Businesses have had to deal with a lot of change, and many have successfully embraced change to create whole new industries and many billions in new value. Yet other businesses literally vanished: Nearly 50% of the companies that were part of the Fortune 500 and FTSE 100 in 2000 no longer appear in those rankings today. Mark Nittler, VP Enterprise Strategy at Workday, here explains to Finance Monthly why technology shouldn’t be a barrier to change.

Some of these organisations were the result of the global merger and acquisition spree that has taken place over the last 30 years and continues today, and others fell victim to the financial crisis and Great Recession earlier this century. But many were simply overcome by the forces of digital disruption. In the face of technical evolution, their inaction allowed innovative start-ups and more agile competitors to win with newer, faster, and more-efficient ways of doing business.

With that in mind, it seems crazy that technology itself should be a barrier to change, but for many businesses that is precisely what happened and continues to happen today. Companies struggle because much of the technology they currently have in place to run their businesses was not designed to help them adapt and excel in this era of digital disruption.

It’s worth looking at how financial organisations have approached technology over the last 30 years. In my experience, the technology that was originally designed to automate transactions and financial accounting is now preventing finance from realising its ultimate goal: To be a better business partner.

When we think about the finance function today, it essentially has three main areas of responsibility: Transaction processing and accounting, compliance and control, and business partnership. Finance leaders are frustrated because their teams spend too much time dealing with the first two, leaving little time to be the strategic partners their companies truly need.

Achieving this vision of partnership requires finance to deliver data that goes way beyond the general ledger information that legacy systems were designed to record. With a wider set of stakeholders and a business landscape that is continually evolving, finance is being asked to provide the broader company with contextual information that can actively influence decision-making and, for the most part, they’re struggling in this mission.

If this vision is to be realised, then transformation must happen. Finance needs faster access to relevant data, better reporting, and stronger built-in internal controls. And because older financial systems were not created with this vision in mind, businesses and their legacy vendors have attempted to fill the void by bolting on missing capabilities. As a result, finance technology has become a complex mix of acquisitions, custom integrations, and middleware.

Despite seemingly perennial discussions around the need for finance to transform, this hasn’t really happened. Why? It’s primarily because legacy finance systems continue to stand in the way. They’ve stopped finance from mastering the elements of a true partnership: providing impactful business analytics, delivering clear plans and forecasts, and having the agility to adapt analyses, plans, and processes to business change.

Analytics that influence positive business outcomes stem from four traits that simply do not exist in legacy systems—a broad definition of the user, information relevance, simplicity, and availability on any device. Legacy ERP was designed in a command-and-control era, where information was delivered to a few who then communicated it to the masses. Today the audience for financial information is, quite literally, everyone.

This broad community is interested in analysis such as profitability, what-if-analysis, and cost model, but traditional ERP systems were built for IFRS/GAAP and regulatory output rather than delivery of contextual analysis. Finance teams have tried to tackle this lack of capability in their legacy ERP systems by looking for better reporting, achieved by bolting on aftermarket business intelligence or enterprise performance management reporting tools. But this approach hasn’t worked because the problem is not reporting—it’s the quality of the data and the ability to easily draw conclusions from analysis.

If the right data is not captured at the very beginning of the process at the transaction level, no reporting scheme will deliver relevant analysis. Modern systems, such as Workday address this issue at the transaction level by capturing data-rich transactions so that relevant analytics can be delivered directly from the system without the cost, complexity, maintenance, and control issues of aftermarket solutions.

Having the right data is the first step; making it usable is the next. Because we can no longer expect that everyone using the system is a back-office system expert, analytics have to be easy to define and understand and simple to access. And because everyone is mobile, relevant analytics must be available anywhere at any time and on any device. Such tools must be designed from the beginning for delivery on mobile devices as standard, not as an optional and a chargeable extra.

The days of static plans that last a year or more are gone, and to support the evolving needs of the business, planning must be an ongoing activity. And in order to be effective, planning and forecasting needs to be combined with transactions, controls, reporting, and analytics in a single system that offers a single source of truth, a single set of data, a single security model, a single control framework, a single set of processes, and a single user experience. Without this forward-looking approach, organisations run the risk of their plans becoming dated and redundant virtually as soon as they are produced.

That leads us to the third partnership attribute—agility. Legacy systems are inherently rigid, turning many otherwise very good finance departments into business prevention teams, because they’re unable to cause the change necessary to support new business initiatives. They need modern tools with the ability to change organisation structures, business processes, and even data models in minutes. Essentially, a finance system should be capable of converting a finance department into a change enablement partner to help the business rise to challenges and take advantage of opportunities, whatever they may be.

The journey to finance transformation isn’t easy, but it’s certainly doable. It requires an understanding of why previous efforts of failed, and reducing time spent on transaction processing. It also requires a rethink in terms of governance, compliance, and control, and how finance approaches this from a technology perspective. Finally, finance must become a more strategic business partner, by delivering insights from the right data, the ability to plan, and adapt to new opportunities as they arise. Only then can financial transformation take place.

Ian Borley heads up KPMG’s Leicester and Nottingham offices as East Midlands Senior Partner and he’s also head of the firm’s Enterprise practice in the Midlands. By day, he’s an audit partner and leads several of KPMG’s client relationships with a wide variety of companies across the region. He qualified as a Chartered Accountant in 1989, having joined from Leicester Polytechnic - now De Montfort University, and he has worked in the Midlands for most of his career.

