Marketing for our Core Brands. We put a lot of effort on reviewing the processes to exclude duplication of functions within operating companies, in order to make the communication lines clear and effective. Our central team structure now is a good platform for further expansion of ABG.
A good example is our recent acquisition of Fabrica de Tequilas Finos, a company that owns a tequila brand and has a production facility in the town of Tequila, Mexico. Despite this company being located in a completely different part of the world, we manage to take over IT and Finance functions within 2 months and are now providing support services from Riga.
As the CFO of ABG, I have defined my focus on the continuous improvement of our ability to deliver excellence starting with day–to–day tasks. I was leading a project concerned with the implementation of common ERP (Enterprise Reporting Platform) for our companies in the Baltics, as well as common Document Management system and several other Business Intelligence tools. Implementation of common ERP was a crucial step to unifying and automating processes within our operating companies, which supports our objective to minimize the unnecessary routine tasks. Full implementation of ERP system in all our 6 companies is underway and is expected to be fully operational in 2017.
What motivates you most about working for Amber?
I truly enjoy driving progress. Every day I challenge myself and my team/colleagues for a more efficient, smarter way to achieve our business goals. I have many ideas and initiatives that at first appear impossible and it is so rewarding to see them implemented and contributing to our business performance. Our goal - to deliver excellence in everything we do – to me is not just a slogan. It’s a good reason to raise the bar!
During the last 3 years our group companies have changed significantly - transforming from stand-alone, old-school bureaucratic entities to a very modern, progressive, technology-driven holding with dedicated people who work together to achieve the common objectives.
I enjoy being the pacemaker of those changes and I’m proud of the results that we have achieved.
Amber Beverage Group products are sold in over 170 markets around the world - what are the challenges associated with operating cross-border in this sector? How do you overcome these alongside your clients?
The key challenge is always to sell more. We sell our products mainly based on FOB or EXW terms, so from sales support perspective, the major challenges are the legal aspects - registration of all our trademarks in accordance with the local county requirements and ensuring that all back labels include all requested information, according to the different jurisdictions’ legislation.
In terms of market competition, where does Amber Beverage Group stand globally and what are its goals moving forward?
With our newly created and invigorated export team we have made significant steps in building the new distribution network across the world for our brands. Our fast growing international business, which is operating form Riga, Latvia, covers over 50 export markets. We are proud that we produce the 4th largest premium vodka brand - Stolichnaya for SPI Group in our production plant in Riga. Via our network, we are able to reach out to our clients, which helps us to sell our brands in the Czech Republic, Bulgaria, Malta, Panama, South Africa, China, UK, US, Spain, Italy and a number of other markets. Recently we also acquired the Moskovskaya Vodka brand from SPI Group. We are continuously changing and evolving by improving our brand assets and strengthening the position of our leading brands (Moskovskaya Vodka, Cosmopolitan Diva and Riga Black Balsam) across leading spirits markets.
As previously mentioned, we acquired a significant equity stake in Fabrica de Tequilas Finos, Mexico this year. The acquisition is expected to offer us new opportunities, in regards to expanding distribution into the USA and South and Central America.
Our plan is to continue to improve our production capabilities with focus on purchasing, planning and infrastructure improvements to support our goal to deliver quality products at a competitive cost.
What achievements have you made in your role thus far and how have they contributed to Amber Beverage’s performance in 2016?
During the last few years, I have stimulated fundamental changes in the organization, including centralization of the Finance and IT departments and improvement of business processes through automatization of the major business processes, as well as a number of significant improvements in the financial management that affect the healthiness of our financial position. For example, in 2016 I led the restructuring of all of our loan facilities, negotiated additional changes to a number of clauses and covenants that helped us to reduce the borrowing margins. I also implemented effective management of working capital.
Our holding has also benefited from putting all of our cash resources together, in one cash pool – which resulted in both organic and inorganic growth.
The role of a CFO has significantly evolved in recent years - in your opinion, what might the future of CFOs look like in the future?
The role of the CFO has definitely broadened over the past years. Beyond the core responsibilities of financial reporting, audit and compliance, planning, treasury, and capital structure, many CFOs are today playing an important role in operational decisions, and being key advisors to business decision making through the organization. The CFO plays a major role in performance management, and in the development of highly efficient tools to make the decision making more transparent, more straight-forward, and based on more relevant information.
