In a marketplace where product-focused businesses are seeking to grab market share by continually pushing to increase their services-derived revenue, finance executives can’t rely on any single plan for preserving a company’s competitive edge—or maintaining its strategic agility. They need to keep accumulating, and incorporating, the latest market data into an evolving strategic plan. Setting off on a transformation demands an organizational realignment that defines and supports changing objectives and priorities. The business must use a new framework for evaluating its competitive advantages, shoring up weaknesses and removing any obstacles that could prevent it from meeting the goals for its new category of services customers. For finance executives, that often translates into a straightforward, if excruciating, mandate: File away the existing strategic plan. In the shredder, preferably.
In the survey, almost half (46%) of respondents say they believe that generating more revenue from services will require their company to make substantial changes in strategic planning. More than 40% of survey-takers chose staffing (43%) and operations (42%) as requiring substantial changes because of the company’s decision to generate more revenue from services (see Figure 5). It stands to reason that those two areas are likely to require the most dramatic overhauls as the company implements a reworked strategic plan. Especially within the finance function, boosting the transformation of the business requires developing—or acquiring—new skill sets. Rather than mastering cost-reduction, it’s incumbent on the finance function to play a much broader role in helping to formulate the company’s growth strategy. Members of the finance function need to provide the CEO with reliable insights into mitigating oncoming risks and preparing for the challenges ahead. Retooling operations is also a necessary part of any meaningful strategic re-alignment. Processes and procedures need to be scrutinized in light of the company’s new mission to efficiently deliver high-quality services to customers.
The finance function’s role as high-level strategic advisor is in part a result of its proficiency with Big Data analytics, which positions CFOs to serve as advocates of growth and helps the business make better-informed decisions about its services offerings. The survey found that many companies have yet to make adequate investments in the technological tools needed to access and aggregate data. Asked to respond to a statement that their company’s “operational and technology infrastructure” can handle “any increase in service-related revenues,” fewer than one in five respondents (17%) say that they “strongly agree.” More than half (57%) opt to “somewhat agree,” suggesting that finance leaders need to direct additional investment toward revamping the company’s technology platform, integrating data analytics into data-processing (see Figure 6.) Responses to a similar question about whether their company’s finance function “already has the technical knowledge required for handling accounting, reporting, and compliance issues for service-related revenues” followed a similar pattern, with more than half, 52%, choosing “somewhat agree.” Those who say they “strongly agree,” however, amounted to a much more robust number than on the earlier question: 31%. Clearly, as many CFOs know, their companies have catching up to do.
The finance function needs tools that enhance the company’s strategic agility in the face of a fast-shifting external marketplace. By deploying a cloud-based architecture, the company can preserve both its flexibility
and cost-efficiency. And CFOs can use the enhanced computing power to construct algorithms that will help predict and influence customer behavior. In some cases, companies may use it to monitor devices, enabling them to pinpoint ahead of time when a machine will need servicing or is susceptible to breaking down. Using a single cloud-based platform, finance executives can sift through the aggregated data to extract insights that can be shaped into real-time analysis. Such timely information will enable top management to make better-quality decisions about how to navigate changing market dynamics. With the emergence of Internet of Things technology, companies will also be positioned to capture even more metadata that finance executives can use to detect trends or spot opportunities.
Analytics-driven insights will also be incorporated into the strategic plan, for which the finance function will supply more reliable guidance regarding the performance of the business. The function’s deep understanding of the company’s financial performance, risks, and opportunities makes it an ideal set of eyes to review the strategic plan—making sure that it reconciles market conditions with the company’s aims. By openly testing assumptions and comparing what-if scenarios, CFOs become indispensable to crafting the emerging plan.
Further, finance leaders are well equipped to assess the strategic situation and prioritize existing opportunities because they work side-by-side with other C-suite executives. In fact, it may fall to finance executives to push for trade-offs that will preserve key strategic options. That reality-check role becomes especially vital for companies that are in the midst of submerging services into their revenue streams. Driven by enthusiasm, or swayed by office politics, executives may lobby for resource allocations that stray from the company’s priorities. Finance can apply its clear-eyed view of the company’s future to help drive more accurate strategic planning—even in a volatile environment for services, where customers can seem capricious. While adding services may improve a company’s competitive standing and even attract new customers, such benefits are no substitute for making money. As time-honored guardians of profitability, it’s crucial for CFOs to make sure that new services, no matter how impressive and immediate their impact on revenues, are profitable. That much, at least, hasn’t changed.