The Future of Finance in a World of Global Digital Transformation

© 2017 Blue Hill Research. All Rights Reserved.

The Future of Finance in a

World of Global Digital

Transformation


Hyoun ParkChief Research Officer and Principal Analyst: Business Intelligence and Technology Management

Key Themes:• Analytic Business Transformation• Consumable IT• Demand-Driven Monetization• Future of Finance

Expertise and Focus Includes:

Decade of startup operations experience

Experience in Data Management, Enterprise Mobility, Enterprise Collaboration, Telco, Moneyball

Social Media Influencer in Enterprise Technology

Focus on Technology Lifecycle Management, Business Intelligence, Enterprise Performance Management

To follow Hyoun or read latest research:http://bluehillresearch.com/author/hyoun-park/

Internal Leader for: Financial ManagementBusiness Intelligence


Key Takeaways

• The CFO is the Doctor of the your company

• New Business Trends challenge the CFO Office’s ability to remain the voice of sanity and determine your approach

• What do your departments expect?

• Create Your Single Pane of Glass to prepare for the future


Why the CFO is a Doctor


CFO Office

Manufacturing

Supply Chain

Sales

Marketing

ServiceService

Operations

Procurement


Numbers Don’t Lie, But

Appearances Often Do


Being the Doctor of your Company• If Money is the lifeblood of the company, then

– You are the doctor– The Company is the patient

• You have an objective view of the company

• Choose your approach


Multiple Approaches to Being the Doctor

• Are you the Surgeon: Cut costs now!

• The Specialist: Trusted expert in one system with deep subject matter expertise

• The General Practitioner: What’s wrong with the business? What should I watch out for?


Reality

• It is easy to do what it is expected

• It is harder to say no, especially for a task that is expected

• It is even harder to champion a better option and it takes both data and a strong contextualization of the business to do this right.


The Challenges of Being the Doctor

• Easy for status quo organizations: focus is on tracking standard financial metrics, accounting, compliance

• Translating today’s buzzwords to formal finance can be challenging.

• As an example, let’s look to the past


Business Transformation Hype:Are We Stuck in the Dot-Com Era Forever?


The dot-com era

• Remember the late 90s?

• High-flying companies such as Lycos, Geocities, eBay, Yahoo, and Amazon had insane valuations in a world where “all the rules had changed.”


• Launched August 1998• $300M in funding; Amazon owned 54% of

the company• Mascot designed by TWDA, who also

designed the Taco Bell Chihuahua• In January 2000, taught us that “Pets can’t

drive!” at the Super Bowl• IPO in February 2000• Shut the doors November 2000• Assets bought by Petsmart


What went wrong?

• The “New Economy” wasn’t new.• Pets.com was selling products at 30-70% of their cost• There was no immediate road to “higher margin” purchases• Infrastructure investments required ~$300 million run rate,

which executives thought would take 4-5 years to achieve.

• So, was this a bad idea?


PetSmart to acquire online pet retailer Pet360 for $130 million

- September 2014Estimates: Global Online Sales of Pet Food and Supplies reach

$4 billion in 20154% of Pet Food and Supplies Are

Sold Online


The wrong lesson to learn from Pets.com was that this was a stupid idea.

Pets.com as a $300M funded company is awful. Pets.com as a $30M company focused on eCommerce might have made it.

The right lesson: companies that require fundamental change need to be guided correctly.


How do new business models affect what the CFO should focus on?

• What are the key business drivers that are emerging across the business in light of new economic models?

• How can CFOs support change rather than get caught flat-footed?

• First, take a look at new business trends.


New Business Models• Digital Transformation• Subscription Economy• Data Monetization• Internet of Things• Outcome-Based and Usage-based

models –Request-based, per hour, per ton

• Microservices – monetizing internal production or development capabilities


Subscription-based Business Models

• What does it take to turn this into your primary business model?

• First, a fundamental understanding of costs and inventory. Is the current bottleneck to revenue based on supply or demand?

• Cash balance. Can the company support a short-term loss in one-time purchases?

• Value proposition. Subscriptions solve a problem, not a one-time issue.


Founded in 1982 IPO in 1986Stagnant market cap in 2000’s.

May 6th 2013 – The day everything changed. Adobe went all-in on subscription and stopped commitment on its on-premises Creative Suite.


May 6th 2013


Adobe Stock Performance

• Part of this performance came from transforming a one-time sale into a recurring purchase

• Also, in software, the cost of production is basically null. Who cares about a 70% upfront price cut if you can renew a customer for 5-10 years at the same rate?