Today CFOs are involved in reviewing and developing efficient processes within their organisations, in order to drive the most cost-efficient performance. This includes automatization of functions and implementing preventive controls from one side, and more flexible business management solutions on the other side, often IT/technology-driven.
I firmly believe that modern financial management should be working with a view of the future - when the finance team is less focused on generating reporting around past performance and ensuring other "passive" support functions, but rather being at the heart of generating the business.
What would you say are the advantages of operating in the Baltic States?
It is a rapidly developing region that still has a lot of unrevealed potential for growth, combined with environmentally friendly living conditions and highly qualified people.
This month Katina Hristova had the privilege of interviewing the newly appointed Chief Financial Officer of O2 - Patricia Cobian. She became CFO of O2 in August, taking on the role when the corporation’s new CEO Mark Evans appointed her to his board.
O2 is the commercial brand of Telefonica UK Limited and is a leading digital communications company with the highest customer satisfaction for any mobile provider according to Ofcom. With over 25 million customers, O2 runs 2G, 3G and 4G networks across the UK, as well as operating its nationwide O2 Wi-Fi service. The company owns the successful giffgaff brand as well as half of Tesco Mobile and has agreements to provide the network service for other leading mobile brands including Lycamobile, Sky and TalkTalk. O2 has over 450 retail stores and sponsors The O2, O2 Academy venues and England Rugby.
Over the next few pages, Finance Monthly hears about Patricia’s experience within the telco sector, how her work at Telefonica has helped towards becoming O2’s new CFO and her next steps and goals at O2.
You were recently appointed as O2’s new chief financial officer – what’s your vision for the company and what goals are you arriving with as a CFO of the telecommunications services provider?
Although new to the CFO role, I’ve worked in the telco sector for 17 years – 10 of those with Telefonica.
Throughout that time, O2 has shown that it’s a special brand and business. It has a strong track record of taking bold and disruptive business moves on behalf of its customers – from bringing the iPhone to the UK in 2007 to ripping up the rule book on tariffs by launching O2’s Refresh – the UK’s first contract that allows customers to upgrade their devices whenever they want.
I’ve long believed that if you look after your customers, the bottom line will take care of itself.
Our strategy of putting our customers at the heart of everything we do has brought success: we have just celebrated seven years of the highest customer satisfaction scores in the industry, as measured by the regulator. As a result, we have the most loyal customers, proven by having the lowest churn figure in the market. We now connect more than 25 million people to their passions and the people and they love and work with.
We will continue to be customer-led. We will keep being obsessive about our customers – truly understanding what they want and need, and delivering a best in class customer experience. But all of this is not the preserve of the marketing or business insights team. I’ve challenged all of my team to know and understand our customers – only then can we as a finance function make informed investment decisions and deliver value for the business.
Secondly, I want us to continue to be mobile-first. For a number of years now, companies have moved towards quad play strategies – bundling TV, fixed line broadband, landline and mobile. And they have been bundling fixed technology because they have it on offer, not because consumers want it. We are different. We have always been technology agnostic, and we will continue to focus on offering what customers need, not assets that we have bought and need to find a way to monetize.
Today, customers want mobile connectivity. Four in five adults own a smartphone and for the first time, more people are choosing their phones rather than laptops or computers to access the internet. People are no longer simply relying on mobiles for functional calls. They are becoming the remote controls for our lives: for shopping, entertainment, business, news, home life. In fact, people are three times more likely to say they can’t do without their mobiles than a fixed internet connection.
It’s clear evidence that fixed telecom businesses need to be in mobile, whereas we don’t need to be in fixed line.
It is this mobile-first approach, coupled with our understanding of the customer that means we are the best-positioned operator in the UK to capture and drive the opportunities of an increasingly mobile and connectivity-hungry economy.
You have more than 15 years of experience in the TMT space- can you tell us a bit about your previous positions and the lessons that they’ve taught you?
I have not followed what some would call a traditional route to get to where I am today. Rather than qualifying as an accountant, I began my career as an engineer. Although I have taken a different path to most CFOs, my experience has put me in good stead - I am a strategist, comfortable with evaluating the big picture and taking the long term perspective, I am commercial and understand the drivers of value in the business, I am methodical and I am obsessive about details (and of course the numbers).
