The Bottom Line of Digital Transformation: A CFO’s Primer
Prioritizing your organization’s digital transformation is not just the responsibility of your tech team or your CEO. It’s not even just limited to your operations. The financial impact of a successfully executed transformation should be front and center of the Chief Financial Officer’s mind as well. Let’s dive in to just a few things that a digital transformation can affect – and what risks you take by not embracing a full transformation quickly enough.
Potential of Loss
There’s clearly much to be gained by digitally transforming all or most aspects of your business. But let’s talk about what might be lost if you don’t transform quickly and/or completely.
For one – you risk losing your competitive edge. Some of this risk is due to COVID. While you back burner your transformation efforts in order to focus on simply surviving these strange times – your competition is likely reading the “new way of work” tea leaves in a different way. And they are then likely rebuilding from the ground up. Up to modern standards, up into the cloud.
When you lose your competitive edge, you lose customers. The modern consumer has not only become accustomed to interacting with organizations digitally – they expect and demand nothing less. Asking your customers to work with your older clunky systems and processes is asking them to go check out how your competition does things.
You could also lose employees. Good ones. Great ones. Ones who have been with your organization and hold years of custom knowledge and training in their heads. What’s the cost of replacing these rare employees...if it’s even possible to find a similar replacement?
When these employees realize that there exists technology out there that could make their job easier, less frustrating and more remote-friendly – they might wonder why you haven’t offered those tools to them. And they might begin updating their resumes.
But enough about loss -- let’s get back to what is to be gained from digitally transforming. One of the most obvious benefits is speed. Speed means producing more in shorter time. It means bringing new innovations to market, faster. It can even mean speeding up your Accounts Receivable.
Mike Spencer, CFO of Honeywell Connected Enterprise, says “…from a leadership standpoint… you've got to have a set of leaders that can strike the balance of motivating employees while also pushing them to get more done faster.
Because in any business, no matter how mature it is, everyone always wants to go faster. And in some cases, depending on where you are on that maturation curve, it will vary a lot on how fast you can actually go. For example, things like R&D in software, just take time. And so to me, finding that right balance is I think one of the most important aspects (of digital transformation) because employees in the organization feed off of that.”
Speed matters not just in how quickly you transform but which departments you transform. Very often, organizations overly-focus upon digitally transforming their information workers and stop there. They either don’t even think to transform their operational processes as well, or they put it off.
Big mistake. “When you double-click in industrial,” says Spencer, “I would say the easiest path from a digital transformation standpoint is companies transitioning their information workers. So the people who are sitting in an office, on a computer are obviously using the Cloud to get things done, whether with that's an app like Salesforce, Office 365, etc.
But Honeywell Connected Enterprise’s client base is comprised of a lot of industrial companies and so is a bit unique. Our clients need to also consider the operational structure from a digital transformation standpoint. And that one's harder for a variety of reasons. But as a CFO, if I'm sitting in their place, I think: ‘Okay, I've been able to transition my information workers, I’ve been able to harvest those savings to get more productive and maybe remove some infrastructure that was supporting those folks in the past.
Now what’s next? Where do I need to go next to harvest that extra dollar of savings, that next dollar of productivity?’ So the next place they need to consider are their manufacturing plants, their oil and gas rigs, their warehouses. They ask themselves; how do I make all that more efficient and how do I get more out of that from a cost-per standpoint: cost per employee, cost per square foot, cost per building?”
If It’s Not Broken – Fix It
One of the biggest challenges C-Suites face in larger, more established organizations is…themselves. Typically, older companies have adopted a very fixed mindset on how they do business. Unlike other, newer, more elastic companies, they have not yet fully embraced a growth mindset.
Spencer provides a fixed mindset example he’s heard from some CFOs: “Hey, we've got an infrastructure that we've been using that works just fine. I've got another few years or five years or ten years of depreciation I have to run through the books before I'm going to make a change."
While this might not indicate an outright fear of change, but it certainly is a resistance to it. And that philosophy can be counter-productive to true transformation. Because all of the statistics and data in the world can’t change a closed mind. Or a mindset that is unable – or just plain unwilling – to adopt a new way of work.
So once the mindset, the desire for speed and a competitive edge is in place, what next? What actions can a CFO take to ensure that their organization is digitally transforming fully and quickly enough?
Follow the data! By understanding the drivers of your business, how your products are built and how your offerings are both perceived and used, you’ll find the right data.
“And the data,” explains Spencer, “will reveal gaps in your ability to get answers, and getting answers is really at the core of what drives digital transformation. I don't mean to be overly simplistic about it, but you have to have that intellectual curiosity to push for answers on how we the organization could do things faster and simpler.”
The second step in starting up is setting realistic expectations. Historically, digitally transforming an established industrial organization is not something that will take six months, or even a year. So setting a roadmap that allows for realistic achievement or milestones to be hit is extremely important.
And, says Spencer, it’s not only about setting expectations with your CEO and board. He believes that “it’s almost more important for your employees. Because employees want to feel like they're making progress and they're contributing. So if you set expectations that are so sky-high they have no hope of hitting, it's actually going to drive the inverse of what you want. It's going to demotivate employees, it's going to cause attrition, and it's going to lead to a very big lack of morale in the organization.”
Instead he advises “setting achievable milestones to drive the business that people can rally around! It’s not about transforming from “1 to 100” in one step. It’s about rallying around the idea of going from “1 to 10” and then ’10 to 20’ and so on!” By keeping expectations reasonable and achievable, your most valuable asset (your employees) can better help your organization to transform truly, fully, quickly.
To read more about the challenges and solutions organizations like yours can face when undertaking a digital transformation, download our whitepaper "Accelerating Digital Transformation" now.