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Finance innovators- Watchlist for future

Finance innovators – Watchlist for future

At a recent accounting conference in Malaysia, the chief executive of the Malaysian Institute of Accountants opened the first panel discussion by presenting statistics from a World Economic Forum report on the future of jobs. In the report, accountants and auditors are classified under “redundant roles” that will see steep decline in demand over the next few years due to automation. Minutes later, one of the most popular questions from the audience was “How accurate are those statistics?” It reflects a sense of incredulity amongst professionals in the accounting and finance industry. Change can’t be that soon, can it?

You may share the same sentiment. You may have heard buzzwords like automation and artificial intelligence generate chatter in the office or at networking events. They have become ubiquitous in our business vocabulary, yet they are minimally understood. Perhaps you can’t help wondering, “How many of these new technologies are truly ‘disruptive’ and not passing fads?” (History tells us: Whatever is practically useful and reaches a tipping point in adoption survives).

Experts are saying that these new tools are not an evolution of current technology. Rather, it’s a revolution. Klaus Schwab, executive chairman of the World Economic Forum, wrote that the scale, scope, and complexity of this revolution is “unlike anything humankind has experienced before”. And these changes are not limited to technology. Climate change is also affecting the availability of natural resources like water and arable land. It is forcing businesses to rethink the sustainability of their practices.

There’s a silver lining amidst these changes: We are only at the beginning, and there’s still some time to learn about them. Management accountants are needed now more than ever to help navigate this tumultuous time. We dug deeper into six must-know topics from a recently published watchlist by the Association of International Certified Professional Accountants and listed resources to help you learn more. Here’s to future-proofing your career.

1. BLOCKCHAIN

Invented as the technology behind bitcoin ten years ago, blockchain has garnered greater attention in recent years as a technology with the potential to transform financial transactions, supply chain management, and even large portions of the internet. A blockchain report by the American Institute of CPAs defines it as a distributed public ledger that makes a record of every transaction and adds it to a chain of all the transactions that have come before. In accounting and finance, blockchain may enable firms to create immutable and continually updated financial records that are difficult to tamper with. In other industries, companies such as Walmart and Pfizer have completed blockchain pilots to improve food safety and track medicine.

Large and consistent investments into blockchain startups are an indication of interest in the technology. In 2017, venture-capital funding for blockchain startups was up to $1 billion, according to a McKinsey report. In the same report, the consultancy identified some sectors that are inherently more suited for blockchain implementation; namely, financial services, government, and healthcare. In the short term, blockchain’s value lies in cost reduction, but meaningful scale is still three to five years away, according to the report. Some cite its instability, high cost, and complexity as causes for its stuttering path toward mainstream adoption.

Bottom line: Experiments with and implementation of blockchain will continue in 2019 as more applications are identified. But meaningful scale of blockchain implementation to realise its full value in reducing costs and generating revenue is still a few years away.

2. ARTIFICIAL INTELLIGENCE

Artificial intelligence (AI) refers to a branch of computer science that strives to create software that mimics human intelligence. AI-related applications already have been implemented in operations and finance to automate repetitive processes. In 2019, 20% of US organisations plan to implement AI enterprise-wide, according to a PwC survey.

Far from a single technology, AI is an umbrella term that covers a number of areas, among them machine learning, natural language processing, and deep learning. Banks are using AI surveillance tools to prevent financial crime, and insurers use automated underwriting tools in decision-making. In an FM magazine interview, UBS wealth managers spoke about building robo-advisers and using AI and natural language processing to conduct due diligence on the bank’s clients.

The software the bank built can conduct quicker and more convenient know your client (KYC) and anti-money laundering (AML) checks compared to a human worker. It parses hundreds of pages of search engine results for negative news and conducts checks on a potential client’s criminal history — a task that would have demanded a significant amount of a human employee’s time.

Technology expert Amy Vetter, CPA/CITP, CGMA, CEO of The B3 Method Institute, said in a series of video interviews with the Journal of Accountancy that “there are many who look at the technology that’s coming … that we’re going to be disrupted and accountants will go away. And I do not believe that is the case at all.” Instead, new technologies will free up time for finance professionals to provide analysis of financial data, she said. For that to happen, finance professionals will have to train on new technologies, whether through courses or hands-on experience. Communications skills will also be pivotal to help accounting and finance professionals explain their analyses effectively.

Bottom line: AI technology is already implemented in various finance functions and industries. The first step is to learn more about AI — its opportunities and limitations. Its potential is in freeing up human workers to provide more value-added services. Great opportunities await the eager student.

 

3. ROBOTICS

The inconsistent use of vocabulary to describe robotics, sometimes called automation, has created much confusion. Some may even imagine a physical robot sitting in an office. Robotics here refers to robotic process automation (RPA), and quite simply it’s a class of software used to process transactions, manipulate data, trigger responses, and communicate with other digital systems.

Although not an entirely new phenomenon, RPA’s capabilities have improved remarkably over time. Rob King, author of Digital Workforce and vice-president of education at RPA Academy, said in an Association podcast that “RPA has definitely arrived”.

Last year, FM magazine got an inside look at how a Koch Industries subsidiary successfully implemented RPA, freeing up almost 50,000 employee-hours after less than two years of implementation. At the company, RPA was used to automate invoice transactions and track third-party labour.

In 2019, companies will continue to explore RPA implementation and reskill employees to adopt the technology. Research firm Gartner estimates that global spending on RPA will reach $2.4 billion in 2022, compared to $680 million in 2018.