KPMG has a worldwide presence as one of the Big Four professional services firms, and its network of member firms provide Audit, Tax and Advisory services. In the UK, the firm has over 600 partners and over 13,000 outstanding professionals who work together to deliver value to clients across its 22 offices.

As a professional whose extensive experience covers a number of sectors – from accounting advisory and risk consulting, to tax planning and transfer pricing – how has the financial services industry evolved in the past two decades?

The two big changes over the last twenty years have been technology and regulation. Technology continues to change the way our industry works, and this is certainly a positive. The use of data analytics, for example, makes professional services more efficient because it’s now much easier to make sense of huge amounts of client data and we can even test the whole population, rather than just samples. IT also means that we can quickly get to the relevant reference material online. Developments like these enable us to be more forward-looking for our clients, and gone are the days of using pencils, calculators and huge sheets of paper to do forecasts, or looking up tax legislation in weighty tomes.

The second major change is regulation, particularly for accountancy and audit. Compared to how it was over a decade ago, the way financial services are regulated and supervised has been completely reformed. In many ways, this is in response to some of the high profile business failures of the past and, as a result, there are numerous restrictions now in place. Although this can be frustrating sometimes, it’s definitely a good thing for our clients, their shareholders and for confidence in capital markets generally.

What are the biggest challenges that UK businesses are facing in 2017? In your opinion, what lies on the horizon for them in the near future?

While most people are probably bored of talking about Brexit, I don’t think the Sterling devaluation that resulted from the UK’s vote to leave the EU has fully come through yet. A lot of manufacturing businesses, for instance, will have had stock in warehouses or in transit that they bought at higher exchange rates earlier in 2016. They may also have hedged, but not many will have hedged into 2017. As a result, raw material inflation is starting to come through, and this will probably ring true for other industries too, so a lot will depend on companies’ ability to pass rising costs onto customers. On top of that, many businesses are wrestling with labour inflation, and things like the Apprenticeship Levy, National Living Wage and Stakeholder Pensions will all start to hit around the same time. The cumulative effect of so much happening in a short space of time could be quite severe for companies that have a big workforce.

Above all, the biggest challenge for many businesses is unpredictability. As well as Brexit, our clients are trying to predict what will happen to oil prices, trade relations with the US in a post-Trump era, and continuing political turmoil in parts of the Middle East. Nevertheless, many management teams are still investing in capital expenditure and making senior recruitment decisions, and we’re seeing that the M&A market is still very busy. This is, in part, a response to the continued resilience of the UK economy and is also encouraged by the availability of relatively cheap finance. However, it may also be that people have stopped trying to predict the unpredictable.

Why do companies need to keep pace with technology? How would you say technological change is playing its part in driving change in the services KPMG offers?

 In virtually all of our clients’ sectors, there’s some disruptor or new technology that stirs up the mix in terms of production techniques, routes to market, supply chain or customer experience. As a result, traditional business models are being challenged and people are increasingly looking all over the World to find ways to do business more efficiently.

The tailored customer experience piece is also having a massive impact, not just on consumers but for B2B businesses as well, so being able to stay ahead of the curve is really important. Indeed, this impacts on our own sector and we are continually re-evaluating what we do at KPMG, and how we do it.

You joined KPMG over 30 years ago - what were your goals in driving change within the company?

Having been a partner for 20 of those 30 years, my goals were, and still are, to offer the best possible service to our clients. To do this we need to be a firm of talented, knowledgeable and trusted advisors, and a lot of my career has been about building and developing teams with these attributes. It’s also about keeping up with the fast moving world and how we adapt to meet different client demands, while providing services in an efficient way.

The work environment has changed massively since I first started working at the firm. It was a completely different world back then. Flexible working and the benefits our people have is really important, and we’ve come a long way with diversity and inclusion, but I don’t think any organisation has completely cracked it yet. It’s not for want of trying but it certainly looks a lot better than it did in 1985.

What has the impact of your role been as a head of KPMG’s East Midlands practice to date?

 When I took over as Senior Partner for the East Midlands, we were in a position where many of the older and more experienced partners were either at or near retirement. So we had to bring new partners and directors through, and I’m delighted that most of them are home-grown. I’m pleased that we’ve invested in the team and looked after our clients, and we’re still on that journey as I’d like to build the capability of the team even more.

What goals are you currently working towards at KPMG in the East Midlands?

We have a strong market share in the region but there are hundreds of businesses that we don’t work with in the East Midlands that we could really add value to. So it’s all about being proactive and sharing ideas with them about how we can help them, and this comes back to investing and growing the team, while we develop relationships with prospective clients.

Can you tell us about your involvement in the business community?

One of the great things about KPMG is that the firm is very supportive of people giving back to the community, which is one of our core values. Over the last few years, I’ve held non-executive director positions at the National Space Centre and King Richard III Visitor Centre in Leicester, and the National Forest. For a number of years, I was chairman of Leicestershire Voice and I also sit on the CBI’s East Midlands Regional Council. I really enjoy being able to contribute something to the wider business community through these forums but it’s also been a fantastic experience for me personally, enabling me to meet some very talented people and learn new things along the way.

What is the role and importance of the SME business community in the UK?

