Fintech has huge upside in the early innings moving to mobile and online
Source: WSJ, June 19, 2016
New financial technology is disrupting everything from payment systems to messaging to how we manage our data. Dennis Berman, financial editor of The Wall Street Journal, explored the implications with John Collison, president and co-founder of Stripe, an online payments company, and David Gurle, founder and chief executive of Symphony, a cloud-based secure-messaging system. John Collison and David Gurle on how CFOs face a very different environment. Edited excerpts follow.
Dennis Berman: What do CFOs need to know?
John Collison: Part of what’s happened due to the decreased distribution costs of the internet is that capital constraints disappear. We’re used to thinking in a capital-allocation frame of mind, and sometimes, when it comes to technology development, that’s not the right framework. Because you have these tiny tech teams who end up developing a platform, or a product that grows to tens or hundreds of millions of users.
Two things. I still think the world is in a head-count state of mind. You notice this when managers discuss the size of their organizations, that that’s the unit of relevance. When you’re dealing with new technology that could have a very large impact on a company, it’s very dangerous to think about it in terms of head count. The second thing maybe is the metrics you choose for early-stage technology. Revenue will seldom be the right metric. We use market share. Obviously, we later want to optimize that net revenue into earnings and things like that.
David Gurle: Technologies have a cycle, and it’s going to keep changing and challenging your assumptions all the time.
Most of the time it is the early adopters that make the strategic bet and eventually make the big benefit. The late adopters, or the ones who come in midterm, they miss the train. Because adoption of new technology is just not money you’re going to spend. It’s also a change in your corporate culture, in processes.
Dennis Berman: What should businesses think about in terms of the pace and ease of payment?
John Collison: The important thing to realize about online and mobile commerce is that it’s still relatively tiny. Between 2% to 5% of global commerce happens online. In the U.S., on a consumer basis, it’s around 5%. That’s online and mobile, so it’s still just a very small total. And you can kind of see why—in that it’s such a pain to do anything online or on mobile. This is why we spend so much time on the developer experience.
We think Apple Pay In-App has been a huge deal. [In-App Purchase allows purchases within apps simply and securely.] You go from this multipage, lots of data entry experience to just pressing your thumb on the fingerprint sensor. Apple announced its bringing that to the web and to Safari. That’s going to be a huge deal. When you get a platform and a technology that enables a new kind of commerce or payment experience, you get these entire industrial shifts. I think there will be something similar with Apple Pay, where there are a new breed of companies and businesses possible that were not possible before.
Dennis Berman: Can you think of a cool example?
John Collison: Sure. You can’t buy an individual newspaper issue online right now; they only sell subscriptions across all the major papers. I think that is because it’s been so cumbersome to go through the payment flow, that once you pull someone through it you might as well sell them a subscription. So we might see different forms of content, it being possible to sell them as a result.
In today’s competitive environment, a differentiator which separates a great company from the rest of the pack, is the ability to be innovative and create new growth opportunities. Because CFOs can relate to the key drivers of the business, they are being tapped to take the lead role in evaluating risk and advancing their organization’s innovation agenda.
by Deloitte CFO Journal
About 95% of innovation attempts fail to return their capital, according to research from Doblin, the innovation unit of Monitor Deloitte. Yet, innovation is not a choice but a strategic necessity for companies, says John Levis, global chief innovation officer and regional managing director—Americas for Deloitte Touche Tohmatsu Limited.
With companies devoting greater attention and investment to growth through innovation, Mr. Levis describes how innovator companies work to avoid the high failure rates that plague many organizations and how CFOs can help advance their organization’s innovation agenda while managing the investment risk that comes with it.
Q: What distinguishes companies that effectively and consistently foster innovation from other organizations?
John Levis: Tone at the top, commitment to invest and a disciplined approach are the three elements that I find separates the most effective innovators from the rest of the pack. At the top innovative organizations, leadership makes it a priority to define what innovation means to the organization and is vocal about its strategic importance to the entire organization, from the C-suite and down through the organization.