Bottom line: Robotics’ capabilities have matured over time. More companies will want to use RPA to automate repetitive tasks, increase efficiency, and reduce costs. Most large enterprises will embrace RPA in the next few years. For smaller firms, the cost barrier to implement RPA will gradually diminish.

 

4. NATURAL CAPITAL CONCERNS

The only nontechnology trend on this list, but no less significant, is natural capital concerns or environmental risks, which have been brewing in the background for years. We would need 1.7 planets to sustain our current global levels of consumption, according to the World Wildlife Fund (WWF) Living Planet Report 2018. The study estimated that at our current rate, we are using up natural resources faster than they are replenishing themselves. In relation to the Financial Times WWF Water Summit last year, Margaret Kuhlow, WWF’s finance practice leader, wrote that businesses need to get serious about water risks and disclose greater asset-specific location data to identify water investment opportunities.

Former New York City mayor Michael Bloomberg has led the establishment of the Task Force on Climate-related Financial Disclosures (TCFD), encouraging organisations to provide voluntary financial disclosures related to climate that can paint a fuller picture of their businesses. Momentum has also been gathering on nonfinancial reporting. FM magazine reported on a recent debate organised by Oxford Saïd Business School where speakers posed arguments on whether standardised nonfinancial reporting should be mandated for it to be useful to investors. “We need to make sure that climate change, biodiversity, and inequality are dealt with in the future. … There is an urgency,” said Paul Druckman, former CEO of the International Integrated Reporting Council, an organisation that advocates for natural capital and other nonfinancial information to be included in corporate reporting.

Bottom line: Businesses are realising that environmental sustainability must be given greater consideration in business decisions. In 2019, there may be greater support and practice of disclosing climate-related information in corporate reporting.

5. BANKING EVOLUTION

Last year in an issue of the IMF magazine Finance and Development, Stefan Ingves, the governor of the world’s oldest central bank, Sweden’s Riksbank, pondered the question, “In a cashless society, what would legal tender mean?” The question is not far-fetched because Swedish society has almost stopped using paper money, preferring transactions through cards and digital platforms.

Other than changing consumer preferences, banking is also evolving because of the rise of bitcoin and other cryptocurrencies. Although many do not consider cryptocurrency a reliable substitute for cash due to its price volatility, consumers and businesses are already performing transactions using these virtual currencies. Among many are Microsoft, Subway sandwich shops, and e-commerce site Shopify.

In 2019, Sweden’s central bank is expected to issue its first cryptocurrency, e-krona. In the UK, the Bank of England published a working paper last year to understand the implications of a central bank-issued digital currency. In this banking evolution, traditional functions of banks as clearing houses will also change, causing banks to rethink their business models. According to Deloitte, 2019 will see retail banks race to be digital leaders in embracing a mobile-centric customer experience, while fintechs attempt to devour a larger piece of the market share by providing faster payments that work seamlessly across borders.

Bottom line: Debates on whether cryptocurrency can be money will continue in 2019. But consumer preference for hassle-free banking introduced by fintechs is already the standard baseline. What happens in fintech doesn’t stay in fintech — “Why can’t I pay with my e-wallet?”

6. QUANTUM COMPUTING

IBM kicked off 2019 by launching the world’s first stand-alone quantum computer, the Q System One, for commercial applications. Quantum computers are radically different from today’s computers. Instead of running on bits, they run on quantum bits or qubits, and promise to surpass even the fastest supercomputers of today. But don’t run off to get a quantum computer just yet. IBM is not producing quantum computers for sale, and the quantum computer’s processing powers are only accessible through IBM’s computing cloud, similar to what the US’s Rigetti Computing and Canada’s D-Wave are offering. More importantly, the Q System One is still an experimental device used to figure out how quantum computers might work.

Winfried Hensinger, professor of quantum technologies at the University of Sussex, told The Verge that “it’s more like a stepping stone than a practical quantum computer. … Think of it as a prototype machine that allows you to test and further develop some of the programming that might be useful in the future.”

That said, banks like Barclays and JP Morgan Chase are already experimenting with quantum computing. IBM, as quoted in the American Banker, said that organisations are interested in using quantum computing to develop a competitive advantage. Financial institutions are testing it to help minimise risk and maximise gains from their portfolios.

In the US, a law was signed in December to provide $1.2 billion over five years to boost US quantum technology. In China, quantum technology was deployed in the Micius satellite to develop new forms of secure communications.

Bottom line: Albeit in its infancy, quantum computing will have huge political and economic implications once the technology matures. It will be enterprise-ready when it can deliver reliable performance. IBM expects revenue from its quantum computers in two years.

Source : GCFM

Decision Making – Quantitative Intuitive

Decision Making – Quantitative Intuitive

How managers can develop the ability and confidence to ask the right questions, spot patterns, and process that information in parallel with an understanding of the wider business situation.

At the heart of good decision making in today’s fast and complex environment is the ability to see how things fit together—and perhaps more crucially, spot when things do not have a good or logical fit—quickly and effectively, and leverage these connections to derive insights and make prompt data-driven decisions.

Together with my colleagues, Chris Frank, a senior executive at American Express, and Paul Magnone, at Google’s cloud platform, (see also Chris and Paul’s book, Drinking from the Firehose) we have noticed that managers and executives are often fearful of relying on quantitative data in making business decisions. There seems to be a misconception that in order to be able to effectively make data-driven decisions, you have to be a ‘quant’ or a ‘math wiz’. We believe that this misconception generates a lot of unnecessary stress and, more importantly, a lot of good business decisions are not being taken.

