Interview Michael Wade

Michael Wade, Professor of Innovation and Strategy IMD Business School

'Finance needs to understand the digitized business model'

Digital transformation is not about technology or ICT, but is actually a matter of adapting the business model by making use of digitization. 'That's where the real added value comes from,' says Michael Wade, Professor of Innovation and Strategy at the prestigious IMD Business School.

'If, as Chief Financial Officer (CFO) or a finance manager, you only see this as an ICT project, the transformation is doomed to fail,' continues Wade. 'In international research, we looked at the success of digital transformations in companies. Eighty-seven percent of companies say that the transformation did not meet expectations. A thirteen percent success rate is very meagre. The main reason is that the technology is implemented, but processes and employees do not undergo any changes. Too little thought is given to these aspects, and board members do not offer enough guidance in this.'

Wade offers us an example. 'You can create a database, but that's still not a digital transformation. For the latter, you might want to start an e-commerce channel or to interact with your customers through an app. Or you could want to create a self-service module...'

Transition is a matter for the entire organization
What role should a CFO play in the process? 'They often have control of ICT themselves, but that is usually ICT systems management. Sometimes they collaborate to set up shared service centres for IT and finance. But that is somewhat different than implementing a transition throughout an entire organization. Yet the CFO often has to determine the budget for this type of transformation, and he or she really needs to know where to say ‘yes’ or not when doing this. This starts with determining whether the transformation will actually deliver improved efficiency or added value for customers. To determine this, you also need to know which technologies can be helpful in your particular case. This allows you to assess the investment case, and to put sharp questions to the Chief Information Officer (CIO) or Chief Technology Officer (CTO). In addition to that, the CFO often monitors progress in such innovation projects. In this role, he or she has to be aware that the process requires lead-time, and you often do not see any added value immediately. So, it is important not to "kill" the transformation too early.'

Demand a clear business case
Yet another possible pitfall – The CFO who gives the CTO or CIO a small budget, while making it clear that he or she expects a complete digital transformation. 'Small budgets, and small teams don't work. If you want a complete digital transformation, you will have to approach it with absolute conviction. But I do think that, in the role of CFO, it is your job to demand a clear business case. This is necessary because technicians have a predilection for technology. And do you really need blockchain, for example, or is it more of a toy? The CFO or finance manager can set up and monitor the key performance indicators for the transformation. But, when doing this, he or she should also be aware of the changes among employees and in processes.'

What is the transition that is actually underway?
Wade expects even more from the finance manager and CFO before a transformation of this kind commences. 'Understand the type of transition that is going on in your industry or sector. To do this, you need to learn all about the current trends and developments. Take inspiration from leaders in your sector, and those in other sectors and technology companies. What technologies are available on the market? How are others doing it? What will improve us, as an organization? 'You don't have to be afraid of disruptive companies that come into your market, but you do have to learn from them, and create your transformation appropriately. BMW sees Tesla as a rising manufacturer, yet it would not be wise to become a Tesla clone. But one can see the trend toward electric powered vehicles. And BMW is putting its efforts into that. Almost every industry today has a "Tesla". So, see what you can learn from this.  I think finance managers and CFOs are good at recognizing these trends, because their daily work involves separating good sense and nonsense, performing analyses, monitoring progress and filtering out "noise".'         

Flexible approach
According to Wade, Finance has much to learn in the matter of a flexible approach to transformations like this. 'You can't create a three or five-year plan for a transformation and set it in stone. That will result in a system lock up.' You need to work on this with agility. And do it in sprints lasting a few months, to deliver small parts of the overall transformation each time. It is becoming increasingly more important for businesses to be fast & good, rather than either fast or good. This can be done through minimal viable products that you test in the market, and then going on to the next step. Or you can work with modules that you can introduce as building blocks, so that you eventually have a completely new ERP system in the cloud. But, in many organizations, finance is anything but agile. That must change. Finance should be the engine of agility. This presents a clear task for the CFO, to embed this into the transformation as a working method. So, the process must involve continuous short cycles.'    

Highest chance of success
'The best transformations, those with the highest chance of success and which are the most sustainable, are holistic,' Wade concludes. 'You should envisage an organization as a symphony orchestra. Imagine the orchestra always plays music from the Viennese-classic period and suddenly switches to the Romantic. All the sections of musicians - wind, strings, percussionists - have to change together to do this. This is the case with company digital transitions. If the process is to be successful, all departments need to get involved, from HR, finance and legal to IT.'

Finally, Wade once again emphasises that a digital transformation should not be seen as a technology project. 'This is a transformation of the entire organization. The digital possibilities and impossibilities will only come to light once it is complete. As a CFO or finance manager, you have to keep that in mind. After all, you also want the entire organization to work in a data-driven way, using the available technology. A transformation like this is more about work with people than ICT."
 

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