When I say being committed to invest in innovation, that means making the necessary investments not only when times are good and cash is plentiful, but also when there are downturns and difficult choices need to be made. It also means investing in human resources and a variety of other areas, such as technology, that are needed for innovation. These resources go beyond what might be needed to run a steady business, and innovator companies typically make these types of investments.
Last, these companies have an innovation process that is disciplined and systematic. They pursue both incremental and radical innovation and innovate in many areas, such as business and profit model.
Q: How can CFOs support their company’s innovation agenda, while maintaining their role as steward?
John Levis: First and foremost, CFOs looking to help establish an innovative organization need to think about taking a portfolio approach to funding and investing innovation. This approach can help CFOs manage the overall level of risk in innovation projects while allowing the organization to pursue innovation initiatives that might have a higher level of risk than the standard risk threshold.
The portfolio approach entails distributing innovation investments across three categories or types of innovation. First, there’s innovation at the core, investments that aim to achieve 10% to 15% improvement on, for example, the productivity of an operation or the sales of a product, with a proportionally low risk of failure. Core innovation investments should make up the vast majority of the portfolio, up to about 70%, for a large organization. The second category is adjacent innovation, efforts to extend a product set or customer base by way of new products or a new set of business for the organization. Adjacent innovations aim for a higher impact and will likewise have a higher level of risk. They generally should account for no less than 10% and no more than 50% of an innovation portfolio. The third category—transformational innovation—is usually the smallest piece of the innovation portfolio at about 10%. These are projects that could bring a fundamental change in the direction or growth of the organization, often the ones with the biggest potential return and the highest risk of failure.
If CFOs apply the risk criteria they use for typical business investments to innovation projects—especially those that might be transformational—that could make it very hard to provide funding approval. But taking an approach that looks at the risk profile of the entire investment portfolio rather than just the risk profile of individual projects allows the organization to balance the 10% of the portfolio’s high-risk innovation projects with lower-risk investments, which typically would be the majority of the portfolio.
Q: Should CFOs be using different metrics to measure the performance of the organization’s innovation investments?
John Levis: When organizations create innovation in a consumer business or in a business-to-business model, they need to create alongside of that a value capture model―a pricing model, you could call it― that’s going to support the innovation and reflect the fact that it’s not business as usual in the organization. CFOs who say, “We’ve got to start measuring our ROI on innovation,” are missing the point because innovation is not a financial decision; it’s a strategic decision and more than that, it’s a necessity. Organizations today cannot simply opt out of innovation because it’s too difficult to establish a process to get it done or to measure it. There’s too much at stake and too much change that happens too quickly for organizations to say, “No, that’s not something for us.”
Because innovation is an iterative process of trial and error, CFOs must be careful to not burden the innovation process with a heavy ROI investment model or too many cost-benefit checkpoints too early in the innovation process. The front end of an innovation project needs to be left as unencumbered as possible, so people can explore and experiment and allow for that rapid iteration of new ideas without worrying about meeting an ROI target. That’s especially true for large organizations, where the innovation process happens when one idea is combined with another and is layered on top of a third and so on, until you truly have something that is an impactful innovation.
If you start applying cost-benefit analysis and ROI metrics too early in the innovation cycle, you may nip in the bud something that has real potential. Measuring ROI and doing a more rigorous cost-benefit analysis can start once the idea has made it through a set of pilot projects and the organization is ready to scale up the innovation across many customers or different business units.
Q: What do CFOs need from their finance talent to help them more fully support innovation?
John Levis: When it comes to innovation what CFOs need from their talent is no different than what the rest of the organization needs from talent: the willingness to be innovative. For organizations to be innovative, employees have to be encouraged to explore ideas, experiment with them and see how viral they become in the organization. Moreover, it’s critical to have a performance management model that recognizes that innovation requires failure. Ideally, the performance model not only protects employees involved in an innovation project from being dinged for failure, but even rewards it under certain circumstances, such as when an innovation journey that doesn’t work out provides a valuable learning experience.