What sets apart better leaders is the ability to see the same data as others (and everyone sees lots of similar data these days) but make some different conclusions and derive different insights from it. The key to doing so is to learn to quickly and effectively synthesize, rather than merely summarize, the information presented. We believe and show that this does not require you to be able to solve logarithms or square roots in your head, but rather develop the ability and confidence to ask the right questions, spot patterns, and process that information in parallel with your understanding of the wider business situation.

To help managers build these skills, we have developed a concept, a framework, and a set of tools which we term Quantitative IntuitionTM. Formally, we define this as the ability to make decisions with incomplete information via precision questioning and business acumen driven by pattern recognition. This requires a parallel view of the issues that matter rather than just a logical sequence of thoughts to see the situation as a whole.

Asking the Right Questions

One of the key elements to acquiring this acumen lies in ‘precision questioning’. This is the element that we see as being least prevalent in data analysis and where the real work needs to be sweated to achieve improved performance. In today’s world, the smartest person in the room is no longer the person who has the answers, but the one who asks the right questions to get the desired outcomes. With data drowning us on all sides, the usual “Can we look at the data and see what it tells us?” is likely to lead to a long journey with little results and insights.

We offer some techniques to approach data differently, beginning with IWIK, a method from Paul and Chris’s book, which stands for what is it that “I wish I knew.” We found that starting a group meeting around data-driven decision making with this deceptively simple question is extremely effective in quickly directing the data-driven discussion on the important issues and honing in on the fundamental issue that needs to be answered. It also has the benefit of often unearthing the data required as having already been acquired and being used elsewhere, when group members say “hey, we have that already, we got it when we…”.

Driving Backwards to Move Forward

A second approach is backward data-driven decision making, where you start the data-driven journey with the decision you would be making and then extrapolate backwards to see what analysis and data you would have needed to be able to make the decision. This approach requires the manager to put in a lot of thought and energy at the outset of the data-driven process to determine what the proposed decision and analyses might be. Executives are often reluctant to spend so much time early on in the process, thinking about the problem, decision and analyses to be done, but it is a well spent effort as it almost guarantees that the data-driven process will result in actionable outcomes.

In order for Quantitative Intuition to become second nature—that is, intuitive—a series of learning steps need to be climbed. Initially, we do not know what we do not know, we are ‘unconsciously incompetent. We then become aware of what we do not know and become ‘consciously incompetent’. We can then learn it, so we become ‘consciously competent’. And finally, we use it so often that we cease to be aware of using it consciously, becoming ‘unconsciously competent’. This is the stage of intuition that we strive for in our Quantitative Intuition program.

This is one of a series of articles published in a new eBook from Columbia Business School.

Transformation-The Head, Heart, and Hands

Transformation-The Head, Heart, and Hands

It is rare these days, as digital transformation sweeps the business landscape, to meet a business leader who hasn’t either recently led or been part of a transformation. Once a one-off event in response to an urgent need—a dire competitive threat, sagging performance, an overdue process overhaul, or a post-merger integration—transformation is now the new normal. In fact, it has become so commonplace that we have dubbed this the era of “always-on” transformation. 

Yet from experience we know that transformation continues to be very difficult, and the evidence shows that it often fails or falls short of expectations. Moreover, it can exact an enormous toll on leaders and employees, who are constantly being asked to step up, reach further, move faster, and adapt to change, with no end in sight. For leaders and employees alike, it’s less a marathon and more a triathlon; no sooner does one leg finish than another is under way, giving participants no chance to catch their breath before giving their all once again. Still, many organizations overcome the odds; some even achieve lasting results. How do these companies succeed where others fail?

A REIMAGINED APPROACH TO TRANSFORMATION

While there is no one-size-fits-all method, our extensive client work, along with our study of more than 100 companies that have undergone transformations (three or more for 85% of them), points to an approach that combines three interconnected elements. It involves thinking expansively and creatively about the future that the organization aspires to and focusing on the right strategic priorities to get there. It addresses the unrelenting, ever-shifting, ever-growing demands on employees by elevating the importance of actions that will inspire and empower people at all levels of the organization. And at a time of rapid change and disruption, it calls for more than just applying the appropriate means and tools to execute; it calls for companies to innovate while they execute—and do both with agility.

“Transformation in the new digital era requires a holistic, human-centric approach.”

In other words, transformation in the new digital era requires a holistic, human-centric approach, one we call the Head, Heart, and Hands of Transformation. The heart has received the least consideration, but it is attention to all three elements that enables organizations to succeed today and thrive tomorrow.

THREE CHALLENGES IN THE ALWAYS-ON ERA

Transformation today takes place from a variety of starting positions. Some organizations need to move quickly to improve the bottom line. Others enjoy respectable performance but lack a clear path to enduring success. Many companies are simply in need of rejuvenation, ready to imagine a new destiny and perhaps even to increase their contribution to society.

