Every recession brings in radical changes in business and operating models. As economically devastating as the 2008 downturn was, its fallout bred innovative products and models. Warby Parker’s online solution for affordable glasses that filled a glaring gap in the market and one of the most popular SaaS success stories of the time, Mailchimp’s freemium proposition, are a few that instantly come to mind.
And there was Netflix, which wasn’t as big as it is today, that went on to form partnerships with organizations such as Xbox allowing people to stream on a variety of devices. Of course, best-in-class shared service models continued to be a blessing for working capital during the tough times.
Businesses have doubled down on innovative thinking amid what is being referred to as the first ‘digital recession’. Delivery services such as Doordash are thriving, more fitness companies such as Lululemon are emerging, and there’s a sudden acceleration in the cultivation of innovation ecosystems.
At the same time, there’s a wave of realization born out of the need for fresh perspectives. The finance function’s value in the organization is one such realization. The traditional number-crunching compliance and spend controller is being elevated to a more strategic role that informs the direction of every function within an organization.
In this augmented role, finance functions are grappling with some new and some known challenges. When 500 executives at small and mid-size businesses across the world were asked about their key priorities and challenges, over 50 percent reported risk management to be their top challenge, 40 percent said improving visibility into spending was a key focus area, and about a third expressed a dire need to improve cash flow optimization.
Let’s discuss four tech priorities for mid-market CFOs as they juggle their traditional and contemporary responsibilities in the new normal of emerging business models and rapid change.
1. Cloud and SaaS
SMBs have migrated to the cloud for functions such as enterprise resource planning (ERP), customer relationship management (CRM), and sales force automation (SFA), for some time now. With new remote collaboration tools going mainstream to enable work without disruption, these businesses are now facing an urgent need to maintain new workloads on the cloud and integrate new applications with on-premise systems. The finance function, in its new avatar, is expected to ensure quick RoI from IT implementations.
Considerations mid-market CFOs must take into account as they work with their IT teams to select a cloud provider include:
- Pricing: A key advantage of the cloud is its elasticity, the ability to scale up and down as per demand. The CFO's team must ensure there are no upfront costs and select a pricing scheme that’s pay-as-you-go right from the beginning.
- Security: SMBs do not have the same resources as large enterprises, and thus it’s critical to employ cloud solutions from trusted providers that have over the years made their solutions robust and secure. SMBs that outsource a part of their business processes must ensure their service provider has the necessary security protocols for work-from-home infrastructure and is compliant with industry-specific regulations.
- Scalability: A clear advantage of Cloud and SaaS is that they convert a part of Capex into Opex over which businesses have more control. To downsize, you simply need to remove users and to scale up, create new users. So, out with the huge capital intensive cost structures and in with the new flexible SaaS models. An evaluation of the fees for users under different licensing or subscription options, and the availability and support provided, is recommended to make the most of the flexibility that Cloud offers.
The pandemic has brought the need for continued evaluation of non-financial drivers of growth and profitability into sharper focus. Finance leaders need tools to conveniently query internal and external data for useful and dynamic insights. In our conversations with mid-market players across the world, we find that only a few organizations have been successful in assessing the RoI of their finance analytics implementations, although nearly every organization recognizes the need for real-time insights extracted from diverse sets of data. Finance organizations must start by curating a list of analytics projects mapped to business problems and take up small projects across integrated financial planning, performance reporting, and forecasting, before considering larger ones.
In addition to tools finance leaders can use to query data without the need to build complex models, extensive automation can help them focus on the high-value decision-making aspects of their job. Here, finance functions can start by assessing tasks that currently prevent them from devoting sufficient time to delivering great insights, and then begin automating such tasks. Robotic Process Automation (RPA) is a mature and low-cost technology, so finance functions are likely to observe efficiency gains that more than offset the cost involved.
According to recent research by CFO.com, concerns around data security, financial processes, and financial statement accuracy have increased during the pandemic. Investments in VPN, mobile device management, endpoint security, identity-based network architecture and cloud-based disaster recovery solutions have increased, and we expect this growing trend to continue in 2021 and beyond. Again, to keep cyber assailants at bay, it’s best to migrate to cloud services from cloud providers that have integrated robust security controls over the years.
For CFOs, it’s the most challenging yet interesting time of their career. As an unprecedented recession introduces new challenges, technology presents new solutions and answers. Emerging technologies such as artificial intelligence (AI) and machine learning (ML) may not be high on the priority list for mid-market firms yet, but investing in the right foundational tools and technologies such as Cloud today is what will help them emerge stronger on the other side tomorrow.
- Deloitte - Technology in the mid-market: Perspectives and priorities
- ET CIO.com - Technology is the new SMB backbone: a must-have for success in the new normal
- Gartner - It’s time to upgrade your financial analytics