Digital disruption is upon us. To succeed, businesses must invest in doing things differently and establishing new routes to market so they can remain relevant.
Many executives recognize this to be true; there is increasing awareness of the need for e-business strategies. A new survey from McKinsey & Company reveals top executives are transitioning their digital strategies from revving-up mode to active enterprise deployment. Insights from the report The Digital Tipping Point show a majority of CIOs, CEOs and CMOs are now involved with digital projects, and that a significant number of executives feel that digital will play a prime role in driving organizational growth for the next several years.
But is your CFO completely onboard your digitization bandwagon? It’s an important question to ponder because if not, he or she might be unwittingly undermining your digital transformation, aka the future of your business, by focusing on shorter term profits that can severely compromising your long-term revenues.
Overcoming Resistance to Change
There are a number of ways CFOs can inadvertently derail digital strategies. One is through ambivalence and/or resistance to change.
“Executives know digital is a threat, but they aren’t dealing with it. Their current operating model is their biggest weakness,” say Forrester analysts Nigel Fenwick and Martin Gill in their recent research note, Unleash Your Digital Business. “The organizational structures, processes and ways of working that have proven so successful in the past are now your firm’s greatest enemies in its race to embrace digital technologies.”
The sheer velocity and the invasive nature of digital disruption can be overwhelming to many organizations, as can be piloting strategies to address it. CFOs can feel out of their element in many regards. The historical business model of planning, budgeting and forecasting doesn’t work. Organizations can no longer plan and budget year in, year out for a business adapting and evolving in response to slow-moving trends.
In the McKinsey & Company study referenced earlier, few execs said their company has accountability measures, such as targets and incentives, in place for digitalization. And very few feel that their organization understands the exact value which digital efforts can deliver.
When you consider that a CFO’s world is one of concrete metrics, does it surprise anyone that they might have a great level of ambivalence when it comes to digital transformation?
Budgeting for the Win
Another way CFOs can derail an organization’s digital future is by being too conservative with the budget. Responsible for allocating financial resources, CFOs hold the purse strings to a business’s future. And if a CFO perceives e-business and digital transformation as simply another “IT project” and not the future of the business, a company will likely not be able to put enough financial firepower forward to ensure success in making this transition.
To fully understand the full resource requirements for e-business, it’s important for CFOs to note e-business is more than just a technology “buy.” Digital business transformation is a multi-year corporate-wide effort, requiring resources to support the strategy, execution, continued push of e-business best practices, and tweaks and refinements from lessons learned. As well, organizations need to budget for additional requirements that may come into focus in the future, as the face of e-business seems to change every day—something organizations find especially daunting.
Gartner and Financial Executives Research Foundation research showed that CFOs are responsible for authorizing 26% of all IT budgetary expenditures, while CIOs only have authorization control over 5% of the IT budget; only 47% of financial executive respondents in the research believe that IT is strategic.
As Forrester states in Unleash Your Digital Business, “Digital is more than a bolt-on strategy. Bolt-on digital is like painting go-fast stripes on a car; it doesn’t change the underlying business. To become a digital business requires enterprise transformation.”
Another issue of concern for CFOs is that e-business is hard to benchmark. How much does digital transformation cost? And what kind of time frame is realistic? The reality is that there are very few benchmarks out there.
Industrial distributor WW Grainger has stated publicly that over a four-year period the company anticipated spending $40 million to build its e-business. But when Neil Ashe, Walmart’s president of global e-commerce, was asked, “How long will it take and how much will it cost to build out the e-commerce operation?” he replied, “It will take the rest of our careers and as much as we’ve got. This isn’t a project. It’s about the future of the company.”
CFO Strategies for Success in e-business
So, how do you get your CFO to “buy in” on your e-business strategy to ensure success?
Shift your thinking and your budgets. Take a cue from Leonard Brody, entrepreneur, venture capitalist and best-selling author and speaker, who advises organizations look to target a 10% elimination of operating costs and divert this spend to technology instead. This strategy can get organizations to shift their thinking to e-business and give CFOs a financial construct/model to work with to appease their analytical nature.
Put concrete metrics around your e-business initiatives. Set goals so you know what success looks like.
Adopt a “land and expand” approach. Start small, and do more as revenue starts to flow.
Don’t overlook the benefit of e-business as a vital tool to navigate changing market dynamics. It’s a sound financial strategy to maintain your existing client base, but what happens when market dynamics disrupt your revenue streams? When a light bulb supplier saw the advent of the LED light bulb, its business changed overnight. Now a sale was once every 15 to 20 years as opposed to once every six months. The company used digital strategies to refactor its business to offer new products and other value-added services.
Organizations must approach digital transformation with aplomb and with realistic resource expectations to ensure success and with their CFO onboard as a champion. While seemingly a challenge to the CFO’s sensibilities, instituting e-business can enable organizations to gain efficiencies for greater revenues and lower expenses—something that will make every CFO smile.
Brian Strojny is co-founder and director of Insite Software, an e-commerce and shipping platform provider for manufacturers and distributors requiring business-to-business (B2B), direct to consumer (B2C) and mobile solutions. He has a background in ERP consulting, and has worked with large organizations such as Walmart, Target, Office Depot and Staples. He holds a B.A. in business and marketing from Hamline University and an M.B.A. from the University of St. Thomas School of Business.