Transforming not merely to survive but to thrive entails addressing three broad challenges, crystallized in these questions:

  • How do we create our vision for the future and identify the priorities to get there? Many companies face an even bigger challenge than overcoming short-term performance pressures: How to reconcile multiple strategic options to envision a different future amid shifting customer needs, evolving technologies, and increasing competition. 
  • How do we inspire and empower people? The relentless pace of always-on transformation can demoralize even the most engaged employees. Sustaining it while offering employees meaningful opportunity and fulfillment—intrinsic rewards that millennials and “digital natives” seek—adds substantial complexity to the challenge.
  • How do we execute amid constant change? Changing the business once meant executing from a playbook of primarily short-term, discrete actions. But transforming to thrive in the future often requires disrupting existing business models and value chains to solve customer needs—and doing so at digital speed. Today, when changing the business means simultaneously executing and innovating with agility, a conventional approach to execution is no longer enough.

Taken together, these three challenges can seem overwhelming. But they need not be.

Consider Microsoft. In February 2014, when Satya Nadella took the helm, the company was by no means broken, yet there were strong headwinds: Windows’ market share had declined, Microsoft had missed the mobile wave, and competitors—and customers—were moving aggressively to the cloud. The company’s inhospitable culture was depicted in a now-famous meme showing managers in different corners of the organization chart shooting guns at one another.

Since then, Microsoft’s performance hasn’t just improved; it has flourished. Revenues (particularly cloud-based revenues) have soared, the company’s stock price has more than tripled, market capitalization is approaching $1 trillion, and annualized TSR, at 26.5%, is twice that of the S&P 500. Perhaps most important, the company now boasts a visibly new culture of cooperation and a renewed commitment to innovation.

“Microsoft’s wholesale transformation has been the result not of a single move but of many changes orchestrated in parallel”

Microsoft’s wholesale transformation has been the result not of a single move but of many changes orchestrated in parallel that have touched every part of the organization. Nadella honed a mobile-first, cloud-first vision, aligning leaders around it and shifting resources toward the relevant businesses to accelerate innovation. In other words, he addressed the head of transformation. He articulated a new purpose—“to empower every person and organization on the planet to achieve more”—and fostered a new culture and leadership model, thus tending to the heart of transformation. He also unleashed new ways of working that have not only enabled execution but also have spurred innovation and agility; that is, he equipped the hands of transformation.

Microsoft’s transformation has reinvigorated a maturing company, positioning it to define and embrace its future with the strength and agility needed to thrive in a fast-changing, tumultuous business landscape.

THE POWER OF HEAD, HEART, AND HANDS

What actions constitute this fresh take on transformation? And what sets it apart from more traditional approaches?

  • The Head: Envision the future and focus on the big rocks. In the digital era, constant change makes it harder to commit to a view of the future; yet providing direction to the organization remains essential. That means companies and their leaders must draw on their strategic thinking, their imagination, their knowledge of customer needs and desires, and their pool of expertise, experience, and wisdom to forge an aspirational vision of a digitally enabled, growth-oriented future. They set priorities, focusing on the “big rocks” that will deliver results and create enduring value.1 They secure the alignment and commitment of the leadership team. And they establish and communicate a compelling case for change, internally and externally. In the past, these actions might have been one-and-done moves, distinct from the daily rhythms of business. But today, because the environment is constantly shifting and these strategic actions generally affect the whole enterprise, they must be revisited and updated on an ongoing basis (ideally, annually) and be integrated into the operating model of the organization.
  • The Heart: Inspire and empower your people. When transformations were viewed as one-off, short-term programs, inspiring and empowering people wasn’t seen as being essential to them; in fact, people were often treated as a means to an end or, worse, as collateral damage. But successful transformation today depends on people who are engaged and motivated to go above and beyond. Organizations can create this condition through a set of heart “practices.” What does this mean? Leaders invest time and energy in articulating, activating, and embedding the organization’s purpose. Companies create an empowering culture, shaped by leaders, that allows people to do their best work. They also demonstrate care for those whose lives are disrupted by the change—not only departing employees but those who remain to carry out the new vision. Finally, senior managers exercise a more holistic form of leadership: they clarify and navigate, they include and empower, and they delegate and enable their people and teams.
  • The Hands: Execute and innovate with agility. Executing a prescribed set of actions used to be enough to generate short-term bottom-line improvements. In this new era, when the future is unclear and the present is constantly changing, organizations need to innovate as they execute, and do both with agility. Consider this: Rather than delegate responsibility for execution to a transformation program owner (who occasionally updates leaders), companies give joint ownership of the ongoing transformation agenda to senior leaders. They ensure disciplined execution by equipping teams with the resources they need to make sound, prompt decisions. Companies also apply innovative methods and digital tools, and institute agile ways of working, to accelerate output, remove impediments, and enable end-to-end focus on the customer. Whereas building organizational capabilities was often an afterthought, today companies build capabilities while carrying out the transformation.

The head, heart, and hands approach to transformation is most powerful when each element is fully deployed. For this reason, the three elements should not be viewed as sequential actions but as three vital sets of activities that should happen in parallel—a holistic system.

Evidence of the impact of this approach is striking. In our study, which included in-depth interviews of leaders involved in these efforts, we asked whether the companies had addressed the actions consistent with the three elements. We then correlated the response with their subsequent performance. Ninety-six percent of the companies that fully engaged the three elements achieved sustained performance improvement, a rate nearly three times that of companies that did not engage the elements. (See Exhibit 1.)

When we asked survey respondents about the relative attention given to each of the three elements during transformation, the head consistently got the highest rating, followed by the hands. The heart came last. (See Exhibit 2.)

It’s thus only fitting that the heart—as the metaphorical center and source of inspiration and power—is at the center of this holistic approach.