SMEs are the cornerstone of the UK economy, and you only need to look at the statistics* to see why. There were 5.4 million SMEs in the UK in 2016, employing over 16.5 million people, accounting for 47% of the £3.8 billion turnover from private sector UK businesses.

They’re particularly good at being able to respond quickly to changes in the market and their decision-making lines are generally short. While SME businesses are almost always very impressive at what they do, they also have their own challenges. Take management bandwidth as an example; smaller teams can really be stretched when unusual situations occur, such as an acquisition or entry into a new market - they need to respond but they may not always have enough people on board, or people with the relevant experience and skills. That’s why it’s so important at times like these to have a good professional advisor on hand to help.

In the past, SMEs have also faced challenges with access to finance and they’re no stranger to the skills shortage. In comparison to their larger business neighbours, who perhaps have the back office capacity to recruit and train new talent, SMEs don’t often have the time to do so. Despite this, the SME community continues to thrive and is crucial to the success of our economy.

* Business population estimates for the UK and regions 2016 from the Department for Business, Energy & Industrial Strategy

The UK’s tech growth over the last decade has been phenomenal, and this very much thanks to technology startups and increased expansion of innovate firms. However, in the midst of uncertainty and instability, expansion is often being pushed to foreign soils, mostly due to a lack of the right people. This week we heard from Adam Hale, CEO of Fairsail, on the role that the UK must continue to play as a global tech hub and the skills crisis that could stand in the way of this.

The unique value of our tech industry comes from the large number of digital businesses starting up and scaling globally out of the UK market. Just look at the hotbeds of innovation in Tech City, Silicon Fen or the Thames Valley areas. To fuel that innovation, and the growth it powers, acquiring the right talent is a pre-requisite. However, despite having the necessary funding and bright ideas, recruiting people with the right technology skills can often being the biggest barrier to global expansion for companies looking to scale up. It’s a barrier we’ve come up against time and time again.

As the CEO of Fairsail, the UK’s fastest growth technology scale up, head-quartered in Reading but with offices and customers around the world, the current skills crisis makes it difficult for us to keep software development in our home market. The skills crisis means that, for companies like us, exports are hampered because we can’t get enough technical skills to keep up the development and innovation that our global market is demanding. Without the right people with the right skills, scale ups are being forced to move development offshore. And without a solid strategy to reverse the skills crisis, the UK tech economy risks losing its momentum. So what can we do?

To start with, there needs to be more recognition of technology as an important part of the UK economy, and government strategy must reflect the real demand for digital skills. Radical action to address the systemic flaws in our education system is at the heart of this. Recent announcements by the government do show improvement in its efforts to address the skills gap, most notably the creation of ‘T-Levels’ announced in the Chancellor’s Spring Budget that will provide 16-18 year olds with vocational technical education to the same level as their academic equivalent – A Levels. However, digital is only one of 15 different technical routes to choose from. So, while £500m investment in skills may be a headline grabbing figure, in reality, it boils down to an insufficient concentration on where we need to radically improve skills – in IT.

Much greater investment is also needed to improve teaching and present the technology industry as an attractive career choice from a young age. Currently, the supply of technical school leavers/graduates is pitiful and does not come close to fulfilling demand. In 2016, only 5,600 students studied Computer Science at A-Level in 2016, and a meagre 600 of these were female. To really change perceptions and address the gender-imbalance in the industry, the government needs to impose increased primary and secondary education focus on tech and STEM. If we are to meet the nation’s demand, we should be aiming for a tenfold increase of students studying computer science over the next five years, with females making up at least 30%.

I have a passionate belief in the UK’s ability to grow and develop world leading businesses; however, as UK-born companies pursue growth, they have no choice but to look further afield in the search for the talent they need to meet their customers’ demands. Only by getting young people interested in and studying technology subjects will we avert this crisis, and cement the UK’s rightful position as a future global tech hub.

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

Despite some positive economic data in the run up to today’s Budget, the Chancellor has reinforced his steady approach while making some small but significant pro-business adjustments, according to accountancy firm, Menzies LLP.

Business rates

The Chancellor has announced a £600 a year cap on business rates for smaller retailers that stand to lose the small business rate relief. Local authorities are also being given a £300 million pot to support local business.

“The Chancellor has acknowledged that the business rate systems needs fundamental reform and has promised to address this in time. However, in the short term, this cap is not enough and will only deliver limited savings for SME businesses. This will disappoint those expecting big rates increases.”

Self-employment

In the interests of ‘fairness’, the Chancellor has opted to increase National Insurance Contribution rates payable by self-employed workers to 11% by April 2019.

“Care needs to be taken to ensure that self-employed workers aren’t unduly disadvantaged. For this reason, the consultation announced to take place this summer is welcome. In particular, employers will also need to be reassured that they will still have access to this valuable and flexible employment pool.”

Tax-free dividends

The Chancellor has announced plans for the tax-free dividends allowance to reduce from £5,000 to £2,000 in April 2018.

“Before 2016, basic rate tax payers paid no tax at all on dividend payments. Since then, a tax liability has been introduced in stages; first with an exemption on the first £5,000. Now this exemption has been reduced to £2,000, which suggests it could even be removed altogether in time.

“This is a stealth tax on basic rate tax payers. It will also hit employees of companies that encourage wider share ownership and make it harder for employers to create meaningful incentives.”

