Hard talk with the CFO: The foundations of true digital finance transformation

Digital Transformation is a key priority in the competitive battle to engage more deeply with customers, streamline end-to-end process cycles, enhance revenues, optimize operating costs and maximize a return on assets. 

Modern, cloud-based ERP is regarded as the core platform to enable enterprise digital transformation – but the impact is in what such an implementation enables, rather than purely the software platform itself.

Which raises an interesting question. Why and when does the promise of technology enabled transformation fail to materialise?

The core ERP system of any company is the engine of digital operations, can enhance operational efficiency, and can enable other strategic capabilities. However, many of these

benefits are based on technical advantages of simplicity, performance, speed, usability and consistency of a single instance - or based on providing a core platform for streamlined processes and data initiatives. 

The reality, however, is that some organisations start with high aspirations and a very large budget, but fail to deliver financial, P&L impact in their business. 

This in turn leads to the realization, post implementation, that whilst we have an impressive new technology platform, business processes have not improved materially. 

This inevitably happens when there is a mismatch between strategic ambition and the detailed plan, as there needs to be specific, business focused action to deliver P&L impact.

Quite often this breakdown occurs as the plan moves from big picture to a detailed RFP on what is required technically, usually framed in the context of the AS-IS technology workflows.   

One of the challenges is alignment between leadership, technology and systems integrators on the specific processes to be transformed, plus the key pain points to be eliminated.

So, it is more common than you would expect to hear the refrain 'we thought we were transforming processes, but we were talking at cross purposes and really just swapped the automation and workflow for the same set of tasks.'

Real digital transformation starts with elimination of the non-value-adding tasks, simplification of steps and workflows and then moves to automation and integration of key tasks in an end-to-end process.

Integration is more key than ever as the modern ERP eschews the old aspiration of being the universal business platform to now being the lean hub of financial processing, surrounded by process specific spoke applications for sales, procurement, HR and so on. 

Consequently, the desired end-to-end process transformation requires a line of sight across and beyond the ERP landscape into these specific applications and the role they play in the process.

Not just everyone nodding at the goal of 'process transformation' while stakeholders visualize changes to end-to-end processes and value streams and the technical experts imagine a Fiori interface to a certain set of tasks.

Meanwhile, P&L impact requires us to focus on process changes that will help increases in revenue and margin, cost reductions through streamlined end-to-end process operations, enhanced asset utilisation, reductions in external spend, headcount, inventory, balance sheet liabilities or improved customer engagement/service/experience.

There is no end-to-end business that has a single desirable path or journey – because in the revenue cycle, the journeys depend on customer segment, product type, sales channel, etc.

In the spend cycle, the journeys depend on whether direct or indirect, spend category, buying channels, supplier type and value. Process transformation happens in optimising the high value journeys and eliminating the low value ones.

This requires a strong, easily communicated understanding of the end-to-end processes and the various necessary and desirable journeys, informed by those in the business that have the knowledge and experience.  

To drive a focus on P&L impact in short cycles, each end-to-end process needs a 100 Day P&L Impact Plan as well as a 18/24/36 months strategy to support the digital transformation program. 

Such plans are focused on the optimization, simplification or elimination of individual journeys. This is a great example of the Pareto Principle in action, where we avoid the pursuit of perfection and aim to deliver 80% of the value for 20% of the effort, cost and cycle time. 

They also deliver increase in revenue, margin or customer engagement/experience, plus reductions in waste and defects, external spend, headcount, inventory, balance sheet liabilities. 

Consequently, start focusing on 100 Day P&L Impact plans now. With tangible savings often in the region of $20m here and there, very soon, you are talking real money!

This approach to dynamic planning and execution provides direct P&L impact in short cycles while focusing attention on priority activities and driving execution-oriented behavior and habits. You can even use the outcomes of early 100-day plans to fund or at least subsidize your digital transformation investments. 

By following these principles, your digital transformation program will drive economic value in shorter cycles AND ensure that your business benefits from the promise of simplified, streamlined processes, return on data and true digital transformation.