THE HEART OF TRANSFORMATION: INSPIRE AND EMPOWER YOUR PEOPLE

People—individuals and teams—are the lifeblood of successful transformation. Transformation requires their effort, engagement, alignment, and willingness to go the extra mile. But in practice, the importance of people in transformation is often neglected; people often end up being treated as expedient or even dispensable. In the always-on era, the consequences of this neglect can be great, as people grow exhausted from keeping up with the latest technologies and adapting to relentless change.

Successful transformation takes heart. The heart serves as an apt metaphor, capturing the essence of the vital, life-giving source of power that people need to effect change.

So how can organizations develop a strong, healthy heart to inspire and empower people? In the context of transformation, we see four imperatives. Each of them, like the atria and ventricles of the heart, works in concert to perform the heart’s complete job: empowering and enabling people to give life to the transformation. (See “Healthy Heart, Strong Performance.”)

HEALTHY HEART, STRONG PERFORMANCE

Activate and Embed Purpose

Increasingly, employees seek much more than a paycheck or tangible rewards; they want meaning, connection, and joy. They want to contribute, develop, and achieve. Organizations with purpose tap into these needs, producing a virtuous circle of benefits.

“In the always-on era, purpose is more important than ever.”

Purpose is an organization’s “why”—its existential reason for being. In the always-on era, it is more important than ever; it fuels transformation by fostering an emotional connection that inspires greater commitment and the willingness to go the extra mile. Purpose illuminates a direction as it links various transformation efforts in a way that is logical and accessible to everyone. But it can do so only when the organization translates it effectively into action.

Create an Empowering Culture

Culture is the lifeblood of the organization. It comprises a clear articulation of the values and behaviors that define how things get done in an organization. Activated by leaders, culture is reinforced by the organizational environment, or context, through such levers as customer service rituals, performance management systems, and informal interactions. A healthy culture serves as a tacit code of conduct that steers individuals to make choices that advance the organization’s goals and strategy. In the digital era, when self-direction and team autonomy are emphasized, a strong culture is particularly important.

Demonstrate Care

Layoffs, redeployments, and reskilling are inevitable today. Even healthy companies will likely have to restructure their workforce to add talent—in particular, people with digital skills and experience that align more closely with the business’s future needs. Such workforce turbulence can be traumatic not only for those who are laid off but also for those who remain. If left unattended, it can undermine morale and progress. At the very least, transformation can dampen engagement and disrupt employee cohesion, and it almost always puts extra demands on people.

For all these reasons, leaders must demonstrate care, compassion, and empathy—and not just through their words. For example, it is critical that leaders continue to solicit the input of employees who remain (say, through pulse checks or broader two-way communications) and actively, visibly address their concerns. To help employees who are leaving, companies can offer a battery of program options beyond the standard outplacement services, such as coaches to help individuals create a personal roadmap, job-market information sessions, resources for financial advice, and even guidance on entrepreneurship.

Lead with the Head, Heart, and Hands

Nothing is more important to the success of transformation than leaders. While they play many roles, leaders embody the heart of transformation.

Leaders clarify and navigate the way forward. Beyond envisioning the future and revisiting strategic priorities regularly, leaders provide constant guidance to their reports and unit heads and ensure that priorities remain linked to purpose. They are action oriented; they set clear accountabilities; and they work tirelessly to communicate a compelling case for change internally and externally.         

Leaders are inspiring, empowering, and inclusive. Leaders instill confidence and courage, and motivate and inspire people to perform. They strengthen and encourage teams and support cross-organization collaboration. They demonstrate care and empathy, actively and candidly communicate with their people, and exercise inclusiveness.

Leaders delegate and enable agile teams. Leaders delegate responsibilities to autonomous agile teams, remove obstacles, and ensure all the necessary cross-functional resources are in place. They also support capabilities building, both human and digital.

EMBRACING THE HEAD, HEART, AND HANDS OF TRANSFORMATION

In the digital era, transformation has become the default state for most organizations. But always-on transformation needn’t be debilitating, exhausting, or demoralizing. We owe it to ourselves, our organizations, and society itself to boldly transform the approach we take to transformation.

Leaders need to move beyond short-term fixes to envision a compelling future, and focus on the big rocks required to get there. They need to stop treating people as a means to an end or, worse, as collateral damage, and instead inspire and empower them. They need to change how work gets done, moving from the expedient and prescribed set of actions to an approach that enables execution and innovation to occur simultaneously, with agility.

The head, heart, and hands of transformation is not a panacea, but it is a holistic and human-centric approach that is proven to enable organizations that truly embrace it to succeed today and thrive tomorrow.

Source : BCG.com

Strategies to use analytics for competitive advantage

Strategies to use analytics for competitive advantage

Organisations are building momentum for the use of Big Data by integrating data analytics into their strategy in small projects that deliver substantial results, according a new report.

Almost all respondents – 96% – said that analytics will become more important to their organisations in the next three years, according to a Deloitte report based on a mix of 100 online surveys and 35 interviews conducted with senior executives at 35 companies in North America, the UK and Asia.

Although analytics already is an important resource for many companies, analytical technology remains immature and data under-utilised, according to the report. Getting buy-in for further projects is essential, so analytics leaders are starting small.

“Projects that demonstrate analytics’ ability to improve competitive positioning help these initiatives gain traction across the enterprise,” Deloitte Touche Tohmatsu Limited’s Global Analytics Leader Tim Phillipps wrote in the report.