In further education I studied maths, fluid mechanics, operations research and electronics for six years, but it wasn’t long before I was focusing on corporate finance and TMT at McKinsey & Company. I spent seven years with the firm, working in Madrid, New York and London and building in-depth knowledge of the TMT sector and corporate finance. I credit McKinsey with giving me the opportunity to develop an international career, and I still count on great friends and mentors from that time.
I initially joined Telefonica in 2006 as SVP Strategy & Development for O2 Europe before becoming Chief of Staff to the Telefonica Europe CEO in 2009. In that role I developed a deeper understanding of Telefonica’s European operations and focused on stakeholder management. In 2011 I joined the Executive Committee for Telefonica Europe as Business Development Director, overseeing a period rife with key partnerships and M&A activity. Key milestones over that period were the sale of the Irish business and of Telefonica Czech Republic, but also the IPO of Telefonica Germany and the acquisition of ePlus. I then joined O2 as Strategy and Transformation Director in 2014 before becoming CFO.
Looking back on my career so far, I would highlight the importance of being open to learning and seeing that as the key source for development. And equally importantly, the value in surrounding yourself with brilliant people. Some people might find that threatening – but for me, only by being open to understanding a new angle and by surrounding ourselves with people who can bring a new perspective and different skills can we continually challenge the status quo, think innovatively and deliver for our customers.
Your appointment comes at a crucial time for O2 considering the on-going debate about the business and the upcoming spectrum, what challenges have you been faced with so far?
I have spent most of my career working in the telco sector. It’s one of the most dynamic and innovative around. But it’s also one of the most fiercely competitive and regulated markets.
People’s demand for connectivity is clear for everyone to see. Almost 40 million people have already signed up to 4G in the UK so they can work, do business, watch videos and shop on the go. Data use on our network continues to accelerate year on year. It presents a huge opportunity for businesses both within and outside of our sector, as people and businesses demand mobile-powered products, apps and services.
With Britain’s economy in a period of uncertainty, finding ways to unlock growth is vital to our ability to compete on a global scale. The digital economy is already growing around 30% faster than the rest of the economy, according to think tank Innovate UK. Meanwhile Deloitte’s 2016 Mobile Consumer survey revealed that 4G adoption has more than doubled in the past year from 25% to 54%. It is clear that mobile connectivity is the invisible infrastructure that has been powering our economy.
But for individuals, businesses and communities to use mobile connectivity to its full potential – particularly in a post-Brexit Britain - we need to set the right conditions to ensure a competitive and fair mobile marketplace. We need to work together to build a digital infrastructure that’s fit for the future.
First, we need a regulatory environment that delivers a level playing field for businesses and supports a competitive market for customers. Creating the right incentives to invest and roll out superfast networks as we move to 5G will be critical to ensuring we capitalise on the opportunity for mobile to secure our economic future.
Secondly, we need a spectrum auction process that encourages the quickest and fairest deployment of spectrum. The next auction, due in early 2017, is an opportunity to rebalance spectrum across the mobile sector. This would promote competition and benefit customers. Ofcom has made it clear that it wants a market in which four strong operators can compete fairly. Measures should therefore be taken to guarantee that the auction does not increase of the current imbalance, does not enable spectrum hoarding and does not allow for strategic bidding, which could force up prices over and above the intrinsic value of the spectrum. This isn’t about getting spectrum cheaply, we believe operators should pay the market rate. It’s about efficient and effective use of spectrum to deliver for consumers and UK plc, and help reboot the economy.
Finally, outdated analogue planning laws and regulation need to be updated so we can build the invisible infrastructure people want. As it stands, rights of access to mobile phone masts are inadequate and affect mobile phone customers when network faults need to be fixed or new sites need to be installed. Solving this issue not only requires a bold, long-term vision, it requires leadership, partnership and collective effort by industry, government, local authorities, regulators and the public. The Digital Economy Bill sets us on the right path but we all need to work together to deliver the country’s digital infrastructure and secure an economic future for everyone.
What are your responsibilities and what does a typical day in the office look like for you?
In my role as CFO I look after all aspects of Finance, Strategy and Procurement. And it sounds clichéd but in these first three months I still have not worked a single “typical” day. Clearly some activities follow a monthly or weekly cadence but every day is different in terms of how I need to support my team or my colleagues around the board table on a key negotiation, a commercial decision, or allocating capital across the wide array of demands.
