4 minute read
IS YOUR BUSINESS FUTURE-PROOF?
When organisations are busy focusing on their business, it can be difficult for them to keep up with the changing world. Today’s fast-moving and increasingly disruptive technologies, and the business models they enable, are adding to the pressure, resulting in competitive advantage for those companies that are quickest to adapt, but leaving many scratching their heads and uncertain of where to focus.
The world was a very different place 10 years ago. In 2009 Shell, Exxon Mobil, Wal-Mart, BP and Chevron were the five largest public companies in the world. In 2019 the five largest are all technology companies - Apple, Microsoft, Alphabet (Google), Amazon and Facebook, with Chinese tech giants Alibaba and Tencent also in the top 10.
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Digital transformation was once all about the customer. Websites that provide information on a business, product and service; e-commerce capabilities; digital marketing and social media activity. Now many companies are realising that digital innovation can be infused across all areas of their organisation and have a transformative effect on both their business operations and processes. The big challenge that many CEO and CFOs face is to determine where best to focus their often-limited energy and resources, and what business value such an investment can bring.
Possibly, what is holding companies back is a lack of understanding of the basics, particularly by decision-makers. Perhaps no part of the enterprise has as many repetitive, routine tasks as the finance department.
Inputting invoices, tracking receivables and logging payment transactions are high cost, low return, and not of high interest to employees.
This is a great space for Robotic Process Automation (RPA), the most traditional and simple of automation tools. RPA is the use of software that mimics human interaction with core systems, web and desktop applications to execute processes requiring interaction among such applications. It runs unattended, working like a virtual employee, to run repetitive, rule-based, high volume processes efficiently, consistently and accurately at the user interface level. Typical tasks that prove to be easily automated with RPA include account-related reconciliation processes, data extraction from documents, comparison of data sets, composing and sending of template-based emails and data entry.
Most of us have seen the use predictive analytics, when receiving movie or video recommendations based on content we have viewed in the past. When combined with machine-learning, an application of artificial intelligence (AI) that automatically learns and improves from experience without being explicitly programmed, these solutions get smarter. These same approaches can even help CFOs maintain optimal inventory levels, avoiding inventory write-downs and saving working capital. They can also be used to CFOs predict which customers will pay, be late in paying, or will not pay at all.
EY recently helped Microsoft to develop a blockchain-based solution to streamline the costly and time-consuming processes for managing content rights and royalties for its Xbox platform. The solution provides royalty information to Xbox game publishers in near real time, and dramatically lowered statement access times from 45 days to just minutes. The smart-contract based system is designed to significantly reduce operational inefficiencies and eliminate the need for costly manual reconciliation and partner reviews.
Businesses with large customer services functions could look to introduce some level of automation to handle the first level of interaction and some instances. Chatbot
solutions can help reduce the demand on the customer service team, and in many instances, make their work more enjoyable by allowing them to handle the complex questions.
While the digitalisation of the back-end functions can add a lot of business value – quicker response times, working capital improvements, lower operating costs, more insights – it does nothing to change the customer value proposition. And companies that do no more than put digital wrappers around their existing brands and propositions, may find their future under threat.
We live in a digital word where the largest taxi company in the world runs a business without owning any cars, the most popular media company creates no content and the world’s largest accommodation provider owns no property. Ten years ago, there were only a few large firms that could be described as platform companies. By 2016 there were over 170 platform companies valued at US$1 billion or more.
Forging a successful digital future will likely mean buying as well as building capabilities in-house. Today, investors are prepared to reward companies that make bold technology and transformational acquisitions. Companies need to think hard about how to free up capital to invest in digital and innovation. Leading companies strategically divest noncore or underperforming businesses not only to fund digital innovation, but to also refocus their core businesses.
Applying traditional valuation models for digital assets is similarly fraught with challenges - you can’t apply the same methodology to a clicks-and-order company as you would have done to a brick-andmortar business. Valuing potential rather than past performance and the worth of an organisation’s IP market of tomorrow is highly complex and not without risk.
Many companies are also exploring collaborations models in addition to buy vs build strategies. For example, banks initially saw many FinTechs as a threat to their business. Now, many of the most successful banks have enhanced their product offerings by white-labelling fintech solutions. But choosing the right partner to work with can often be as difficult as finding the right M&A target. Which are the technologies and products on the market that we should be focusing on? Where are the industry leaders focusing? How much is hype and what can the company truly deliver? How robust and easy to integrate are their solutions? The NextWave of transformation is already all around us. Is your business ready?
Theo is a manager at EY providing strategy consultancy and transaction advisory services.
