Evolving Role Of CFO s In The Age Of Digital Disruption

TVT Chari, former Group Chief Financial Officer of Axiata.

As the world around us continues to evolve, mankind in turn needs to keep up. Adapting is one thing, understanding is another; indubitably, changes wrought by the Fourth Industrial Revolution will dictate the ebb and flow of businesses. These changes will determine – depending on the speed of adoption and understanding of these alteration – which will rise, and which will fall.

Every decision-maker in the top management has a role to play in steering the business forward. If the CEO is likened to the ship’s captain, then the Chief Financial Officer is Chief Mate. After spending 36 years in the finance sector – eight years of which he spent as Group CFO of Axiata – he believes that the role of a CFO is no longer just about cheque books and balance sheets.

Then VS Now

Back in the ‘80s – the age of irksome phone cords and elaborate note-foldings – the role of a CFO revolved primarily around financial efficiency, transactional processing with the latest technologies a company can get their hands on. That role then evolved in the 2000’s, where it prioritises partnering with the business through business process reengineering and leveraging on technology. However, in 2010, the goal shifted to being more on value creation and preservation.

This involved balancing performance and risk, having a holistic approach, and focusing on integrated finance and business transformation.
“The question CFOs should be asking themselves is, where do we go from here? In my experience, the role of CFOs of the future can be seen through four faces: a catalyst, strategist, operator and steward.” According to Chari, as a catalyst, CFOs would need to stimulate behaviours across the organisation to achieve strategic and financial objectives, whilst at the same time being a strategist that is able to provide financial leadership when it comes to determining strategic business direction and aligning the right financial strategies.

CFOs also have the unique responsibility of acting as a steward for their organisation in terms of protecting and preserving their assets. Finally, they must also take on the reigns of an operator with regards to balancing capabilities, cost and service levels to fulfill the organisation’s financial responsibilities.

“This does not mean that CFOs are strategists, or tech gurus – more importantly, they need to be asking themselves whether they are aware of what’s happening around them.

Are they able to drive changes in the organisation?” Aspects such as keeping the books clean, maintaining healthy business control, installing structured processes in the organisation are all hygiene factors that need to be taken care of, regardless of disruptions, as it is part and parcel of the role. However, a CFO must also understand the impacts these disruptions may bring to the organisation and oversee the sustainability of the business in this environment.

“A CFO who has mastered the art of juggling all four faces, is on the right track. To put it simply, CFOs need to start to think like a CEO, but act as a CFO.”

Game-Changing Disruptors

One of the most popular buzzwords resulting from the Fourth Industrial Revolution is “Digital disruption”.
Approximately 72% of businesses will be disrupted within the next three to six years, which leaves CFOs with a short time frame to enact change. Digitalisation is causing ripples of concern throughout varying sectors as early adopters are disrupting the market.

Essentially, traditional brick and mortar companies are being replaced by click and mortar companies. It comes at no surprise that 60-70% of the expanded business is going to be taken over by the likes of Amazon or Lazada. Scalability is fast, and companies are able to expand globally as well. One great example is Uber; not only have they disrupted the face of public transport, but have also successfully scaled their operations globally in a seamless and efficient manner. 

Digital disruption is not only affecting businesses, but consumers as well. Five years prior, the average consumer would think twice about purchasing a product on Amazon or Lazada. Today, there’s almost no hesitation, and consumers trust these online shopping platforms as much as they do with local retailer.

Therefore, the focus is now on quality of service and customer engagement.

“From my own experiences as Group CFO, I received anywhere between 1000 SMS’s to 1500 SMS a day during festival days . Today, that number has dropped to zero. We used to have RM1.5 billion on SMS revenue alone, and now, it has reduced significantly to almost zero.
Roaming revenue both inbound and outbound have come down dramatically. The other traditional brick and mortar telcos in the same sphere are no longer competitors.

With the ease of access to the internet, our competitors are now WhatsApp, WeChat, Line, Skype, Facetime and so on. WhatsApp alone is eating up 50-90% of voice and SMS revenue. The game has changed.”

CFOs are integral to a company’s rise or fall.

Shifting Mindsets

The psychology of consumers are also rapidly changing, as seen in the hospitality industry. Traditionally, guests would go to a hotel, check in for their stay and leave, without much engagement. With Airbnb now being a major disruptor to hotels, both guests and hosts are able to provide feedback or ratings on each other using technology.

