This past year has magnified challenges for organizations and their respective industries in unique ways, but there's one common theme we've noticed across the board: Those who were able to adapt quickly found new, unexpected ways to thrive and grow in the midst of one of the most difficult market environments in modern history. It all boiled down to one thing - speed.
Many corporate leaders are now wrestling with how to keep up with demand as the US economy recovers faster than anticipated. As CFOs and their teams explore methods to capitalize on current development prospects, organizations that have prospered in the worst of times may teach us a lot.
Earlier this year, Oracle identified four repeating techniques that the most ambitious and inventive organizations have used to obtain a competitive advantage and achieve significant development: business model innovation; mergers, acquisitions, and divestitures, accelerate the financial close, and developing a risk-aware culture.
As much of the developed world reopens, many businesses are optimistic and looking to invest in a new era of growth. Companies looking to advance in this new economic environment will continue to rely on the same four strategies that have proven successful over the past 16 months.
Business Model Innovation
Overnight, the COVID-19 pandemic altered consumer habits and expectations. Companies had to stay relevant by reworking old business models in order to fulfill these new and continuously changing requirements. Universities had to move to online learning when students were suddenly obliged to stay at home due to local health restrictions, while still providing them with a good educational experience. These shifts are still happening in every industry. Indeed, according to a recent PwC poll, changing product and service offerings is the most important factor in rebuilding and strengthening an organization's income streams in the current environment.
Companies that embrace business model innovation are transforming sectors by shifting from transactional to service-based business models that guarantee a consistent and recurring revenue stream. Fitness organizations, for example, that used to offer physical equipment now sell monthly memberships to online lessons that users can watch on-demand from the comfort of their own homes.
The case for why business model innovation is critical for many businesses emerging from the pandemic and how it may support consumer behavior shifts is apparent. But how can your company begin to take advantage of this expansion opportunity? Start with the following five steps:
1. Assess what your clients want.
It's possible that what your customers wanted in early 2020 will differ from what they want now. Using surveys, customer community groups, or virtual events, learn more about your consumer base and listen to what they have to say. For example, a retailer might discover that, despite plans to build another location, many of its consumers choose to never shop in a store again. With this knowledge, the corporation can determine how to best pivot its brick-and-mortar and e-commerce strategy to accommodate those preferences.
2. Analyze a variety of business models.
Many CFOs are hesitant to change business models because of the detrimental impact on short-term revenue. To alleviate this concern, finance teams should employ scenario modeling and financial planning tools to compare the immediate expense of the move to the long-term income potential. Company leadership can evaluate which investments make the most financial sense and have the greatest potential for continued revenue development by simulating various scenarios, products, and market circumstances.
3. Collaborate with people from all parts of the organization.
Information silos can ruin even the best innovative efforts. It's critical that everyone from HR and finance to engineering and sales is involved in the innovation process for your business model transition to be effective. During the development of the product and/or service, this collaboration encourages essential components to be debated: What is the most effective method for bundling services? What should we charge for this service? Should we hire more people internally or hire contractors? Every offer will be set up for success if there is clear and strong alignment on these details across the business.
4. Design for customer satisfaction.
Customer satisfaction is a vital indicator for recurring revenue, especially in subscription-based business models. As a result, businesses should develop a self-service platform that allows customers to manage their subscriptions or purchase new services whenever it is convenient for them. Customers will have a pleasant experience with the brand if the user interface is easy and straightforward, and they will be more inclined to renew services, resulting in solid recurring revenue for the company.
5. Measure outcomes and stay agile.
When it comes to changing a business model, it's necessary to rethink how key performance indicators are assessed and tracked. Moving to a subscription-based model, for example, will require you to recognize income and bill clients in a new way (e.g., monthly or quarterly vs. a one-time fee).
Finance teams must engage with the rest of the organization to keep business leaders informed about what's working and what isn't, so they can swiftly alter any underperforming offers. They must use a real-time data set against their initial predicted goals to adapt investments as needed.