I am passionate about the role of Finance in helping the business understand the interdependencies across different actions, the impact of activity across the business but not just with the goal of explaining what happened and examining past performance, but in a forward looking way, supporting decision making.
In your opinion, what might the future of financial directors look like in the upcoming years?
The digital revolution has already disrupted entire industries, shaped new operating models and created a whole raft of roles that simply didn’t exist when I first started out my career. Almost every role in every company in every sector has been touched by new technology in the last decade. The role of the CFO is no exception.
I believe that CFOs have a central role to play - I don’t just mean by appreciating the ability of digital technology to drive cost efficiencies or streamline operations. I mean in truly understanding and championing how technology can add significant value within your business model.
To truly add value to our businesses we need to be as close to our customers as we are to the numbers. That means we need to be anticipating their changing needs and responding to them quickly. It shouldn’t only be the responsibility of the customer insight teams. The modern day finance function should be equipped to understand customer demands and expectations, and we must also better embrace collaboration with colleagues from across the business. Just as we expect our marketing colleagues to understand financial limitations and implications for a business, so too should financiers stretch their creative capacity to find new and adaptive ways of doing business.
Forward-thinking CFOs should seek out creative solutions and embrace bold decision-making to overcome business challenges and deliver for customers.
Gregor Alexander, Finance Director, SSE
The erosion of public trust in big business has changed the landscape for finance leaders, according to Gregor Alexander, Finance Director for British energy company SSE.
“Once there used to be a trade-off between making money in the short term or being a long-term force for good,” he said. “But now public expectations have rightly changed, and those companies which fail to contribute to society risk their business and their right to make a profit.”
No more has that erosion of public trust been evident than in the energy industry, which has rarely been out of the political and media spotlight of late. Earning back that trust, and by extension earning the right to be profitable, is at the heart of what is characterised as the ‘CFO’s dilemma.’
SSE has been taking strides towards balancing its profit with its social conscience. SSE became a Living Wage employer in September 2013. It was the biggest company at the time to achieve accreditation and is the only energy company to guarantee all its employees a Living Wage. In October 2014, SSE also became the first FTSE 100 Company to be Fair Tax Accredited.
“The CFO’s dilemma, in my mind, is not so much a binary choice: between the soft things that support society as opposed to the hard things like shareholder return. The dilemma is the choice of the actions you take to ensure you can achieve both. Then evidencing it to show clearly to shareholders and stakeholders what you are doing,” said Mr. Alexander,
“The CFO must be at the centre of this change, just as corporate social responsibility (CSR) must be at the heart of a good business too,” he added.
Nearly half of CFOs expect the US economy to improve during the next six months and only 9% expect it to worsen, according to the Grant Thornton LLP 2014 Fall CFO Survey. The biannual survey reflects the insights of more than 1,000 CFOs and other senior financial executives across the US.
The survey’s findings indicate that economic optimism has remained stable during the past year despite increasing global uncertainty. In spring 2014, 51% of respondents expected the economy to improve during the next six months, compared to 40% in fall 2013 and 45% in the firm’s spring 2013 survey.
The most common growth strategies for businesses in the upcoming year include pursuing organic growth in existing markets (87%) and introducing new products or services (72%). In addition, more than one-third (37%) of companies are considering a merger or acquisition in the next 12 months. For companies with more than $5 billion (€4.2 billion) in annual revenue, that number is even higher at 60%.
“While it’s encouraging that CFOs aren’t expecting contraction, they’re not predicting significant growth either,” said Stephen Chipman, Chief Executive Officer of Grant Thornton. “It’s vital that our country’s political leaders focus now on resolving this uncertainty by advancing comprehensive tax and entitlement reforms to spur economic growth.”
The notion that US economic optimism remains stable amidst increasing global uncertainty correlates with other recent research from Grant Thornton. The Grant Thornton International Business Report found that optimism for the nation’s economic outlook among US business leaders remained strong at a net balance of 69% in third quarter 2014 while Eurozone optimism dropped to a net balance of 5%, down 30 percentage points from the previous quarter. In particular, German optimism plummeted 43 percentage points to 36%.
“The economic environment in Germany has very significant implications for the US economy and businesses,” added Mr. Chipman. “We have yet to realise the domestic repercussions of the weakening Eurozone and will be watching the situation closely in the coming months.”
