Digital Transformation » Decoding the digital transformation enigma: fad or legitimate strategy?

Decoding the digital transformation enigma: fad or legitimate strategy?

Finance leaders across industries agree that digital transformation is essential for any organisation’s survival, but its true meaning continues to be shrouded in mystery

Decoding the digital transformation enigma: fad or legitimate strategy?

Across all industries, CFOs are expressing their fervour for digital transformation. But the lack of standardisation in approach to this phenomenon has people questioning whether the term is now a mere buzzword.

“Digital transformation is a vast scoping overarching sort of topic, it’s not a single thing. So I have the same view of AI -it’s a buzzword,” says Harsh Amarasuriya, CFO at Clyde & Co. “[Everyone] is talking about it, but what does it actually mean?”

According to Gartner, digital transformation can refer to anything from IT modernisation – for example, cloud computing – to digital optimisation, to the invention of new digital business models.

At IBM digital transformation is defined as a customer-driven, digital-first approach to all aspects of a business, from its business models to customer experiences, to processes and operations.

While there is no one set definition for digital transformation, CFOs have found the responsibility for carrying out related projects set firmly within their remit. Several finance leaders say their roles have had to adapt as a result.

“In the legal space, our clients expect us to be technologically savvy, a lot of our clients are multinationals themselves and they are going down a transformation route as well.
“For me personally we are trying to bring as much benefit to our clients as we can and digital transformation is a key thing to enable efficiency and value creation,” says Amarasuriya.

As CFOs juggle their multiple responsibilities, assuming the role of both the digital transformation visionary and the financial steward of such initiatives, adds to their already demanding workload.

“CFOs need to be incubators. The CFO needs to be constantly creating the environment that promotes out-of-the-box thinking,” says Saj Molaee, CFO of AstraZeneca Singapore.

Molaee explains that a ‘traditional’ CFO would focus on the numbers when it comes to digital transformation, while a ‘modern’ CFO would interrogate strategy and ask questions that encourage innovation. “Failing behind trends is an existential threat and this is the role we need to play,” he says.

Digital transformation transcends technology

“The truth is that digital transformation is actually not about adapting to new technology at all – it’s about directing an organisation to be more adaptive to change itself,” writes Lindsay Herbert, in his book, Digital Transformation: Build Your Organisation’s Future for the Innovation Age.

Molaee, along with Warner Bros. Discovery FP&A executive director Daniel Echeverri, and Technicolour Creative Studios deputy group CFO Martin Uhrik agreed.

“Any change in systems, processes, tools is a change of behaviour, says Uhrik, adding that a change in behaviour creates a change of culture and this directly impacts how the business operates.

Uhrik says the challenge for CFOs or any change agent in transformation is to ensure you communicate and over communicate.

“It’s absolutely important to ensure people people’s hearts and minds are taken on the journey and they don’t feel like they are forced to do something,” he says.

These finance leaders noted that spearheading digital transformation requires enhanced technological literacy among staff, greater collaboration with other executives across departments, an increased focus on change management and talent development, and increased involvement in risk and compliance related to digital initiatives.

“You need to bring the people along, you need to show them that there’s another world outside your company,” says Echeverri. He says the key to cracking this is benchmarking and taking lessons from industry peers who have successfully embarked on digital transformation.

“I think for the beginning of the digital transformation you need to bring some people from the outside to lay out exactly what they have done and how have they changed their companies with digital transformation,” he says.

“And it might take a while but is the nature of a cultural process, you cannot create culture in one day, it takes a while and it takes discipline.”

CFOs as agents for change

With digital transformation being a strategic imperative for businesses today, it means CFOs play a pivotal role and ensure the organisation’s investments and capital decisions can support a businesses’ digital strategy.

“As CFOs, we have a holistic view of the organisation, we connect with different functions like sales, marketing, HR, and finance,” says Molaee.

“We also oversee the ERP system, which is the backbone of the organisation’s operations. We have access to data and insights on economic trends and strategic planning. All these factors make us well suited to drive the digital transformation agenda,” he says.