“The way I see it, there’s an interesting concept at play here. We believe that a higher power is constantly watching and we strive to always do the right thing. When you are in an Airbnb home, the end results of how well you host your guests or how well the guests treat the home is monitored and judged via technology such as online feedback and comments. We always do the right thing when we know someone is watching” , Chari said with a smile

Harnessing the right technologies to help grow the business is another important aspect of being a CFO. “Am I radically going to simplify the business? Though I would still have check and balances, it should be carried out with a system. Technologies such as Artificial Intelligence needs to drive the process rather than putting a bunch of people to check and recheck.” Even the healthcare industry is evolving wherein people are investing more on prevention as opposed to cures. Now, there are gadgets that will allow for the early detection of diseases such as DNA sequencing chips. It works by analysing your blood and telling you in advance, which diseases you are prone to.

“Another interesting area to look at is national defence. The wars of tomorrow will not be fought by humans brandishing guns, but by technology. Drones capable of using facial scanning, will lock on selected targets and zoom in for the kill. These drones are fitted with AI, capable of telling people apart and avoiding collateral damage.

However, cybersecurity needs to be beefed up in order to prevent hacking of such technology.”

Big Data Analytics should be leveraged in order to give companies the competitive edge.

Embarking On The Digital Transformation Journey

Change is something that cannot happen overnight, and the same can be said about businesses of today. Every business is on the same journey towards digital transformation, albeit at different stages. “There are three essential things a company needs to achieve. They must be able to innovate their business models to better suit their customer needs; radically simplify the business in which they operate and finally - digitalise by using emerging technologies. The last of these three entails an extensive use of data to drive business decisions.”

CFOs are tasked with spearheading the generation of hypotheses, and technology is integrated in order to test them. “Let us assume we have 4000 employees and 1700 supplies in an organisation. We then came up with a hypothesis to see if the address, phone number, name will match for these two diverse set of data points, We then used Data Analytics to gather information to test it out the hypothesis.

As a result, we managed to cross-reference every name, contact number and addresses between suppliers and employees, searching for a match. And indeed, matches were found and we caught seven employees acting as suppliers.”

Similarly, CFOs should actively generate these hypotheses, as the thinking process is what refines the organisation. Mundane work can be given to chatbots and AI, whilst higher value works are undertaken by employees. Technology will then analyse all the variables and either support or disprove the hypothesis.

When it comes to the business model, those that are successful are the outliers, stepping away from the norm. Hewlett-Packard does not make money by selling printers, as the cost of a printer is affordable. Their larger revenue stream comes from selling ink cartridges. Rolls-Royce is one of the main manufacturers of aircraft engines, and they make their revenue not from selling the engines themselves, but through lengthy maintenance contracts.

“Conventional business methods have no place in this era. If a CFO is unable to be strategic in their thinking, opportunities in the market will be overlooked. We must leverage on data to drive our business decisions. Do not fear disruption, and once you have an innovative solution, be rigorous in its execution.”

The CFO must think like a CEO, in order to brace the company for the oncoming disruptive storms.

Big Data, The ‘Big Shot’

Big Data allows organisations to analyse massive volumes of data (in both unstructured and structured forms) to improve decision-making and strategic business ventures. From a financial standpoint, there are four things which big data can help with; it could drive increment in revenue, drive down costs, reduce capital expenditure, as well as detect frauds.

During Chari’s stint as a CFO, they conducted a study to determine the number of people who were awake and actively downloading information using the internet between the hours of midnight till 4 AM. Once the results of the study came in, the company was able to create a more behaviour-based psychographic segmentation.

Analytics and hypotheses were then used to determine a suitable value proposition that can be offered to customers. Addressing these challenges and major sustainability questions are a part of risk mitigation exercise for any Board and Board audit committees. They need to drive transformation within the organization so that the risks are addressed in a timely manner. The Chart below defines the areas to address to mitigate the risks. This can’t be delegated to a smaller department but should be driven by the CEO under the Board’s guidance

“At the end of the day, I believe that the role of a CFO is to step away from the traditional model and be open-minded. This means being closer to the business and understanding technologies and how it may impact the organisation. They need to be able to compete with the click and mortar companies. If not, then the company will soon become the next Kodak.”