The Middle East’s CFOs are at an important crossroads in their organisation’s evolution. The rise of digital is impacting almost every industry, but when, and to what extent should financial decision-makers back digital initiatives? Can the topic be brushed under the carpet altogether or will those who do so die out?
You don’t have to look far to find signs of digitalisation’s impact on the economy, and society. There are several oft-referenced examples of firms whose digital models have had a hugely disruptive effect in recent years. Facebook, founded in 2004 and one of the world’s largest media companies, reached a market value of $245 billion in 2015, and with 1.55 billion users – over 20 percent of the world’s population – the company still owns no intellectual property. Fast-forward to 2008, and Airbnb, now one of the world’s largest accommodation providers – despite owning no physical real estate – was formed. A year later and Uber, now the world’s largest taxi firm, was born. The company owns no physical vehicles to provide its services. The message is clear: digital is not only on the rise, but is disrupting at an unprecedented rate.
Two clear technology trends stand at the fore of the digitalisation drive – mobility and social media. “Social attitudes and expectations have changed at an incredible pace,” says Paul Sommerin, Partner and MENA Financial Services Technology and Transformation Leader, EY. “Customers are increasingly mobile and have greater access to international media and technologies. The customer decision journey has also changed tremendously with the proliferation of digital technology and mobile devices. As a result, the disconnect between customer expectations and what service providers deliver is more distinct than ever. Addressing customer needs in an increasingly digital world means disrupting and rewiring existing business models for a fresh customer experience.”
Farhan Syed, Partner, Consulting, KPMG UAE, believes the need to create individual experiences for each customer has been a driving factor in the necessity of digital. “The first thing almost everyone does when they wake up is check their smartphone,” he says. “We are social beings and we have an innate desire for knowledge and communication. Mobile and social have become the primary source of our interaction – communication, information and transaction. Without a digital offering we risk losing our customers. The personal experience of each end user can now be individualised through digital, which creates new opportunities for revenue generation. Offering the right product at the right time and at the right price significantly increases the odds of a sale.”
Research from Epicor Software recently split CFOs into six categories: traditionalist, visionary, conductor, politician, carer and revolutionary. Politicians constituted 27 percent of those surveyed, with revolutionaries comprising the second largest group at 20 percent. As the names suggest, a politician is someone who works based on consensus, and would rather delay decisions to avoid risk. The revolutionary, meanwhile, is a figure who is more inclined to make bold decisions to drive the organisation’s agenda. These working styles will be pivotal in terms of the region’s adoption of digitalisation, with perceived risks afoot, and the need to achieve balance in terms of the sums invested into new initiatives.
As with any new venture, members of the whole C-suite will be split between the optimism of innovation and skepticism of the risks of failed investment. The CFO is arguably the most susceptible to such reservations, and therein lies one of the biggest barriers – or potential accelerators – in the adoption of digital strategies. In order for initiatives to gain full momentum, organisations need the backing of this influential figure. “Articulating digital as a concept can be difficult – so think how much harder it is to calculate the return on investment of a digital idea,” Syed says. “CFOs tend to be the most objective executives in an organisation – and they are probably the most skeptical when it comes to calculating how, or if, an investment creates value. Once they understand the value of digital they tend to be very supportive.”
While collaboration with other senior management figures is essential in driving digital strategies, staff with specialist skills also need to be deployed to ensure a low-risk transition to a digital model. ”Resistance can arise if there are doubts around market adoption and the sheer scale and complexity of transformation,” Sommerin says. “Companies should look to win the digital war by creating an ecosystem of partnerships to make life better for customers. Digital marketing specialists are a necessity, but the digital agenda needs to be driven by the business to enable and align with the growth agenda. Organisations will need to hire people with stronger business analysis skills and new technology skills including cloud on the network side, and HTML on the customer experience side.”
Although CFOs of certain industries may feel that their business is not yet ready to go digital, or that digital products may not suit the vertical in which they operate, the threat posed by rival companies will act as proverbial stick, if the carrot alone won’t suffice. Syed compares the dawn of digital with another technological shift that proved to be tectonic. “While you might think you don’t need a strategy, most of your competitors will have one,” he says. “Are you sure you don’t want to compete in this space? Similar myopia occurred during the Internet revolution. Businesses that ignored the true potential of the Internet tend not to exist today.”
Sommerin is in agreement that competition should be one of the main drivers of digital adoption. “The risk varies depending on the industry, as some sectors are much further ahead in terms of digital model adoption than others,” he says. “The real risk lies for companies who have competitors that are succeeding in the digital space, but are not yet prepared or operating in that space themselves.”
Also directly affecting the CFO is the need to consider the impact on regulated and unregulated industries. While a lack of regulation opens the door for new players to achieve huge market share, regulated industries face a different kind of menace. “There is a threat from agility,” Syed says. “For instance, the banking industry is being disrupted by the FinTech world. There are thousands of FinTech billions in funding disrupting lending, payments, forex, trading, wealth management and even insurance. Finally, the biggest issue is from unforeseen competition. What do you do when you don’t even know where competition is going to arise from?”
