For most CFOs in the past, the impact of disruption was often cushioned by other parts of the business. Changes to business models, consumer habits or regulations would often hit elsewhere, leaving finance to largely mop up and adapt their practices some way down the line.
Now, though, finance leaders are on the front line: not only in absorbing the impact of disruption, but also in taking a lead in formulating the business response – whether that means restructuring internal systems and processes or channelling investment into new innovative ventures.
But what do we mean by disruption, and how are finance leaders responding? That question was top of the agenda at a recent dinner held in New York by CIMA and Thomson Reuters. The event was designed to bring together finance leaders from leading corporations and other organisations to discuss how their views of disruption have changed, and what they demand from their teams in response.
As Brian Dumbill, Volvo Financial Services’ VP Finance for the Americas, pointed out, disruption is a broad term that can mean different things to different people.
“In today’s business environment [disruption] is thought of as being technology-driven – for instance robotics, data/blockchain-driven, e-commerce and so on,” he said. “But it can be a new way of offering products and services to customers via limited technological innovation, or even regulatory or government-driven behaviour. It can also be a combination of those things, which makes it such a challenge to respond in the right way,” he added.
Dumbill sees innovation as the process of implementing new ways of doing things. “It can include technology and may ultimately lead to disruption, but innovation on its own is not disruption.”
Everyone at the event had their own tales of how their businesses had been affected by change. Robert Munday, a senior Finance Business Partner at utility company National Grid, said that one of the effects of disruption on its business has been felt across the board, and led to a radical reshaping of the business’s model.
“Even though electricity is generated centrally and distributed outwards, now people are generating power via solar and wind farms and the flow is two-way. [Defining disruption] is tough, but anything that changes the current business model would qualify.” At National Grid now, Munday and his team are leveraging disruption: “We were previously divided into two parts – UK and US; now there’s a third division, National Grid Ventures, and its entire remit is looking at the power generation needs and strategies of the future.”
Avoiding irrelevancy is, of course, the key point, and formulating a response, both personally and company-wide, is now a major pre-occupation for leaders in finance. But it’s rarely simple.
“Adjusting to competition from ‘nontraditional’ sources requires a different mindset,” argues Dumbill. “Today’s businesses require both the experience and knowledge to assess the risks but also the creativity and attitude to embrace the change and capitalise on new opportunities. Utilising diverse skills and information, we work to strengthen our core business while developing new products and services (both internally and with selected partners) to meet the challenges of disruption.
“At all times in responding we try to be analytical in nature and data-driven while carefully taking into consideration the needs and demands of our customers, which I think is a critical element for CIMA members to consider.”
Flexibility is key
James Tobin, SAP FICO at AIG, agrees that finance leaders and their teams must embrace flexibility. “An organisation in which employees have fixed rigid roles will struggle to combat industry disruption,” he told guests, suggesting that, on the contrary, if there is a start-up mentality where rules and procedures are in place but can be changed based on market conditions, then opportunity will be created.
“An early disruptor to the airline industry was Freddie Laker, whom Richard Branson used as a mentor. Ultimately the industry changed to a tiered class model, but it took time for the legacy airlines to make this change with much consolidation and some companies failing,” he said.
Trimble Inc VP Chris Gibson agrees that how finance leaders respond is crucial – and passivity is no longer an option. “The finance community has adapted well and accountants still do the important stuff, but they need to stay ahead of the game and utilise change to become more efficient. And certainly senior finance types are now more valuable to the business because they are able to interpret data and provide insight as opposed to simply keeping score. That’s a key distinction for a finance leader these days.”
Some businesses are accelerating their innovation efforts to match the increasing speed of disruption. Indeed, Brian Peccarelli, president of Thomson Reuters Tax & Accounting, who co-hosted the evening, said: “I’ve been dealing with this for several decades, and each new iteration of technology delivers constant change: it allows us to do more.
“And while there’s a fear of accelerating disruption – people think machines may replace humans – that won’t happen. Automation will make our jobs easier and our performance better.”
Peccarelli also pointed out that a vital part of an effective response to disruption was to encourage employees from across the business to contribute ideas. “There is an open invitation at Thomson Reuters to its employees to try to innovate and produce their ideas into reality,” he said.
It’s an approach that James Tobin was keen to replicate at AIG, where, although work focuses on new insurance products, innovation efforts could be encouraged to broaden their scope across the business.
“That is something I plan to take back to my manager to discuss,” he said, reflecting the mood of the room: a determination to confront disruption head on and use it to maximum advantage.