In the same way, the CFO and finance need to be just as innovative as the rest of the organization. For example, an innovative CFO might look at the close process and ask, “Would doing the close in real-time be valuable?” If there were real value to the organization to have much faster financial reporting, if capital markets rewarded companies with a more efficient close process, for example, then asking, “What’s stopping us from doing that and what do we need to do to make that happen?” could be the front end of a whole new set of innovation.
CFOs who want a finance organization capable of innovating financial management processes or becoming a stronger business partner need to provide their people training in innovative methods and techniques like design thinking. These tools encourage looking at things differently, questioning what’s in place and looking for new solutions to challenges that perhaps were not even previously recognized as constraints.
Q: In your role as chief innovation officer, what has surprised you in terms of what works or doesn’t work in driving innovation?
John Levis: Coming in to this role, I expected the biggest challenge to be generating new ideas because being an innovative company requires coming up with a lot of new ideas on a sustainable basis. I was completely wrong about that; we had no problem with ideation. Instead, the real challenge was figuring out a process to evaluate the many ideas being proposed so that the truly top-shelf ideas could be advanced.
Another assumption I brought to the role was that establishing a culture of innovation would require bringing in a lot of young people. I’ve found, however, that innovation has nothing to do with age. We get out-of-the box ideas from all generations. What was important was convincing others that it’s OK to risk failure, that trying out new ideas that fail is even a positive. As I said earlier, for an organization to have a culture of innovation, the talent and performance model should not only tolerate experimentation and failure, but also reward those who advance innovative thinking, regardless of the outcome.
It’s well documented that the CFO/CIO relationship can be challenging for some. As technology continues to play a major role in strategic decisions made to create value, drive growth and maintain a competitive advantage, it’s more important than ever for the CFO and CIO to forge a strong partnership.
The gender pay gap may be narrowing, but the bigger question remains: Why aren’t more women appointed to the CFO position?
by Valentina Zarya, Fortune December 2015
Ruth Porat took over the CFO title at Google, moving over from Morgan Stanley this year.Photograph by Chip Somodevilla — Getty ImagesThe numbers add up.
As a rule, men out-earn women in the U.S., making about 77 cents for every dollar a man makes. Yet when it comes to the salaries of corporate finance leaders, it’s the men who have catching up to do.
A new study by executive compensation firm Equilar and the Associated Press found that female CFOs at S&P 500 companies made more than their male counterparts in 2014, according to the AP. On average, women finance chiefs made about $200,000 more than men, with a median salary of $3.32 million.
Female CFOs’ salaries are also growing faster than those of male CFOs; last year, women’s earnings increased by 11%, while men’s earnings increased by 7%, according to the report.
The highest paid female CFO is Google’s (and parent company Alphabet’s) Ruth Porat, who was paid $14.4 million in 2014 (she was Morgan Stanley’s CFO at the time). Porat made her first appearance on Fortune‘s list ofMost Powerful Women this year, coming in at No. 26. When Google announced Porat’s hire, the company’s market cap rose by $65 million—so it’s probably safe to say she isn’t budging from the top-earner list.
J. P. Morgan Chase’s Marianne Lake, who took home $9.1 million in 2014, is the second-highest paid female CFO. No. 31 on our list of Most Powerful Women, Lake has held the CFO post at J.P. Morgan Chase for nearly three years now, overseeing a balance sheet with $2.4 trillion in assets.
Before we all start celebrating, however, it’s important to note that while they may out-earn men, women CFOs are still greatly outnumbered: There were only 60 female CFOs in the S&P 500 last year, reports theAP.
The role of CFO is no longer based on a linear set of financial skills, and the days of accounting departments operating in individual silos are over. No matter the industry focus, all financial leaders must serve as bulletproof strategic partners to the entire business, providing real-time data that anticipates future demands and risks.
by Chris Schmidt
From ERP systems to smartphone apps, information technology is reshaping the role of the chief financial officer.