• We’re not all software companies, but do we have excess capacity? Do we have ongoing value as a service?


Internet of Things and Usage-based business• In more mundane industries such as construction and

manufacturing, the Internet of Things provides new opportunities for similar reasons.

• Highly complex machinery is now being sold on a per use basis or with outcomes-based billing from the per ton processing of air, concrete, dirt, or water.

• What is the outcome you are selling? And how does that change the unit of production? Fixed costs?


Not Just for Standard Customers

• Patients, Students, Donors are all customers as well, but with different needs.

• Patients have both elective and non-elective health needs. Elective needs are a customer issue.

• Students have a lifetime value as they become donors• Every donor has a different definition of ROI


Practical Aspects of Business Transformation

• Billing Issues• Contract Issues• Tax and Revenue Recognition for Services• CapEx/OpEx categorization• Managing Distributed finance inputs and teams• Close, Audit, and other Compliance-driven activities• Data Governance• Risk Mitigation


Building the Single Pane of Glass


Start with a Balanced Scorecard approach

• We’ve seen this before, but the balanced scorecard can be messy

• Balanced scorecard – based on “target” metrics– Customer, process, and growth categories– Based on identifying appropriate Performance Drivers

• Supply Chain, Sales, Marketing, Service must accompany Finance


Problems

• Every department thinks they have 50 metrics that matter for the CFO

• Departments mistake operational control for financial control

• I’m going to assume you know the basics: cash flow, working capital, A=L+E, AR, AP, Inventory, Profit, Quick Ratio, DSO

• But what do departments THINK you want and how can you integrate this into the Single Pane of Glass?


Manufacturing and Supply Chain

• Start with your basics: inventory turns, Overall Equipment Efficiency– Sound simple? Depends on what your inventory is…– Is it the asset, itself? Or is it a software license install that enables the asset?

• Does inventory even matter to your product?• Will inventory turn acceleration increase COGS?• Which bottlenecks truly affect product or service delivery?• Which aspects of production and contract delivery can your company control?• Can you sell your inventory?• OEE based on Quality, Efficient Performance, and Constant Availability – set

standards for resource capacity


Sales, Marketing, and ServiceIncreasingly one integrated department based on the Customer Journey


Marketing Metrics

• Today’s trendy metric: LTV/CAC (Lifetime Value / Customer Acquisition Cost) – How practical is this metric?

• Customer Payback Period - ~1 year is normal in the subscription world, making service mandatory

• Marketing-originated customers vs. Marketing-influenced customers


Sales Data

• Is sales per visit or sales per opportunity the right metric? Or should sales be analyzed on a product, location, or customer/patient/student level?

• Which service activities are associated with renewal and upsell?

• Integrated view of the customer: Sales, Marketing, Service


Is Service treated as a Revenue Driver?

• When does the renewal start?

• How engaged is the customer on training, upgrades, upsell?

• How much technical or consulting support vs. sales support is the customer asking for?

• Is Customer Satisfaction measured correctly?


In Thinking of Your Single Pane of Glass

• Look at current and proposed business models

• Look at these departments in context

• Find the right data sources

• Re-evaluate data and metrics annually or as your business considers fundamental changes


How useful?

• Is financial data abstracted from operations?• Are “asset” and “service” categories related to company

operations or are they defined by accounting?• Do non-finance personnel use your data to plan, or just to

define their budget?• Do you have access to detailed operations, facilities, IT, and

expense reports?


Takeaways

• Be the Doctor and take care of your patient: The Business• Provide Guidance for Future Business Models – the CFO office must

be a core stakeholder in any significant sales, product, or service changes.

• Don’t follow trends blindly• Don’t stick to the status quo in a time of rapid business change• Maintain a view into all areas of the business• You are the center for business transformation: All Roads Lead to

You.


Phone: +1 (617) 624-3600 Contact Research: [email protected]

Thank You!To join the conversation, follow us on:

mailto:[email protected]?subject=Contacting%20Blue%20Hill%20Research

https://www.youtube.com/user/BlueHillResearch

https://twitter.com/BlueHillBoston

https://www.linkedin.com/company/blue-hill-research

https://www.facebook.com/BlueHillResearch

https://plus.google.com/+Bluehillresearch/posts

http://www.slideshare.net/BlueHillResearch

http://www.pinterest.com/bluehillboston/

The Future of Finance in a World of Global Digital Transformation

Economy & Finance

Transcript of The Future of Finance in a World of Global Digital Transformation