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- June 07, 2018
- Finance & AP
Digital transformation has risen to the top of the corporate agenda, and companies are increasingly looking to CFOs to take the lead in setting strategies for data and technology. So what can CFOs do to advance digital transformation? Coupa CFO Todd Ford recently shared his thoughts on that topic with James LaCamp, partner and leader of Deloitte & Touche LLP’s US Technology industry software practice in an interview for CFO Journal.
LaCamp: Much has been written about “digital transformation.” How do you define it, and what does it mean for finance?
Ford: To me, digital transformation is about becoming not only data-driven but to be able to use data to drive incremental value. That requires automation and a move to cloud-based architectures, but there is much more to it than that. You have to think beyond simply automating specific tasks or swapping out on-premise systems for cloud versions. You have to be able to get the right data to the right people at the right time. True digital transformation takes place when organizations use machine learning and artificial intelligence (AI) to mine that data for insights that improve processes and create value.
It’s still very early days, but the majority of finance organizations are driving in that direction. In a recent survey of CFOs conducted by the Economist Intelligence Unit (EIU) that we sponsored, more than 60 percent of finance leaders said they see deploying new technology solutions or automating and improving inefficient processes as the two most important tactics for controlling costs and driving growth over the next two years. If you’re currently behind on automation and on adopting cloud technologies, you’re going to fall even further behind as digital leaders move into AI.
LaCamp: What should CFOs focus on to prepare for AI?
Ford: For many companies right now it’s all about the data because AI runs on data and more data. The first building block for getting value from data is to automate how it’s collected—if you want good data you have to give people systems that are easy to use. Next is data architecture, in which you pull all the data from multiple ERP systems into one common database. That typically involves using a SaaS (Software as a Service) system that sits on top of disparate ERP systems to drill down, gather all the data, and then bring it back up into one repository where it can be normalized. The final building block is integration, making sure that data can flow across all your company’s systems. Once all your systems are integrated you can really start to do some interesting things with data—even without AI.
LaCamp: You almost sound more like a CIO than a CFO. Do you see technology integration and data stewardship as part of the ever-expanding CFO role?
Ford: CFOs are major stakeholders in digital transformation because we’re expected to do so much more now than report out on past performance. We have to provide real-time information to help guide day-to-day decision-making, so we can’t work from data that’s six to 12 months old. CFOs should leverage the expertise of the CIO to identify where the biggest areas of opportunity are, and have a strong working partnership, but it’s up to the CFO to prioritize investment. There will always be certain constraints, so for every dollar of incremental investment you might make you have to determine where you will get the most value. In many cases, especially where a process is too manual or inefficient, the answer is to automate rather than to add headcount.
Ideally, the CFO and CIO work together to assess key business processes in the context of the organization’s go-to-market strategy, and they work together to integrate those business processes from a macro perspective that avoids the trap of each department managing separate business systems and creating data silos.
LaCamp: You foresee a related transformation taking place, with the CFO role evolving into the COO role. Can you elaborate on this idea?
Ford: I believe that 10 years from now the CFO role may not exist, because the chief accounting officer (CAO) plays a very specialized role, while the CIO is very technical, and the COO is very forward-looking and digitally savvy. So the question becomes, with those other roles, do you really need a CFO? I don’t know that you do. I think that either CFOs need to become COOs or be left behind to serve as the CAO.
The evolution into the COO role seems the most logical to me because, if you think about what CFOs do, we report on the past and partner with the organization to allocate incremental investment capital to drive the best long-term result; this, in turn, drives guidance to Wall Street. To do this well you need to understand all the key drivers of the business and how they are interrelated. Operational expertise is a must, which is why CFOs appear to be evolving into COOs.
LaCamp: How can CFOs address gaps in their skillsets, or how they allocate their time and attention, to keep pace with changing expectations of the CFO role?
Ford: It’s all about having the right team and a full complement of core competencies within that team. In addition, the CFO must have influence in key parts of the organization and understand how they operate. This can be addressed in a number of ways, including reporting structure and involvement in cross-departmental teams. For example, at Coupa, in addition to accounting and finance, sales operations, corporate operations, and information technology report to me. I am also closely involved with our go-to-market teams and all things product-related. CFOs come from many different backgrounds, ranging from accounting to investment banking to strategy consulting, so they will have to build a team that complements their skillset and experience: business applications, operations, FP&A, automation, and so on. Developing that broad knowledge of operations is something you learn by doing, and part of that is just gradually expanding the scope of your role.
LaCamp: What is the ultimate vision for an automated finance function?
Ford: “Real time” is where finance is headed: By 2025 there won’t be a need for a monthly or quarterly close process; financials will be closed in real time. At Coupa we began working toward this by automating as much of the FP&A process as possible, using several third-party software packages. From there we are trying to get to a real-time close, making that process and the associated SEC reporting more automated. Eventually, the forecasting process will become much more predictable and actionable as the right data is provided to the right stakeholders to make the right decisions, all in real time. Capital allocation will also become much more efficient as better insights, metrics, and highly correlated returns are provided on a cross-departmental basis, again in real time.
A version of this article previously appeared on CFO Journal.