Brexit negotiations

The Chancellor stopped short of doing anything further on Corporation Tax, which is planned to decrease to 17% by 2020.

“Corporation tax was mentioned several times in the Chancellor’s Statement and this is probably because the government is considering using it as part of Brexit negotiations. Further measures to reduce the administrative burden of R&D tax relief could also be used in this way.”

Apprenticeships and technology training

The Chancellor is intending to go ahead with the introduction of the Apprenticeship Levy in April 2018 in its current form. He also announced the introduction of T-Levels; new, skills-focused qualifications to be attained through the further education system.

“The introduction of T-Levels is good news but it will be some time before any benefit is felt by employers. It means that 13,000 qualifications will be replaced by just 15 and this will certainly bring greater focus, which will help employers to understand and recognise these new qualifications.”

(Source: Menzies LLP) 

As corporate accounting undergoes even tighter scrutiny, how can CFOs ensure transparency and accountability? Finance Monthly here benefits from special insight by Nigel Youell, EPM specialist at Oracle.

Tax reporting is rapidly climbing up the corporate agenda, with one quarter of C-suite executives saying that the issue comes up at board-level discussions more than once a month, up from just 5% five years ago.

Thanks to the globalisation of world trade and an increasingly complex array of national and cross-border regulations, companies have understandably put tax affairs under the spotlight. Complicating things even further is the public’s growing interest in corporate tax, which has led to a call for greater transparency into businesses’ tax reporting.

This shift has led to initiatives such as the OECD’s Base Erosion and Profit Shifting (BEPS) project, which aims to bring consistency to international tax practices. When BEPS comes into effect in early 2018, organisations will have to publically report in detail on their earnings in every jurisdiction in which they operate.

Finance leaders have always faced the challenge of balancing their fiduciary responsibilities to shareholders with regulatory compliance. In order to stay on top of changing regulations and stand up to increased scrutiny on corporate tax however, businesses need a new approach to reporting that is faster, more accurate and more transparent.

This will take a change in strategic priorities. Much of the money spent on enterprise technology in recent years has gone towards flagship systems such as ERP, yet many organisations still rely on manual data entry and spreadsheets for tax reporting. This approach is no longer suitable for the type of granular tax reporting that is now mandated by so many jurisdictions and cross-border authorities.

Businesses need accounting and reporting systems that can measure contributions in each country they operate in, and be clear about how they allocate costs across their organisation. They also need to be scrupulously accurate and transparent in their reporting. The risk of error is too high to work with spreadsheets quickly, and audit trails have become too hard to follow in many cases.

A technical fix for the exigencies of modern reporting

Automation is the key to helping businesses meet regulatory compliance obligations and satisfy shareholder demand for greater accuracy and transparency in their reporting. This is because automated processes provide a clear audit trail.

Also, because this added level of rigour makes it easier to keep track of what is going on, the entire reporting process is faster and businesses can keep stakeholders informed up to date on their activity.

A modern, automated reporting system consists of three core functions:

• Profitability and Cost Management: While traditionally used to track whether a particular product is profitable, Profitability and Cost Management applications are now being used to calculate and justify transfer pricing policies. This is less about tracking all the different components of a product supply chain, which is straightforward, and more about attributing less direct costs.

Consider a car factory in Sunderland that manufactures vehicles for the global export market. A breakdown of costs per car also needs to include the cost of keeping the lights on in the factory, of employees on the assembly line, and of the executive staff who run the operation locally.

• Tax Reporting in the cloud: Tax reporting systems enable businesses to achieve greater alignment between tax and finance teams, which is essential to delivering on the country-by-country reporting requirements set out by legislation like BEPS. For more on this, check out this interview with Richard Scammell of PwC on how the cloud can help businesses modernise their reporting approach.

• Narrative Reporting: Governments, stakeholders and the public expect companies to share transparent and accurate results with a clear narrative. Data without context has little value, and for companies to continue being transparent about their tax approach they’ll need to rationalise their decisions with more detail than ever.

We are undergoing one of the biggest overhauls to corporate taxation in years, and companies need a reporting infrastructure that is fit for purpose – not just to meet regulatory requirements, but also to ensure that businesses have the insight they need to run their operations efficiently.

The shift to cloud-based reporting has already begun to gain traction in the finance department, and as businesses look to adapt to a more transparent, regulated environment this shift will increasingly extend to tax processes as well.

Oxford Technology Management has specialised in making investments in start-up technology companies in and around Oxford since 1983. In total, more than 150 investments have been made through 12 different funds. The latest of these is the Oxford Technology Seed Enterprise Investment Scheme and Enterprise Investment Scheme Combined Fund - OT(S)EIS. This fund made its first investment in 2012 and by 31 Dec 2016, had made 50 investments in 23 companies.

Investing in technology start-ups is one of the highest risk of all forms of investment. There are so many things which can and do go wrong - the technology may not work, the market may not develop as expected, others may come up with even better technology etc. But the other side of the coin is that the returns can be exceptionally large when things go well. The new SEIS scheme is ideally suited to this type of investment, since investors get 50% of their investment back against income tax and if the investment fails - there are further tax refunds, so the losses are greatly reduced on the failures. If the investments go well, then all the gains are tax free. SEIS investments are also good for Inheritance Tax planning, because they guarantee that after two years shares may be passed to heirs and are free of IHT.

