Variants, strains and mutants. These are not normally words you expect to see filling out any CFO’s work plan for a year ahead. But as the SARS-CoV-2 virus maintains its vice-like grip over most of the globe, the uncertainty of 2020 has been replaced in 2021 by… well more uncertainty. After CFOs demonstrated an incredible capacity to pivot in 2020, they are being asked to turn full circle again.
There is little doubt better times are ahead with vaccination programs being rolled out across the world, but their slow initial pace and the stubbornness of the virus itself means that visibility-operationally and financially- remains patchy at best. The IMF has arguably best described the period ahead as a “long, uneven and uncertain ascent’’.
The Road to Recovery
Uncertain though it may be – the prospects for the year ahead are facing in an upward direction- the IMF expects 5.2% GDP growth this year, while the OECD expects 4.2% growth. These forecasts may be revised down, but for companies in a range of sectors the benefits of the 2020 pivot, improved productivity, leaner structures, increased digitalization, will deliver significant benefits.
But one must be clear, the type of crisis management response seen in 2020, encouraging staff to work from home (WFH), managing liquidity, shoring up supply chains, is not something that is going to cease in 2021. In fact, many companies are seeing the pandemic as a crucial period of transformation, where goals get stretched beyond just pure crisis mode.
Even a cursory scan of the global financial headlines over recent months bears this out. Firms like IBM have been taking advantage of new business niches, Renault has been shedding less profitable business lines, Airbnb has been re-formatting its entire product offering, Rolls Royce has been raising fresh equity finance, Facebook has been streamlining its tax structures, while Ryanair has been cutting costs with key vendors.
The strategies are all different, but one strategy stands out as, rightly, missing – standing still.
The Changing Role of the CFO
In some ways, the change wrought by the Covid virus was easier to manage for CFOs and their departments than what may lie ahead. Managing liquidity and reducing overheads comes naturally to many financial leaders. Unfortunately, there are few prizes awarded for being good at what is perceived as BAU (business as usual) activity – as every CFO will know.
While much excitable prose has been employed to describe the journey of the CFO from financial gatekeeper and transaction manager to value-adding strategist-in-chief/business partner, Covid is truly accelerating this metamorphosis. As an accelerant, ambitious CFOs will see the pandemic as an opportunity to shape this transition themselves. Other CFOs will have this type of change thrust upon them.
As EY have said for instance, whether a CFO views the period ahead as an opportunity or simply an imperative, transformation is going to take place. There are very few CFOs not on a transformation journey at present, but there is differentiation in the speed of the journey. Whatever about pace, that journey starts at home.
Any CFO planning to enter Zoom conference calls in 2021 talking about radical transformation agendas, must be credible and speak with good authority. Put simply, that means making sure the transformation is already occurring in their own department and this transformation is delivering firm-wide benefits that are measurable.
Corporate credibility on transformation rests on inverting that old idiom, do as I say, not as I do. The flow of transactions through an organization is so fundamental and intrinsic to its present and future, that it is the ultimate test site for transformation, one that sets the ultimate ‘tone from the top’ when its reconfigured successfully.
It remains a mystery to many how so many organizations continue to operate with inefficient Procure-to-Pay systems, or have none at all. After the almost knee-jerk pandemic inspired cost cuttings of 2020, CFOs looking to respond to the organizational need for further transformation are casting around.
The value released by re-thinking the purchase-to-payment function is immense and includes:
- staff redeployment to higher-value tasks
- enhanced budgeting and cash flow discipline
- improved organizational financial data flow
- improved vendor and stakeholder relationships
But most crucial of all, a CFO transforming the functions in their own area of responsibility, makes them a transformer in the exec suite and boardroom too. That’s always been the case. But never more so than in the Covid era, which is one of those rare transformation windows that will last for a while- but not forever.
But transformation is a big word, but it is also a vague word. In the Procure-to-Pay world, the value released -as outlined above- is very specific and tangible, with the key factor in delivering true transformation being the implementation of an automated Procure-to-Pay system.
CFOs that are focusing on the automation of processes as a means to transforming their procure-to-pay functions are experiencing a number of benefits in different areas.
In accounts payable, automating manual processes like invoice capture, matching and approval can lead to re-deployment of AP staff to more ‘value-adding’ roles and with a solution that provides in-depth reporting and analysis, elevate AP to a more strategic role with greater influence over the rest of the business.
Transformation of the procure-to-pay process also involves the better management of vendor relationships. This facilitates wider organizational goals to be fulfilled – better checks on vendors at the time of onboarding and better reporting on ongoing vendor compliance re-sets relationships across a range of business units.
In the area of procurement, purchasing processes are being streamlined with the use of systems that provide both purchasing catalogs and pre-approved spend budgets for use with preferred vendors only, controlling spend and cash flow management but also allowing for faster purchasing of essential goods and services where required.
Similar to AP, procurement reporting is also enabling the function to become more strategic. With spend analysis, organizations can monitor spend vs budget, spend by vendor and by location in real-time and make changes to their procurement strategies as they see fit. Having insights such as these have allowed procurement teams to adapt to changing circumstances during the pandemic and will also be crucial to influencing business recovery and transformation of the procure-to-pay function in the months ahead.
As can be seen, transformation within Procure-to-Pay is not really about one solitary dramatic flourish, but a collection of decisions that use automation and reporting as a creative tool to drive change. In the cauldron that is likely to be 2021 and beyond, decisions that pay back, again and again, are going to prove all-important.
Global banks like Goldman Sachs suggest the road ahead will be bumpy, but the achievement of herd immunity in major global economies is likely to be key to delivering above-consensus growth.
If that occurs demand for most high-contact consumer services should quickly rebound to pre-pandemic levels, said its analysts recently. The OECD meanwhile noted recently a surge in bank deposits accumulated during 2020.
The timing of the release of these savings into a healing economy is uncertain. Variants of the original Covid virus are still a threat. The recovery is not here.
But it is coming. Are you ready to transform?