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The CFO In An Age Of Disruption

Disruption is an old concept, but new technology is making is a harder thing to deal with

14Nov

Disruption is not a new phenomenon, despite how it is often portrayed. As long as there’s been new technology and competition, it has existed. What is new is the speed at which it is occurring, with technology advancing at a speed unprecedented in history. It is unpredictable, hard to account for, and executives need to do their utmost to try and understand where it is going to come from, and how it will manifest itself.

In an Accenture Strategy report released earlier this year, 58% of CFOs said they believe their industries are set for disruption, 24% of CFOs said that disruption will destroy their company, and 41% that more than half of their competitors will cease to exist as a result. However, most aren't doing anything to stop it, and with an uncertain geopolitical climate presenting new risks, innovation is more and more taking a backseat to dealing with other issues as they arise.

There are, however, a number of ways a CFO can respond to disruption. And it starts with a change of mindset. The CFO needs to support their organization through allocating investment and having a supportive attitude, while explaining how things can be afforded and their reasoning. Finance leaders must be aware of any potentially disruptive technologies so they can do this, and properly mitigate against the risks posed to their organization, liaising with technology leaders and staying on top of current developments.

The most important thing CFOs can offer, though, is increased agility, achieved by taking a more thoughtful and agile approach to investment in the right technologies and looking at where they can contribute cost savings. Strategic cost management is vital to this, something almost 60% of CFOs agree with, telling Accenture that strategic cost management must play a role in how they respond to disruption. However, just 6% plan to prioritize it in 2016.

Strategic cost management is the provision and analysis of Cost and Management Accounting data about a firm and its competitors for use in developing and monitoring the business strategy. Cost is a strategic issue, and should be done with growth in mind. Cost savings made with only short term goals often have the opposite effect in the long term. As the business model changes to accommodate disruptive forces, so too must costing strategy and forecasting. The ideal set up for a traditional organization is to approach it as a startup would, by acting more as venture capital would, almost bootstrapping projects - providing a relatively small amount of funding and seeing how people with the ideas can grow them. They can then reward success by allocating further resources.

Sustainable cost management processes need to be embedded. Speaking to Jeff Thomson in Forbes, David Axson, managing director, Accenture Strategy, CFO & Enterprise Value: ‘In nearly every economic cycle a move to a growth mindset triggers a relaxation in the relentless focus on cost efficiency. That’s a model that won’t work today as fast, agile and very aggressive competitors – and especially the new breed of activist investors – exploit any weakness. CFOs can focus on growth but not at the expense of maintaining a disciplined approach to cost management. By embedding sustainable cost management processes rather than resorting to one-off cost-cutting programs, CFOs can ensure discipline is not lost and that growth strategies do not distract from ongoing operational discipline.’

It is this discipline that is the most important thing to understand. It is easy to get carried away with your own idea, and CFOs need to encourage growth while keeping costs in mind. They should not be ‘No’ men, and they should not be ‘Yes’ men, they need to be neutral, sympathetic to the needs of innovation, but not subservient to it. 

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