The reason for making investments only in and around Oxford is that we become actively involved with our investees. We all have backgrounds in science and engineering and aim to understand the technology, and we have also been involved in starting and growing many businesses before. Those in whom we invest may be Nobel Laureate scientists, but they will probably not have filled in a VAT return before or negotiated a deal with a distributor in the US. Our style is to have frequent short management meetings, rather than long monthly or quarterly board meetings. And we often accompany the founders/MDs to key meetings with customers/suppliers/distributors etc.

The table below shows our portfolio of investments thus far. For each investee, the gross amount invested is shown the net cost of investment after tax refunds and the fair value of the investment. We calculate the fair value by using the latest share price at which money has been invested in each company. If no money has been invested since the original investment, we either write the value of the investment down if it is falling behind the original business plan or we keep it at the price of the original investment.  So to this extent, the valuations are conservative.

The overall figures, as at 31 December 2016 are as follows:

Total cost of investments     £3.0m

Net cost of investments         £1.8m

Fair value                                  £4.8m

Capital Gain                              £3.0m  (on paper only)

Of course past performance is no guide to future performance, but we believe that investing in high-risk, high-reward investments through the SEIS scheme, and then having the capacity to follow on with EIS investments makes economic sense and should continue to produce good returns. It is also interesting.

NB: The quarterly report contains a page of information on each investment, including the two which have failed, and may be downloaded from www.oxfordtechnology.com.

Almost by definition, technology can be sold globally. An example that can illustrate this is Combat Medical, in which we were the first external investor. The company has developed a better treatment for bladder cancer - instead of surgery, which is expensive and painful, a warm chemotherapy liquid is circulated through the bladder. It is painless and may be administered by a nurse in an hour. More than 15,000 treatments have been carried out and it is now in use in 30 countries (mainly in Spain and the UK thus far). However, bladder cancer is a big problem in China too – a country where it is relatively difficult to make sales. As a response, we started Oxford Technology China in January 2017, in a collaboration with Chenjie Ma, who graduated from Oxford in Engineering in 2014, then worked with us in the UK and has now gone to China. Her role is to help companies such as Combat to find Chinese investors and to make sales in China, by whatever means is most suited for the particular company.

Written by Richard Hurwitz, CEO of Tungsten Network

More and more we are enjoying the benefits that technology can bring. Drones are delivering packages. Robots are helping with cleaning around the house. Driverless cars have even begun ferrying passengers around some US cities. The recurring theme here is removing friction; doing away with tiresome, menial tasks that clog up our free time.

In the finance world, too, tedious jobs abound that needn’t. In my view the burgeoning FinTech sector is playing a huge role in reducing friction. Take electronic invoicing. As CEO of Tungsten Network, I’ve seen first-hand how digitising accounts processing frees up valuable time and resource to nurture partnerships. Equally, on-boarding suppliers reliably and securely fosters trust from the very beginning.

There are plenty of other examples of how FinTech enables frictionless business, such as Payoneer, an international money transfer platform that enables businesses and professionals to receive cross-border payments quickly, securely and at low cost – saving up to 90% on bank transfers while never leaving their desk. Another example is Lenddo, which uses non-traditional data from social networks and other sources to compute people’s identity and creditworthiness.

Technology is an enabler of relationships and development. Work streams like Procure to Pay – the implementation of a seamless process from point of order to payment – are allowing small businesses to link in partnership with large ones to innovate and grow. By cutting friction and easing pressure points in this way, the whole business community stands to benefit.

Technology is driving this change. In the retail industry, for example, automation and artificial intelligence are being used to speed up picking and packing. Current advancements in logistics are enabling humans to ditch the boring jobs and carry out more highly skilled tasks, such as robotics management.

Locus Robotics, with its strapline “robots empowering people” estimates that its warehouse solutions can help workers become up to eight times more efficient. Likewise, on the shop floor Target in the US is trialling a robot to track inventory – thereby freeing up staff to help customers more.

Twenty years ago, there were less than 700,000 industrial robots worldwide. Today, there are 1.8 million, according to figures from PwC, and this is projected to be as high as 2.6 million by 2019.

PwC carries out an annual survey of 1,400 CEOs around the globe. The most recent survey reveals that 52% of CEOs expect technology to have a significant impact in changing competition in their industry over the next five years, and 23% expect technology to completely reshape it.

Technological changes, perhaps, should be the focus in finance too. From procurement to payment there are plenty of opportunities to upgrade technology, yet many businesses still utilise time-consuming, unpredictable and inefficient sourcing and payment practices – wasting valuable human resources that could better target business growth and innovation.

To return to an example I’m familiar with, every day businesses waste time and energy by manually checking invoice documents received from an increasingly global supply chain, when technology exists that can reject incorrect invoices before they even arrive. Continuing with the theme, further time and energy is wasted for businesses and their suppliers who spend time calling and emailing to check on invoice statuses instead of accessing the information online. This friction can all be avoided.

Later in the accounts payable process, unanalysed procurement data stagnates in these paper invoices, instead of being quickly captured to understand procurement trends that can inform spending decisions. For suppliers, potential working capital is tied up in unpaid invoices, unavailable to be pumped back into the business and invested in targeting growth through new contracts or equipment. While invoicing is an old world example, the potential of digitising it sums up what FinTech is all about.