Companies can prepare themselves to use analytics for competitive advantage, according to the report, by using the following strategies:

  • Acquire the right talent now. Talent for analytics and Big Data is in high demand. Talent shortages may become more of a barrier to analytics implementation as more companies use data to drive more processes and decisions.
  • Tie analytics to decision-making. Better data and analysis don’t necessarily result in better decisions. Specific initiatives to improve decision cultures and processes, along with changing the understanding and behaviours of front-line workers, lead to better decisions, the report says.
  • Apply analytics to marketing and customers. Finance operations are the most frequent area of analytics investment, with implementation by 79% of respondents. Marketing and sales groups, at 55%, are the second-most frequent analytics users, and the report says the best financial returns from analytics often come from marketing and customer-oriented applications.
  • Coordinate and align analytics. There is little consistency among companies with regard to who oversees analytics initiatives. Business units or division heads (23%), no single executive (20%), CFOs (18%) and CIOs (15%) were most commonly cited. More co-ordination may be needed to realise the full benefits of data throughout the organisation.
  • Create a long-term strategy for analytics. While current analytical processes are being implemented, a multi-year plan for the growth of analytical capabilities – linked to strategy development – will help organisations better use data over time, the report says.

TOP key concerns keeping directors up at night AND How board can address them

TOP key concerns keeping directors up at night AND How board can address them

Concerns on board members’ minds are similar across the globe, the surveys suggest. Here are the top four:

Managing cybersecurity. “In my opinion, and as reflected in the two surveys referenced, cybersecurity is an area of focus for most boards,” Pickering said.

New digital technologies and cybercrime were two of the three top concerns amongst respondents in the InterSearch survey. The PwC survey found that cybersecurity is top of mind for US directors, with 95% of respondents saying their board is preparing for cybersecurity incidents and two-thirds (67%) saying their board is receiving more reports on cybersecurity metrics. Among the tactics boards are using to address gaps are increasing cybersecurity budgets (57%), engaging third-party consultants or advisers (56%), and providing directors with additional education opportunities on cybersecurity (66%).

The PwC survey suggests that increasingly, directors want the entire board to oversee cybersecurity instead of allocating the responsibility to a smaller group, such as the audit committee. In 2017, half of directors said the audit committee was responsible for overseeing cybersecurity, but in 2018, that number fell to 43%. In 2018, more than a third (36%) said the full board has taken responsibility for cybersecurity, up from 30% last year.

In Pickering’s experience, cybersecurity has best been overseen by the risk committee. “It’s such a specialised area, we really need people who are involved in risk oversight on a more regular basis,” she said, adding that the full board gets regular reports and participates in drills. According to the survey, just 34% of directors said their companies had staged crisis management drills or simulations.

Refreshing the board. Serving as a director is more demanding than ever, said Pickering, who was appointed to her first board two decades ago. “It takes a lot of time. You have to stay informed, read the journals, and make sure you are on the leading edge of what’s coming down the pipe. I believe every director needs to be fully engaged.”

But not all directors are as engaged as colleagues expect, both surveys found. Just 10% of the respondents in the InterSearch survey thought the competencies of current board members matched the competencies needed for the future, and 32% suggested their boards needed alterations. Competencies respondents felt were needed more on the board were digitalisation and new technologies (24.3%), innovation (12.2%), and customer orientation (9.3%).

In the PwC survey, 45% of respondents said at least one board member should be replaced. Directors age 60 or under were also more likely to say a fellow director should be replaced (52%) compared with those age 61 or older (43%) who wanted to replace a colleague. Among their chief complaints about colleagues were directors overstepping their roles (18%), being reluctant to challenge management (16%), negatively impacting board dynamics with their interaction style (14%), and lacking the appropriate skills or expertise for their role (12%). At the bottom of the list, 10% of respondents said they thought advanced age had diminished a colleague’s performance, which ties into long-standing debates about mandatory retirement ages and director term limits.

According to the PwC survey, directors think both mandatory retirement ages (73%) and term limits (64%) are effective strategies for refreshing boards, but less effective than a leadership focus on board refreshment, as well as assessments of the board, committees, and individuals.

PwC recommends annual assessments to identify directors whose expertise no longer aligns with the company’s needs. Less than one-third of respondents (31%) said their boards already use director assessments, but another 46% said they thought the board would be willing to adopt their use.

Avoiding corporate culture crises. Corporate culture is often thought of as the “tone at the top”, but according to the PwC survey, most directors think cultural problems can start both at the executive level (87%) and in middle management (79%). That’s why it’s important to offer employees at all levels opportunities to offer feedback, such as with an anonymous survey, Pickering said.

“You shouldn’t be afraid to ask your employees these questions,” Pickering said. “You need to know if there’s a potential issue. It’s good for culture and the health of the company.”

More than 80% of respondents in the PwC survey said their companies have taken action to address culture concerns, many by enhancing employee training (60%) or improving whistle-blower programmes (42%). But some organisations still are missing the mark by using ineffective tools.

According to the PwC survey, 64% of directors said they evaluated company culture using their intuition or “gut feelings”, even though just 32% said this was a useful approach. Another 63% said they looked to employee turnover to get a read on work culture.

PwC recommends that boards review the quantitative and qualitative metrics the company may already measure to identify gaps and ensure organisational culture is a regular topic on the full board’s agenda. Even if elements that contribute to organisational culture, such as ethics or compensation, are broken off and discussed in committees, the full board should discuss concerns that arise as part of their broader oversight of culture.