However, Molaee also emphasises that digital transformation is not a top-down decision, but a collaborative process that involves engaging with various stakeholders, especially the employees.

“We don’t make decisions in isolation and then communicate them to the rest of the organisation. We do the opposite. We encourage the employees to share their ideas and co-create solutions with us. Our role as leaders is to enable and facilitate that ideation process,” says Molaee.

This was the case at Pharmanovia. CFO Felipe Florez-Arango told The CFO that the digital transformation at the pharmaceutical giant followed numerous engagements with employees.

Florez-Arango told that after a few months into his role he had from several employees that the businesses ERP system needed attention.

“They said system was not up to what we need, and was making their life and their job harder,” he said.

Meanwhile for Uhrik who leads the finance team at Technicolour Creative Studios-a visual effects, animation, advertising and gaming business- says a critical component is having a clear understanding of how much it would cost.

“I did a digital transformation from 2019 to 2021, and my direct finance team went from €12 million in cost, down to €8 million cost,” says Uhrik. He attributes this to how the finance team transformed how data is managed.

Uhrik says before embarking on their digital journey, the finance team knew what it would cost in terms of technology investment and what the return would be. A thorough cost-analysis has been carried out.

“If those numbers make sense, then you go for it. But sometimes you may not have a choice because you have very old systems or no systems at all, says Uhrik.

A journey not without risks

CFOs who neglect digital transformation risk operating with outdated processes, incomplete information, reduced competitiveness, compliance issues, missed cost-saving opportunities, limited strategic insights, and difficulties in attracting and retaining top talent.

It is therefore essential for CFOs to actively engage in digital transformation to mitigate these risks and drive financial excellence in the digital era.

Clyde & Co’s CFO, Amarasuriya, warns the consequence of CFOs not getting involved in the process could be dire. “As an organisation, you risk falling behind not only as the CFO, but your organisation will fall behind quite rapidly,” he says.

He explains the current market environment means organisations are competing with established businesses.

“You have to always be mindful and extremely nimble, whether you’re in the legal space, which is one of the more traditional, people-based sectors, the industry is susceptible to new entrants all the time and technologies enable that,” says Amarasuriya.

Several companies have successfully undergone a digital transformation, with finance teams at the forefront and achieved notable results.

Jeff Smith, CFO of sportswear pioneer Under Armour, has been a key driver of digital transformation. He has helped the company to invest in new technologies, such as artificial intelligence and machine learning, to improve its operations and customer experience. In 2021, Under Armour’s digital revenue grew by 20%, and its online sales accounted for 40% of its total revenue.

Similarly, James Quincey, CFO of Coca-Cola helped the company to invest in e-commerce and mobile marketing initiatives to reach new customers and grow its business. As a result, in 2021, Coca-Cola’s e-commerce sales grew by 50%.

Turning challenges into opportunities

Digital transformation projects are, however, not without challenges. Projects can be stalled by stakeholders who are resistant to change; other hindrances could range from legacy systems, data quality issues, security concerns, skills gaps, lack of clear strategy, budget constraints, and organisational culture.

And yet, most CFOs remain optimistic. “Digital transformation is not a burden, but an opportunity,” says Molaee.

“It allows us to automate transactional accounting tasks and use AI to generate more insights and value for the organisation. It also enables us to create and deliver more customised products and services to our customers. It changes the way we operate and compete in the market,” he says.

Digital transformation brings significant benefits to the finance function, including automation and efficiency, real-time data and insights, improved accuracy, and compliance, enhanced financial analysis, collaborative and remote work capabilities, cost savings and resource optimisation, and scalability and adaptability.

These advantages enable finance professionals to streamline processes, make informed decisions, ensure compliance, perform advanced analysis, collaborate effectively, optimise costs, and adapt to changing business needs.

Embracing digital transformation empowers finance teams to become strategic partners, driving financial performance and contributing to overall organisational success.

In the era of rapid technological advancements, CFOs have a unique opportunity to take the lead in driving digital transformation within their organisations. As strategic financial decision-makers, CFOs are ideally positioned to champion the adoption of digital technologies and reshape the future of finance.

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