All businesses must think about what innovative solutions are out there, finance included, or risk falling behind the competition. At multiple points in the business lifecycle, sticking points and delays with manual systems cause friction not only for consumers of financial services, but also between suppliers in the industry and the businesses with which they work. This risks sowing conflict and mistrust between partners, weakening the trusted relationships on which supply chains are built.

I would argue that not embracing the potential offered by FinTech is a huge risk, causing friction at multiple levels. This can manifest itself in multiple ways: suppliers reticent to jump through too many hoops; administrative employees’ patience wearing thin; and finance departments hesitant to greenlight funds. Combined, the impact on the bottom line could be considerable.

The opportunities are endless and I’m confident that there’s even more potential for FinTech to enable the digital transformation of business processes, connecting buyers and suppliers with streamlined financial services capabilities and ultimately, removing friction across global trade.

A new report commissioned by Samsung reveals that by 2020 companies which have not opened their borders to competitors, innovators and a new generation of independent freelancers will struggle to prosper in what Samsung calls the 'Open Economy'.

This new Open Economy will be characterised by a deep use of freelance workers, routine embedding of startup driven innovation and a new kind of collaboration between former competitors.

Over the last decade, thanks to the ubiquity of mobile technology, businesses have become more open and collaborative and have a clear understanding of the benefits compared to existing 'closed' business models. However, within just three years, organisations will be operating in a world much less restricted by technical or human boundaries. People, data and ideas will be integrated into current business models more freely, yet it will be crucial for businesses to get to grips with, and fully embrace, the agile technologies and expectations of tomorrow's work culture.

To thrive in this world of new technologies and highly dispersed digital workforces, companies will need to embrace security platforms which will allow them to share information openly but safely. This in turn will force them to fundamentally rethink how they build their business models and the technologies they depend on.

"Finding ways to safely empower new waves of future freelance workers is going to be the number one business challenge. Within three years, it's expected that businesses will have to deal with over 7.3 billion connected devices, whilst a rapidly digitised and changing workforce will evolve to one that will transform businesses in how, where and when they operate," says Nick Dawson, Global Director Knox Strategy.

On the global stage, European companies are leading the way in adopting the infrastructure and human capital that will power the next stage of this digital revolution. This will put them in pole position to harness the open and ultra-flexible workforces and businesses over the next three to ten years, according to research from The Future Laboratory which formed the basis of the report.

Across industries, innovation will emerge from new sources, with reverse innovation tactics of embedding start-ups at the heart of organisations becoming the norm. As this new future develops they will become critical strategic elements and a powerful driving force for innovation in every corner of businesses.

Marcos Eguillor, Founder of BinaryKnowledge and professor at IE Business School, a specialist in digital innovation and transformation, says: "Relying on past certainties will not foster the creativity that business will need to compete in tomorrow's global market place. Companies will need to adopt the technologies that allow them to be fast and flexible enough to spot and understand their next competitive advantages, and recognise when it's time to disengage from the previous one."

Tomorrow's organisations will use AI and machine learning technology to accurately predict - and make better decisions - about their future. It is not just today's devices that present risk. Already new machine intelligences are being widely deployed in the commercial world that are self-organising, self-adapting and capable of far more accurate predictions about the future state of their businesses. Advanced machine intelligence will give those companies which adopt them unprecedented power to plan ahead and optimise their business models.

However, this desire for a more open approach often conflicts with the critical need to maintain high levels of security at all times across a company's entire network of devices and endpoints. Driven by a rapidly evolving threat landscape and enforced by new legislations such as General Data Protection Regulation (GDPR), organisations will face many new challenges as they strive to protect their data across their entire business.

Nick Dawson continues: "Cyber-security platforms that allow businesses to be both technologically open and safe are the key to unlocking the future of the Open Economy." Samsung Knox is such a platform. Today, it is the most powerful defence against mobile security threats in the workplace, thanks to an adaptive, modular design that embeds encryption and security keys in a secure chip-based hardware container. This allows the creation of secure, completely isolated work and personal identities on the same mobile device, ensuring that corporate data is always inaccessible to personal apps and processes and, critically, that personal privacy is always respected and maintained.

(Source: Samsung Electronics)

On the importance of technology in the workplace, Finance Monthly hears from Gary Turner, UK Managing Director and Co-Founder at Xero.

Small business in the UK is booming, with 2016 accommodating the birth of 500,000 new businesses across the country. The entrepreneurial spirit in the UK is defiant in the face of an uncertain 2017, an attitude I am wholeheartedly impressed by. What makes each of these 500,000 businesses unique is that, with their start, a culture is born. This is naturally built around the entrepreneur’s style and impacts every aspect of the day-to-day work.

The development of culture is often overlooked, and more new business owners should take into consideration how they can mould a culture that will benefit both the company and the employees themselves. That’s why I believe a commonality amongst SMB owners should be to teach and offer opportunities for their employees to become fluent in technology. The business world is becoming increasingly digitalised allowing for a more efficient work process, as well as offering employees the flexibility to work online from anywhere. As such, I believe today and not tomorrow is the time to get the culture at your office to become tech savvy. Here’s why:

1. Future-proofing your workers

First and foremost, the cloud is how almost all businesses will be working within the next 5 years. If your business is yet to be on the cloud, I recommend you search online or speak with peers on what software best suits your business needs, from managing payroll and employee time to invoices and balance sheets, cloud programmes are making the process incredibly simple. Getting your employees in the cloud will teach them skills that will pay dividends as they rise through the ranks in your business, and at which point they will become aware of cloud technology trends themselves and be making suggestions on moving the company forward.