Mergers, Acquisitions, and Divestitures
According to Reuters, worldwide mergers and acquisitions (M&A) activity reached a new high of $2.4 trillion in the first half of 2021. Why? Aside from cheap financing rates, the most adaptive businesses took advantage of the pandemic's forced changes to reconsider their long-term growth and performance goals. Some businesses saw mergers and acquisitions as a way to expand their primary business. A corporation can expand its client base and diversify its products and services by expanding its footprint in its existing industry or expanding into adjacent areas. Others regarded the pandemic as an opportunity to get rid of inefficient assets, lowering operational expenses, increasing earnings, and improving organizational cohesion.
While using M&A and divestitures to accomplish organizational growth can be extremely advantageous, it is also one of the most difficult tasks a CFO can face. Here are the best practices for getting started, from consolidating multiple companies' financials onto a single ledger to deciding which company's enterprise resource planning (ERP) system to stick with (or, in some cases, an even more difficult task—deciding to start from scratch and implement an entirely new ERP system):
1. Know what you’re getting into.
To reduce risk, begin your M&A journey by imagining possible scenarios, then creating financial plans and cash flow analysis for each of them. Don't, however, limit yourself to financial preparation. Make sure to simulate scenarios in each department. For example, you should review your existing and future personnel demands by tying finance and workforce strategies together to see how M&A deals will affect corporate resources.
2. Determine who is the owner of each business procedure.
When it comes to M&A and divestitures, change management is key to success. Assign owners to each business process in IT, finance, operations, and other areas to ensure that everyone is working toward the same goal. Holding everyone in the organization equally responsible for M&A or divestment success will create collaboration, alignment, and buy-in.
3. Make a financial reporting strategy.
One of the most difficult aspects of a merger or acquisition for finance experts is combining the financial data of two independent firms into one. Consider the following questions: Will you transfer Company A's ERP system to Company B's? Which cloud-based ERP platform should you utilize if both systems are on your premises? Is it better to onboard end-to-end processes all at once or overtime?
The finance team will stay organized and focused on the prize if they lay out a plan early on that is aligned with your high-level strategic goals, rather than becoming overwhelmed by processes and having to make judgments under stress once they're knee-deep in the process.
Accelerate the Financial Close
Companies and their finance teams must now, more than ever, respond quickly to identify and capitalize on areas of potential growth. When a firm spends weeks reconciling accounts, closing the books, and reporting earnings to stakeholders, moving quickly is challenging. Because it might take up to a month for some companies to finish their financial quarters, finance teams may spend a third of their time looking back rather than forward.
Organizations may eliminate many of the manual processes that stymie a company's ability to accomplish a speedy financial closure by employing AI and machine learning to automate financial close processes including account reconciliation and reporting. Finance teams may spend less time crunching data and more time doing what they're passionate about finding new revenue and growth possibilities by eliminating the manual labor required. So, how can businesses take advantage of automation to speed up the financial close? To begin, there are a few crucial measures to take:
1. Think through the “extended” process.
It's impossible to optimize financial closing processes without first taking into account the hundreds of steps and people involved. Consider the "extended" financial close, which includes account reconciliation, tax provision, sub-ledger close, and sending filings to regulatory authorities, in addition to the ultimate stage of closing the books. CFOs will be able to design a more strategic strategy that fulfills the organization's holistic goals by thinking about the whole, extended work.
2. Concentrate on particular areas of improvement.
After you've documented and comprehended the extended financial closing process, you may concentrate on identifying the areas that require immediate attention. Look for jobs that are laborious, repetitive, or prone to frequent error that could benefit from automation when selecting these areas. Account reconciliation, currency exchange, and payables and receivables are all laborious processes that rely heavily on spreadsheets for many businesses.
