This article originally posted on LinkedIn
written by: Ernest Vincent Hugatalung
The rapid rise of digitisation is changing the way local businesses, industry sectors, and the public sector deliver services. This is predominantly driven by consumers demanding control of the data they receive to improve their lives. It is changing the way people live, works and relate to one another.
This change in consumer demand and behaviour is presenting a range of opportunities at the same time challenging companies to innovate and respond faster than ever to stay relevant in the market. Companies around the world are now faced with a big challenge in building a new digital strategy that focuses on people, technology, process, and culture.
We are at the beginning of the fourth industrial revolution and the disruptive digital processes and operating models mean businesses must leverage the advancement in technologies to improve operations (reduce cost), disrupt business model for their industries and to improve customer experience and find better ways to create value to the customer.
International Data Corporation (IDC) Indonesia reported that the country’s information and communication technology (ICT) spending as part of digital transformation will increase by 16% to Rp. 394 trillion IDR (US$. 29.5 billion) in 2020. The main contributor to this growth will be dominated by hardware and devices spending. The market trend is also showing an upward trajectory in IT spending across companies in Indonesia and we will continue to see this trend in 2020.
For the Chief Financial Officer (CFO) in Indonesia, this will mean that many requests for various technology implementation will fall on their desks. As there are many CFOs in Indonesia still unsure of where to start; followed by a lack of awareness on the rise of innovative technologies added by the shortage of talent won’t make the challenge easy. Looking at a glass half full and focusing only on cost means the risk of not capitalising on the opportunity of digitisation age.
Based on my experience in developing a strategy first approach to IT spend requests, the process entails not only in discussing cost but also to determine what makes the most sense from a strategic standpoint and deliver tangible and long term benefits. Let me share my experience by using Cloud Implementation as an example.
Investment in Cloud Adoption – Total Cost Ownership
In many companies, the argument of “when” and “why” on moving to the cloud infrastructure is still an ongoing debate in Indonesia. Cloud adoption usually has been driven by Chief Information Officers (CIOs), while CFO might struggle with the impacts of Cloud technology investment to company’s financials.
In the digital transformation era, CFOs need to change their mindset from cost first approach into strategy first to explore any opportunities that technology presents. Cloud is no longer only an IT-strategy but more of business strategy. Any business building or investing in Cloud infrastructure will have tremendous potential to deliver a significant impact on working capital profiles, freeing cash from physical technology assets and moving away from long term, depreciating investments.
- The first one is shifting from CapEx to OpEx model that will have a significant impact in managing company’s cashflow. If you design, build and deploy your own IT infrastructure, it is considered a longer-term investment and therefore the costs fall under your capital expenses (CapEx). In contrast, opting for cloud model shifts your spending to a pay-as-you-go model, like a utility bill that you pay on a monthly basis, which comes out of your day-to-day operational expenses (OpEx). By adopting pay as you go model means the better ability in managing cash flow for the business, and to get rid of the assets that depreciate over time.
- The second one is freeing CFO’s limitation in terms of scalability –where with traditional technology (non-cloud)adoption usually force financial operation to end up paying for underutilized technology asset or extra capacity and resources they will only need for one month of the year. “Pay-Per-Use” models in cloud will significantly help companies to reduce the risk of spending much more on asset such as compute and storage than is required. Therefore, the company will only pay according to the capacity used and required.
- Lastly, with the presence of managed service providers (outsourcing models) will help the company to focus more on customers and improve key business growth. With this model, managed service partners will be responsible for doing the work, and the company will monitor “Service level Agreement” agreed to ensure that the quality of service/ work from partners is as expected. Outsourcing models will also help companies overcome the problems of lack of expertise in the IT field, in this case Cloud subject matter experts, in which the provider will ensure the availability of a trained workforce to handle the new technology going forward.
Revisit the Human Resource Approach
Despite all the advantages in adopting technology, change can still be difficult. Based on my experience, I highly understand the dynamics of CFOs role to authorize significant investment on digital technologies and to hire, train and develop people in regards to new technology adoption. As digital transformation and workplace automation fundamentally reform the way we work, job descriptions across the board are expanding and becoming more fluid in order to adapt to the changing demands of businesses.
In the recruitment process, company’s nowadays is prioritizing to acquire talent with the right skills to answer many new technology challenges. Moreover, the role of so-called ‘digital natives’, which mostly comes from the millennial generation to support the digital transformation is increasingly important than ever. CFO’s will need to step out from the silo mentality and become an advocate in digitizing operations. As part of the leader’s in company, CFO must embrace their role in accepting, leading and ensuring that change can be sustained over time. The change management model is not a one-off process and will be moving very fast and continuously.
Time for CFOs to weigh in
It is clear that the influence of technology has redefined the roles and responsibilities of today’s CFOs. Finance leaders will act as the insights engine in the business ecosystem, providing timely and valuable insights for strategic decisions that in turn deliver commercial value to the organisation.
Now more than ever, CFOs need to step into the spotlight and act as an agent of change who can work collaboratively with other teams to deliver digital change, business improvement, and efficiencies. It is important for CFO’s to lead by example and embrace the potential that emerging technologies offer by improving and upgrading systems in the year ahead, leveraging data analytics and streamlining processes to address growing workloads. Implementing a digital transformation requires an understanding of today’s digital landscape, and CFO’s play a major role not only in delivering to strategy but driving a cultural transformation to support organisational change.