2. Number savvy will benefit you all

Alongside familiarising your staff with the cloud, you will need to teach them how to read and analyse the numbers associated with your business. Employees will have access to the data and be able to recognise the performance of the company, identify shortcomings and where to optimise potential as the software will offer insights. This in turn, will get your employees showing initiative – a skill that is invaluable and difficult to teach.

3. Builds trust

Showing that you’re actively investing in your employees will help them believe that you’re there to help them improve and further their careers. A distant relationship between employer and employee will lead to a low staff retention rate and damage your company’s reputation for potential recruits. It also shows that you trust them with sensitive company data and, referring to my earlier point, will give them the opportunity to learn what makes a business tick and how they can act on their initiative to make suggestions based on the data provided.

4. A shared level of understanding

It takes a unique personality to be an entrepreneur, you allow the pressure to rest on your shoulders and have careers dependent on your success. However, allowing your workers to operate on the cloud and work with you, it provides the opportunity for more opinions and insight. Sharing insight can offer perspective; this can lead to great success.

Cloud is now the mainstream, so create a culture where operating on the cloud becomes mainstream too.

Authored by Grant Thomas, Head of Practices at BJSS, the below provides Finance Monthly with particular insight into the top trends and movements UK financial services organizations will encounter in 2017, and increasingly in the future.

Financial services have always been at the forefront of technology. The industry was amongst the first to invest in mainframe computing, while it pioneered complex integration points to global payment switches, and in 1967 Barclays introduced the concept of self-service with the world's first ATM.

Fintech takes this innovative spirit a step further, and in spite of operational challenges, is driving the development of pioneering ideas to improve customer experience, efficiency and security in the Financial Service sector.

1. Brexit has injured Fintech. But not fatally.

One of the biggest questions to be answered this year is the extent to which Brexit will stifle Fintech innovation and if there will be an exodus towards competing financial centres such as Paris and Berlin.

At face value, things look challenging. Proposed restrictions to the free movement of talent may make it more complex and expensive to hire experienced staff. The process of securing VC funding is likely to become more rigorous as financiers look towards investing in less politically risky climates, but many opportunities still exist.

The key opportunities are that the lower value of the pound has made UK providers more commercially attractive, allowing local firms to compete against their offshore rivals. Added to this, changes to the regulatory environment, and continued R&D in complementary technologies will mean that London will continue to play a leading role in Fintech.

2. Product roadmaps will adapt to support the Bank of England’s new regulatory environment.

The UK will be keen to remain an attractive financial destination, so the Bank of England will take a critical look at its regulatory environment, deciding on which financial regulations require tweaking, diluting or eradicating. The regulator will also look at introducing new financial products, as demonstrated by a recent announcement of its ambitions to launch a Bitcoin-rival cryptocurrency. As a result, Blockchain, which automates and adds transaction security, will continue to attract investment.

Also, evolving regulatory directives such as Open Banking and PSD2, will create an even more difficult operating environment for established players – there will be great demand for Fintech providers to help plug this gap.

3. Mobile devices will become Fintech’s primary channel.

According to Ofcom’s 2016 Communications Market Report, Smartphones are now our preferred channel for accessing online content. Now they are set to become the main way of managing personal finances. Already three out of every ten mobile internet users use their devices to access their bank accounts, while two out of every ten use their devices to complete electronic payment or transfer transactions.

While most consumers are already familiar with services such as Apple Pay, Android Pay and Samsung Pay, Fintech providers will exploit online as well as built-in NFR and biometric technologies to introduce peer-to-peer payments, digital-only banking, forex, and mobile wallet products.

But mobile is just one part of the future of Fintech, and the ability to crunch diverse and deep datasets will drive greater innovation.

4. Customer take-up will be driven by Big Data, Data Science and Analytics.

Fintech providers will look at exploiting tools such as Hadoop, Python, NoSQL and Spark onto Private and Public Cloud services in order rapidly to deliver outcomes and to identify and understand customer behaviour and target markets.

Big Data will be combined with sophisticated machine-learning algorithms to upsell products and services based on key life milestones. This use of data science will proactively push financial products based on customer behaviours, instead of simply waiting for clients to submit product applications. Modern computing and advanced mathematical techniques enable personalisation, at any scale, and without human intervention.

5. Artificial Intelligence and machine learning will use this data to put a human face in computing decisions.

AI technology presents a huge opportunity for Fintech providers because it combines the rules-based reality of computing, with a human interface. It enables providers to take quick, business-safe decisions while reducing the processing time of routine customer enquiries. The model can be adjusted to accommodate customer preferences, their demographics, and interests. Thanks to language interpretation, a customer will be able to ask a question, which will be processed and answered by a Bot either by through text to speech or instant messaging services.

AI has development commitment from the big players. Apple, Amazon, Google, Facebook, IBM, and Microsoft have partnered on a non-profit joint venture which aims to “conduct research, recommend best practices, and publish research under an open license". AI is becoming mainstream.

