- Finance leaders need to redeploy, create value and monitor trends.
- The business model is what disrupts a business, not technology, so take risks and create ones that involve monetisation.
By Tina Wild.
When it comes to the big picture for finance of the future: “The writing’s on the wall for anything vaguely repetitive,” says New Zealand consultant Ben Stevens, Chief Executive of Risk Dynamics.
The 2013 Oxford Martin study: The Future of Employment: How Susceptible are Jobs to Computerisation? reveals that out of 702 professions, tax preparers are second from the top, behind the telemarketer, as most ripe for obliteration. According to their estimates, about 47% of total US employment is at risk of disruption.
As a result, the finance function is changing from being a back office to a corporate entity that is instead looking forwards and creating value. Here are tips for finance leaders to manage disruption.
1. Find opportunities to redeploy
The skill set of an accountant is going to change as the profession evolves. The amount of processing will decrease, allowing space for more creative value-added services. Monetisation is a key element of any business model. As business models proliferate, the accountant will play a central role in ensuring viability.
Hear insights from Ben Stevens and other experts who will outline strategies to navigate through the disruptive forces of business, so CAs can become the change leaders in their finance functions.
2. Create value
Transaction roles and even analysts’ roles may eventually disappear. Maximising human skills will be a priority, and interestingly, HR was one of the last on the list predicted by the Oxford Martin study to be replaced. Getting the finance function to engage with the rest of the business and be forward-looking and creative is the key.
3. Monitor trends
As socio-demographics change and technology evolves, Stevens advises leaders to take time to think about the business, and continually ask not what products and services should be sold, but to identify what the problem is that your business or organisation is trying to solve.
One business that has changed dramatically in recent decades is the music sector, and Stevens saw all the change occur firsthand in London.
Stevens worked as a Director of Internal Control at Warner Music International’s head office in London at the height of when the industry was being disrupted.
Observations about how the music industry managed to survive the dramatic impact of digitisation is a noteworthy lesson for other sectors to heed in their pursuit to transform and prosper.
Commoditisation and the value chain Stevens, whose company Risk Dynamics now consults to some of New Zealand’s leading brands, says commoditisation played a big part in disrupting the music industry.
Research for his Executive MBA on the effects of digitisation in music industry saw him make discoveries before data was available and when ideas weren’t yet in the public domain.
Monetisation is one of the biggest issues in disruption. It’s not a viable business model if you’re not monetising.
One of his biggest findings was the collapse in price and volume of CD sales, which had a crushing effect on the business model. Researching ticket stubs sales on eBay, Stevens also discovered concert prices had skyrocketed.
The price of a CD dropped dramatically from £13 in the 1990s to £6 in early 2000s. The volume of CD sales also plummeted with each breakthrough in technology. “No business can sustain this kind of collapsing impact,” says Stevens.
“It’s interesting to observe what happens in the industry-wide value chain, [where] someone else creates value and picks up the money. Sure enough, touring was experiencing a massive boom. Music became a commodity and a promotional element for touring.”
Commoditisation has occurred in many other industries. Business models have become increasingly blurred as businesses become cloud-based. “The systems, processes and culture are ingrained in a business. Overlaying a digital business model over that is impossible.”
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What causes disruption?
1. Intersecting technologies create new models
In music, the digitisation of content, the internet, the mp3 and player were key technologies that intersected to create disruption. The traditional business model was obliterated through monetisation. Monetisation is one of the biggest issues in disruption, says Stevens. “It’s not a viable business model if you’re not monetising.
“The business model is what disrupts a business, not technology. It was dissatisfaction with the old business model in the music industry that led to it becoming obsolete.”
2. Socio-demographic change reinforces disruption
Disruption is facilitated by socio-demographic change. People have changed over the past 20 years. The emergence of the sharing and gig economy has helped to create new business models, which are less about ownership.
3. Laws don’t keep up with tech
If you’re looking at a macro environment, the regulators don’t get technology and they can’t keep up, adds Stevens. He believes legal changes will inhibit disruption and innovation. Start-ups, he says, flout the law, pushing the boundaries of what is legal, then later on cover their tracks. That’s why a lot of bigger corporates don’t survive digital disruption, because they don’t take the risks.
Where risk meets strategy
However, for Stevens, one of the biggest risks is not taking a risk. Xerox, for example, took the risky strategy of switching its business model from selling photocopiers to leasing. Within 10 years, its market cap climbed from nothing to US$8 billion. In the 1970s, it developed the mouse and pioneered development of the personal computer. It could have owned the computer market, but 10 years later, technology leaders Steve Jobs and Bill Gates bought the technology from Xerox and owned the market. Stevens explains that this business was disrupted because it didn’t take measured risks with its core revenue streams. “The conundrum of disruptive innovation means the only way to disrupt is to disrupt yourself.”
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Tina Wild is a content writer for CA ANZ.