Determining the value of diversity. “Gender diversity on boards is still not where it needs to be,” Rand said. “Increased diversity on boards should not be the result of a box ticking or a public relations exercise.”

Almost all directors (94%) in the PwC survey agreed that board diversity brings unique perspectives into their discussions, and 91% said their boards are taking steps to increase diversity on the board, which is a slight increase from last year. However, about half the directors surveyed also said they thought efforts to increase diversity on boards are driven by a desire for political correctness (52%) and that shareholders were too preoccupied with this issue (48%). About a third (30%) said diversity efforts result in boards nominating extraneous candidates, and 26% said diversity results in unqualified candidates being nominated.

In the InterSearch survey, 43% of respondents reported changes in board membership that had already taken place to make the boards more diverse — 67% were driven by the wish for greater gender diversity, 46% to promote greater diversity in competencies, and 25% to provide greater diversity in nationality.

“Being a female, I understand and appreciate diversity,” said Pickering, who was the sole woman on the board for Hancock Whitney Bank for years. “You want to have a diverse board; I believe it makes a huge difference in how boards operate.”

Among attributes, respondents in the PwC survey placed the most importance on gender diversity (46%) compared with racial and ethnic diversity (34%) and age diversity (21%).

PwC recommends that boards consider diversity whilst developing strategies for board refreshment. Boards often recruit new directors by relying on recommendations from current ones, which limits results. The firm encourages boards to look more broadly and consider recommendations from investors rather than board members, and find candidates outside of the corporate world, such as those who have served in the military or worked in academia or at a not-for-profit.

To her board’s credit, Pickering said, it has added two female directors in the last two to three years, including one who was featured in Savoy magazine as one of the “2017 Power 300: Most Influential Black Corporate Directors”. “We partnered with a search firm and found great talent,” Pickering said.

 

What makes a CFO great

What makes a CFO great

A majority of finance leaders said they are increasingly expected to have digital know-how, use data analytics, and manage risks. They also have to deal more with shareholders and regulators than before, according to a global EY survey of more than 750 finance leaders.

Corporate finance leaders face four main challenges. Tackling them will allow CFOs to shape strategy and drive innovation necessary for sustainable growth, but it will also rapidly expand their role, EY research suggests.

Taking on the additional responsibilities is crucial to help develop and enable an overall strategy for the business, provide insights and analysis to the company’s executive management, ensure that business decisions are grounded in sound financial criteria, and represent progress on financial goals to external stakeholders, according to EY.

A great CFO is a partner to the CEO and in private his or her harshest critic when warranted, he said.

Digital know-how. To fulfil critical strategic priorities, 58% of the respondents said they need to better understand digital technologies and data analytics. Two technologies are shaping up to become particularly important for finance leaders to understand: Blockchain, which allows data to be exchanged with the help of a decentralised ledger, could transform corporate reporting. Robotics process automation promises to automate and reduce the cost of back-office processes.

Digital savvy is a priority across industry sectors, because it offers opportunities for growth – in new markets, through new products and delivery models, or by transforming existing products. Financial leaders who understand how their company can deliver on its digital strategy can co-ordinate and focus investments accordingly.

Digital issues to tackle include global tax implications for how goods and services are sold; where companies base their operations; robotics; and new competitors.

A good digital strategy helps a company figure out which technology provides the best return on investment and possibly other intangible benefits. “Not everything will work for your business.”

Data analytics. In the past decade, half of the finance leaders polled by EY have increased the amount of time they dedicate to advanced analytics to provide more insight to the CEO and senior management. Of the respondents in the 2016 survey, 57% said that being able to deliver the data and advanced analytics will be critical for the finance function.

“Using Big Data along with your own internal data makes your internal data even more powerful, and it provides context and connection to the marketplace,”.

For companies to turn these efforts into a long-term competitive advantage, data must become integral to the business strategy, and analytics delivery must match business requirements. To gain more value from analytics, business leaders should focus on training, easy-to-use tools for data users, and aligning incentives, rewards, and measurements.

Risk management. Two-thirds of financial leaders in large companies (more than $5 billion in annual revenue) and 54% of financial leaders in smaller companies said they believe risk management will be a key capability demanded of the finance function.

To play their part effectively, CFOs must think beyond prevention and identify strategic risks, bring up risks in strategic and business planning discussions, and take the time and resources to recruit talent in advanced analytical skills.

“By understanding the pain points of pivotal departments in your organisation,”, “you can look at a balanced level of risk that allows for creativity and mistakes in order to drive the best possible solutions and outcomes.”

Stakeholder scrutiny and regulation. Half of the financial leaders polled said they will have to improve their skills managing relationships with stakeholders, including investors and senior management; in emerging markets it was 59% of respondents.

Understanding what drives stakeholders, communicating proactively, and telling a consistent story about the business will be critical to strengthen stakeholder relationships.

Intense regulatory scrutiny requires CFOs to also work ever more closely with policymakers. Of the finance leaders polled, 71% said they will increasingly be responsible for the ethics of their company’s decision-making.

A great CFO “is a great communicator and is as comfortable talking to boards and investors as [he or she is talking to] a roomful of software engineers,”. “They are flexible and listen to ideas, commercially astute, and up to date with technologies.”