3. Use intelligent process automation to your advantage.
Begin deploying the appropriate technologies once you've identified the processes that could benefit from automation. Intelligent process automation (IPA) is the next step in the evolution of robotic process automation (RPA), using artificial intelligence (AI) skills to analyze data, detect new trends, and make recommendations that increase efficiency. Finance teams can use IPA to automate the repetitive operations that are consuming their time and allowing them to focus on higher-level duties that have a significant influence on their organization's bottom line.
4. Create a real-time view of the close.
The status of tasks should not be left to chance when it comes to something as crucial as the financial closing. It's critical for cooperation and success to be able to follow and discuss the progress of close processes with stakeholders anywhere, at any time, and this shouldn't be done through spreadsheets on a computer desktop.
That's why many finance departments are switching to cloud-based systems with shared dashboards that show project updates in real-time across any geographic or division. Because closing the books is a recurrent task, financial teams have full visibility into what worked and what didn't in previous cycles, allowing them to learn and discover areas for improvement.
Using AI and machine learning to speed up the financial closing shouldn't be a difficult change for finance teams to make. In reality, it's a fantastic opportunity for all parties concerned. Finance experts can focus on more strategic work instead of crunching figures in a corner office by delegating the most monotonous, manual accounting chores that are prone to human mistakes. This allows them to advance their careers and have a voice in board-level strategy. To alleviate any concerns about job stability and secure early buy-in from your finance team, it's vital for business executives to provide a picture of what these new, better jobs could look like.
Build a Risk-Intelligent Culture
Unfortunately, new business tactics and breakthrough technologies can be risky. However, according to a 2019 SANS Institute Cloud Security Survey, roughly one in every five businesses had a data breach in 2018. This leaves CFOs with the essential task of identifying and mitigating risks associated with the major changes they're undertaking to return their companies to grow. For example, as a company onboards new personnel and moves information from one system to another through an acquisition, the number of access points to critical data increases.
Having a well-integrated risk management plan in place to monitor the compliance and security of these procedures may help ensure that any new business growth opportunities do not damage the company's reputation or bottom line. When it comes to something as vital as risk management, though, best practices must be followed:
1. Secure a quick win.
Time is of the essence when it comes to risk management, therefore don't put off starting your road to risk intelligence. Instead, identify your company's most vulnerable regions and devote existing resources to those tasks. You'll get immediate returns for a relatively little cost if you start with a smaller, well-defined project, which will improve confidence in the approach, identify key participants in the decision-making process, and create a playbook for rolling out a larger risk management blueprint.
2. Centralize risk management activities.
When everyone in the organization has access to risk metrics and performance, from security monitoring to compliance, risk awareness increases, allowing for more risk-based decisions and oversight. To get started, ready your organization by removing manual, spreadsheet-based processes and replacing them with native risk automation capabilities built into business applications. Organizations can also limit risk by having a holistic picture of the company's decisions, including how one department's activities may put another's at danger, by employing a suite of business applications that are fully integrated on a common data model.
3. Automate critical controls across the organization.
When it comes to risk management, eliminating as much manual error as possible might mean the difference between triumphing over unscrupulous actors or succumbing to them. Examine the actions and controls in your organization's risk strategy to see what can benefit from continuous automation monitoring, and then use AI capabilities in your business applications to accomplish so. It's critical to collaborate with stakeholders from all departments to better identify and understand the risks that pose the greatest harm to the firm as a whole.
There are a variety of strategies for CFOs and their finance teams to re-ignite their company's growth engine and capitalize on the improving economy, and this playbook will continue to change as our new normal develops over time. However, successful organizations have one thing in common, regardless of their strategy: a strong technology basis that allows them to be agile and pivot rapidly.
Cloud-based applications that include cutting-edge developing technologies like artificial intelligence, analytics, and blockchain are no longer the exception; they've become the norm. Advanced technologies combined with a willingness to make significant adjustments will determine an organization's capacity to keep up with change and avoid being left behind.