In Part 1 of this interview, Colin Sampson, Senior VP and CFO for Asia Pacific & Japan, and Frederic Laluyaux (pictured), Global Vice President for performance optimisation and finance line of business, both of German software maker SAP, spoke to CFO Innovation’s Angie Mak on the role of the CFO post-crisis and talent management.
Corporate Strategy: Business Transformation
In this concluding part of the conversation, Sampson and Laluyaux discuss the importance of technology in business, the Asian markets that are ahead of others in analytics and other advanced business applications, and other issues.
How are Asian companies doing in terms of adopting technology-enabled systems?
Colin Sampson: If I look across the region, Australia tends to be a leader in technology. They adopt new technology, they want to have the technology, they’re often the first users of the new technology. I think Singapore is a good example in this region as well.
From my perspective, some of the laggards include Japan, which is slow to adopt ERP-type technology. Companies there are still very much still entrenched in their home-grown system that has developed over many years. The consensus nature of the way Japan operates means that they don’t make decisions very quickly, so they’re not easy to move into a new adoption area. Australia, you’ll find, is the opposite.
Frederic Laluyaux: When I was in China, I was surprised to learn that SASAC [the government body that oversees major state-owned enterprises] is asking SOEs to report their performance based on EVA [economic value-added]. That’s a KPI you see in Western Europe, North America or Australia. EVA is the most advanced way to measure performance and [China’s SOEs] are now required to report on a regular basis using that methodology. They are going from being a little bit behind to being advanced.
One state-owned organisation in the technology industry had the most advanced analytics that I’d ever seen. They have several PhDs in a room and they have created models around churn and predictability for revenues that are absolutely marvellous.
The last point is there’s obviously a lot of cost pressure right now. They know that this problem is going to grow. Labour costs, their currency fluctuating, putting more pressure on the import, costs and so on. We sense a sense of urgency with the Chinese CFOs to get equipped very quickly from the transactional system, all the way to the decision-making system, including EVA. That’s going to be a very interesting market.
Colin Sampson: The China market is changing rapidly. What we saw six months ago is not the same as a year ago, or 18 months ago. It’s exponential in its acceptance and its desire to use technology. It’s going to have to, because organisations are growing tremendously. There are some huge organisations there and if they don’t use this automation and embrace technology, they’ll get lost. They will not have the same competitive advantage that they’re all looking to get.
The other country that is embracing technology is India. It’s the whole technology evolution that they’ve had in their country over the last ten years, before the Wipros and the Tata, all those types of organisations. They do embrace technology. We’ve got some very happy customers in India, they love technology. They really do.
So the lesson for CFOs from the global recessions is the need to react faster to changes and that means moving towards automation?
Colin Sampson: They need to transform. There’s no question that they need to. Most CFOs will probably be pushed by their board anyway. It’s not something where you say, ‘We had a level of profitability and everyone’s happy with it.’
Traditionally, software companies have had a relatively high profitability margin, as opposed to a retail company, but that doesn’t mean that we’re complacent, because we’re looking over our shoulders and seeing what our competitors are doing, and if they’re higher than us we push higher.
It’s not only us that are pushing, it’s the analysts that are pushing, because the analysts will turn around and say, ‘Our expectation is that you as a company will grow at this percentage.’ You don’t get a free ride, you don’t get to say, ‘I’m going to grow 20% but I’m going to reduce my profitability.’
Most CFOs are very aware of that, and there’s no choice but to be in an environment where you are looking at ways where you’re improving your business and its effectiveness, the control that you have, the drive to get higher profitability. That’s the way it is.
Frederic Laluyaux: The board and the CEO are looking to the CFO when it comes to compliance. Profitability, growth – that’s No. 1, but in the context of compliance and transparency, of sustainability, basically. In addition to that, there’s also [the need] to be able to explain to the world how we operate and not be perceived as an opaque organisation. In most cases, and in our experience, it falls under the umbrella of the CFO.
Colin Sampson: And managing the risks. Very often, the CFO can help with risk analysis, and say, what are the risks of that company? You’ve got an offshore rig drilling in various areas. Are we cutting corners? How are you going to do deal with that risk and are you doing the right things now to actively try to avoid or mitigate such a risk? Those things the CFO and the office of the CFO would be actively involved in.
Say you’ve got all these automated systems in place. What’s next for the CFO?
Frederic Laluyaux: If you look at the different layers, it’s like a pyramid. The foundation is going to be the transactional system. One thing that’s happening today is that the finance process isn’t limited to the walls of the organisation. It starts with the supplier and finishes with the customer, and vice versa. Your supply chain management goes all the way to your supplier. That’s something that’s not new but it’s still going on. That’s your foundation layer.
The second layer will be your data layer. Once you’ve got all of that, you want to make sure you’ve got one version of the truth. Then you’ve got your risk management layer. Putting in place all of your controls to automate the controlling process, to move the CFO from being the controller to being the person who manages the exceptions. That’s a lot more value for the organisation than just having an army of people controlling.
The final one is the decision-making tools providing the insight, which comes from better planning, forecasting, strategy management and all the tools that allow you to close the gap between strategy and execution.
Start with a transaction system, move into the one version of the truth, move to the controls, to governance, risk and compliance, and then ultimately to the decision-making process. All of this is made available through your BI [business intelligence] structure. That’s the way we recommend you look at it.
You can’t start with decision-making tools if you don’t have your transactions [automated] because the data that you’re going to bring into your BI infrastructure is going to be questioned. You need to do that in an environment that offers full traceability. Wherever you are in your architecture, you should be able to look at the data and say, ‘It comes from here. It’s been modified there.” So those are the very important factors.
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