HOW TO TACKLE THE CHALLENGES

To help identify and assess fresh strategic approaches and help their companies, EY considers these five areas as critical:

  • Support innovation and new business models. Collaborating with entrepreneurs and start-ups helps drive innovation and meet changing customer and emerging market needs. CFOs play a key role in building successful collaborations, including effective due diligence on potential partners, aligning incentives between partners, and establishing an effective governance model.
  • Develop and deliver agile strategy. Business strategies should adapt to changing competitive dynamics, differing customer needs, emerging technologies, and a changing regulatory environment. CFOs can develop and deliver these strategies, for example, by unlocking capital for new business opportunities.
  • Drive sustained, long-term growth. Identifying risks as early as possible, managing negative exposures, and seizing opportunities help companies adapt to uncertainties generated by market and regulatory volatility. CFOs can provide investment flexibility to seize growth opportunities, such as new products and services or entering new markets.
  • Inspire and lead the way with strong purpose and ethics. Articulating a business’s purpose and ethical stance motivates employees to meet new challenges. CFOs help embed purpose in the business by leading through example and by grounding it to performance measurements.
  • Support digital. Understanding the opportunities and risks allows companies to incorporate digital into their strategy and into the delivery of the strategy. CFOs can then help the business to deliver the right digital capability at scale, be it by striking a balance between near-term targets and long-term potential or by building the business case for significant technology investments.

How Compensation Impacts Your Business

How Compensation Impacts Your Business

We compare top performing companies—defined as those who were first in their industry and exceeded revenue projections in 2015—to all respondents, revealing a correlation between modern pay practices and business success. The chart below shows how top performers’ pay practices compare to average companies:

Top 10 Pay Practices That Set Top Performers Apart

#1: Pay Transparency

47% of Top Performing companies intend to be transparent about pay. There has been a lot of buzz about pay transparency, everything from employer driven initiatives to employees taking it into their own hands. Employees increasingly expect transparency around pay from their companies. Take the time now to get your house in order so that when you are ready to make the decision to get more transparent about your pay practices, you’ll be ready.

#2: Effective conversations

While 82% of employees feel okay about low pay, as long as the rationale is explained, only 17% of companies are confident enough in their managers’ ability to have those tough conversations about pay. Your managers are your eyes and ears, especially when it comes to sentiment about pay. The ‘why’ matters! Managers have to be able to communicate the why and rationale behind pay decisions, which they can’t do if you either don’t know or haven’t explained to them yet. One of your most helpful tools is a Total Comp Statement, or Total Rewards Statement, which details the cost of all the benefits and compensation you pay out to your employees. 47% of top performing companies share a Total Rewards Statement with their employees. The best time to learn how much the company pays for health insurance is while your people are still employees, not when it’s time for them to pay COBRA.

#3: Performance Management

44% of companies say they are shifting from an annual to an ongoing performance management process. Most companies really want to pay for performance, but the obstacle is in outdated modes of performance evaluation. Shift to something that is as nimble as your business goals. Linking performance with pay is still integral to driving both engagement and results, the trick is in identifying the more efficient way of measuring performance.

#4: Competitive Strategy

61% of top performing companies pay more for competitive jobs. If you want to compete in a rapidly changing global economy, you have to pay more for your hot jobs and your top talent. A peanut butter approach isn’t going to cut it anymore – don’t spread your pay too thin. Pay more where it matters, save where you can. It’s noteworthy that half of top performing companies increased their compensation budget for 2016; they actually seek to compensate their people, and to compensate them well.

#5: Creative Mix of Pay

81% of top performing companies use variable pay, including both team and individual incentives. They’re also more creative about the total rewards package, including learning and development opportunities, gym memberships, catered lunches, and more. Get to know your workforce better. What motivates them? Figure out the right mix for the right segments within your organization, and definitely get creative because your competitors are.

#6: Addressing skills gap

70% of top performing companies report that they have a skills gap in their positions that have been open for 6 months or longer. That number jumps up to 80% in science and engineering jobs. That said, only 23% of companies think their positions are remaining open due to pay, so it’s likely something else. Use your succession programs to identify key talent within your organization. Use your learning & development programs to build them into your future leaders.

#7: Millennial strategy

35% of top performing companies will change their strategy for millennials. They are evaluating their PTO practices, as well as wellness, philanthropic, and diversity initiatives. In May of this past year, we tipped the point in the US to having Millennials comprise the majority generation in the workforce. Millennials aren’t coming, they’re here and they’ve been here. Get to know what millennials care about (fairness, flexibility, and advancement to name a few), and update your compensation strategy.

#8: Supervisor skills

35% of employers said that animosity with their direct supervisor was among the top 3 reasons for employees leaving. While pay often comes up as a number one reason that employees leave organizations, 67% of employees believe that a good relationship with their manager is critical to their job satisfaction. When we combine this idea with the fact that most managers have gotten where they are because they are great individual contributors, not necessarily people with excellent management skills, it gets much clearer that companies that thrive will have to successfully train their supervisors in people and communication skills.

#9: Learning & Development programs

86% of top performing companies believe that their people are their best asset. Motivating and engaging their best asset is key to achieving both individual performance and organizational results, as well as to having a high performance culture. 58% of employers plan to use learning and development programs to retain and recruit their employees.

#10: Fresh & accurate data

56% of top performing companies are open to either employer—or employee—submitted data, as long as it’s accurate and fresh. You’re no longer competing with yourself or the company across town. In a global economy, you’re competing with people all over the world. You need data that moves as fast as your business does so that you can retain the top talent to help you accomplish your goals.

Source : PayScale’s 2016 Compensation Best Practices Report