Determining the true market value of an enterprise is becoming increasingly complex.
Indeed, property, equipment, and other tangible assets that once accounted for 80 percent of a business’ total corporate value on the S&P500 Index, now only count for 20 percent. Instead, so-called “intangibles” such as data, talent and intellectual property have become the hallmarks of most successful organisations, and as such account for a sizeable portion of their market worth.
Chief financial officers that continue to allocate almost all of their budgets to tangible assets and carry on using legacy systems rather than investing in modern digital technologies are putting their company’s management and shareholders at serious risk. Essentially, they are guaranteeing that the business’ performance will lag behind those competitors that have embraced the strategies and technologies required to excel in today’s increasingly digital economy.
On the flip side of this, the shift to the digital enterprise presents a significant opportunity for chief financial officers to demonstrate their strong strategy and leadership skills and guide businesses through their digital transformation.
Ultimately, all organisations will become digital businesses. What remains to be seen is which ones will use the opportunity to become leaders in their respective industries. Here’s how chief financial officers can take charge of this digital transformation and to maximise its value for the entire organisation:
Get a handle on the intangible
To begin, chief financial officers must play the role of educator. The definition of intangibles – in terms of what these represent for businesses today – remains elusive to many. In fact, some organisations don’t even have a means to factor these elements into the balance sheet.
It will be up to chief financial officers to help the business measure the worth of their intangible assets. This will help management teams develop a broader vision of the business and better quantify the organisation’s digital potential so they make more informed IT investment decisions.
Tap into the power of the cloud
While data and access are among the most valuable intangible assets for businesses today, the cloud is what helps organisations get the most value out of these. Forward-thinking business have clearly caught on – between 2013 and 2014, cloud use among enterprises doubled for business analytics, integrated financial management applications, and budgeting and planning applications.
And rightly so – when approached with a well-defined strategy and the right business solutions in place, the technology helps companies consolidate and speed up their IT while lowering their costs. That being said, it will fall to chief financial officers to oversee cloud investment strategies, as businesses risk losing out on the full potential of their data and applications if they are not prepared to operate in the cloud.
Chief financial officers will also need to help the organisation measure their return on investment in the digital space, which can be a less concrete exercise than determining traditional ROI.
Activities such as social media engagement do not necessary lend themselves to traditional ROI measures, and chief financial officers will be relied upon to develop new metrics, risk and performance measures in order to monitor the organisation’s success.
For example, when assessing the health of a new digital initiative a company may examine social metrics and real-time sentiment analyses in combination with proven measures such as cash generation to get a complete picture of how it is performing.
Drive change, but don’t let the wheels fall of the car
Finally, businesses need to recognise that just because they are operating in a less tangible space doesn’t mean they can approach IT transformation any less strategically. To succeed, they will need to apply careful planning to even the most aggressive IT transformation.
Deloitte’s David Pleasance put it well when he argued that while companies need to innovate and move quickly they also need to ensure "the wheels don’t fall off the car" in the process.
Given their visibility into operations across the business and their adeptness at managing risk, chief financial officers must play an integral role in keeping an organisation on track as it races towards change.
The best finance executives will serve as both architects and curators of a measured and successful digital transformation, and will empower companies to successfully manage the intangible assets at the heart of their modern businesses.