By adding machine learning to the mix, the accuracy of chatbot responses is improved. When combined with AI and superior user-driven service design, Fintech providers are able to provide compelling and personalised customer interaction products to improve reliability and customer satisfaction. Those Fintech providers who focus on using AI and machine learning will pioneer a customer experience revolution: CX2.0.

This will lead to the death of ‘off the shelf’ and proprietary one size fits all.

Wide-ranging standards such as Blockchain, mobile, Big Data, AI and machine learning preclude a single one size fits all “off the shelf” solution. Fintech providers with ambitious roadmaps will embrace low-latency products based on enterprise-grade Open Source which are proven and secure.

Also, given the speed at which this new technology is evolving, Fintech providers will adopt an Agile approach to building their products. The benefit of Agile is simple. It accelerates delivery processes, and through on-going planning and feedback, ensures that value is maximised. Crucially, Agile also supports continuous delivery, ensuring that quality is maintained and that any risk of failure is reduced. With Agile and continuous delivery, Fintech providers will be able to rapidly develop and refine their products to support an ambitious roadmap. They enable Fintech providers to ensure that the engineering of their products, integration, functional and non-functional tests, deployments and provisioning are catered for throughout.

Britain’s role in the Fintech space is secure and, thanks to a range of next generation technologies, coupled with an improving operating environment and Agile development processes, will provide compelling products and innovation that will boost service provision and reduce costs.

Philip Letts, CEO of global procurement platform blur Group says now is the time for CFOs and CPOs to unite.

Technology is changing accounting and financial management forever. That much we know already.

But in an era of economic and political uncertainty, when CEOs repeatedly cite cost reduction as their number one priority, is now the time for CFOs to push on and embrace technological change in a far wider sense?

Right now CFOs should be telling their teams that a key reason for their existence, processing accounting transactions, is gone. But the seismic change will not stop there. Technology is already impacting on another vital aspect of how organisations manage their finance - procurement.

Recent reports from the likes of EY, PWC and Deloitte have revealed the scale of procurement waste, which globally now stands at £1.56trillion a year. Yet spend optimisation, particularly across indirect spend, remains an Achilles heel for many CFOs, despite the recognised savings that can be achieved.

Today, some 20% of organisational spend is typically unmanaged, made up of the tail spend of numerous low-value transactions, often uncontracted and through many suppliers (up to 80% of the entire indirect spend supply base).

Ultimately, cost reduction is a key part of any business case for the use of technology. And responsibility for achieving cost efficiencies rests with the CFO. So they need to be ‘ahead of the curve’ when it comes to process improvements and system changes, including automation.

Just as CFOs need to guide their finance teams as they rapidly consider their future roles as technology takes over more of their ‘everyday’ tasks, so CFOs should be considering the role of their procurement teams.

Online global marketplaces, self-service portals, mobile apps and artificial intelligence providing transparent processes, access to suppliers across the globe and detailed insight on the price and demand across the full range of business services and goods, and indeed on suppliers themselves, is already starting to transform what for too long has been seen as the poor relation within financial departments.

According to Deloitte’s most recent global procurement report published in December 2016, the use of cloud-based platforms and mobile technology by procurement functions has doubled in just 12 months.

In accountancy, technology means less time spent on financial close, allowing more time to be a strategic asset to the business. The same shift is true for procurement functions, where the most progressive have already moved from fulfilment of contracts to spend optimisation including right-sourcing and fractional outsourcing.

Adopting technology for procurement covers a range of activity that sits under a CFO’s remit:

• Implementing competitive bidding
• Digitising the purchase of business services to achieve savings and speedier delivery
• Developing a fraud prevention strategy including digital procurement and a compliant process for vetting suppliers
• Adopting a cloud-based business services catalogue - with vetted and up-to-date suppliers
• Strategic sourcing, coupled with creating strong supplier relationships - to ensure strong alliances with key suppliers and innovation

Just as most organisations have taken the key step of investing in software as a service (SaaS) models for their financial accountancy needs, simplifying processes with little or no customisation, so the same trend is happening in procurement.

And just as in accountancy, those that stick with legacy on-premise systems are also realising that having customised, non-standard systems and processes is costly and unsustainable if they expect to remain competitive.

Adopting and using technology successfully first requires a clear strategic approach, which is why CFOs should be the drivers to make procurement a more strategic and effective function using the right technology in the right way.

CFOs share many of the same preoccupations as CPOs, with cost control, risk management, technological advancements and talent development the top CPO priorities identified by Deloitte. Digital technology is receiving more investment, but often lacks the strategic context to maximise the potential benefits for the business (just 40 per cent have a clear digital strategy), which is why the CFO’s involvement is crucial.

The closer the working relationship between a CFO and CPO, the easier it will be to fully understand and maximise the opportunities across key aspects of a business - the efficiency of internal systems, how well suppliers are managed, compliance, evaluating the range of technology and sourcing options across direct and indirect spend.

In an era of on-going cost reduction, done strategically and driven by the CFO, a focus on procurement can start to drive stronger and longer-lasting cost reduction across wider aspects of the organisation. Where once we talked about procurement and supply chains, now is the time for spend management and spend optimisation strategies to come to the fore, and for CFOs and C-suites to consider the opportunities they bring.