The evolution of information technology has shaped the working lives of senior financial executives, changing what it means to be a CFO. When it is managed well, technology connects finance with every function and informs every strategic decision — the nervous system and analytical core of the modern enterprise. When it is managed poorly, technology saps competitive strength from even the strongest company, affecting earnings and valuation.
To gain a better understanding of how CFOs manage and use both corporate and personal technology, CFO Research recently surveyed 267 U.S. senior finance executives. One thing quickly became clear: IT has become deeply enmeshed in the finance function. “Finance is IT,” said one survey respondent. “They are no longer separate items. Without IT, you can’t do finance.”
An astounding 93% of the senior finance executives surveyed believe that the CFO of the future will need a much stronger technology skill set than is currently required for the job. An impressive 64% of survey respondents have taken specific actions to upgrade their technology skills during the last year, and 80% of respondents plan to do so during the coming year.
The reasons that an enhanced skill set is required were also amplified by the survey. Four out of five respondents believe that their organization’s IT strategy is an essential component of its growth strategy, and even more respondents (86%) believe it will be an essential component in two years’ time.
Currently, 74% of respondents say that they would be very comfortable providing management oversight of their organization’s IT strategy (for example, with the CIO reporting to them), and 82% expect that they would be very comfortable in this role in two years’ time. Looking only at survey responses from CFOs, 88% indicate they are comfortable providing management oversight of IT now, and 92% indicate they would be very comfortable in this role in two years’ time.
Survey participants were asked what advice they would give to their peers who are newly assuming management oversight of their organization’s IT strategy. Their responses covered several aspects of the finance executive’s role:
• Technical competency. A director of finance recommended that finance chiefs “learn and understand the technical jargon so they can have a deeper understanding and discussions with the CIO.” A CFO added: “Don’t be afraid to admit you don’t know what you don’t know.” Another finance chief suggested requiring “a roadmap to understand IT’s vision for both infrastructure and applications.” Still another CFO suggested a forward-looking approach to developing personal technical competency: “Build your knowledge on future developments — the cloud, the Internet of Things — and on [intelligence about] where your industry is heading.”
• Enterprise IT strategy. An executive vice president of finance counseled: “Stay focused on overall corporate goals and priorities, and have IT spend and prioritization align with them.” A CFO added: “Remember that IT is not a pursuit in and of itself. Keep business goals in mind.” Summarized a manager of IT financial analytics: “Don’t be enamored of shiny objects. Know your user base and use cases before investing in new technology.” To inform strategic decisions, a CFO advised his peers to “make sure you have management dashboards to help find answers to your questions instead of relying on subordinates to give you the filtered information they think you want.”
A head of global business services suggested: “Constantly take a critical look at the services your IT organization is providing and ask if they can be bought as a commodity easily from outside, or if someone can deliver the service better. Balance the insource-to-outsource ratio on a regular basis to avoid building a large fixed-cost base.” A CEO suggested phrasing this query more bluntly: “Why we are doing everything in-house?”
• Tactical decision making. A vice president of finance advised CFOs to “really understand how you got to the current IT environment as a basis for making decisions about what may need to be changed going forward.” A CFO noted that finance chiefs’ role in risk management requires them to “thoroughly understand how security and privacy are managed by their IT group and through their IT infrastructure.”
Technology’s prominence in the finance function continues to grow. Seven in 10 (70%) respondents believe that the percentage of their finance budget that is devoted to technology will increase in 2016. Only 2% believe that this percentage will decrease.
And the responsibilities related to managing technology continue to keep pace. Nearly two-thirds (65%) of respondents believe that the amount of time they personally devote to managing finance technology will increase in 2016. Only 3% of respondents believe this amount of time will decrease in 2016.
One-quarter (25%) of respondents currently access their organization’s core financial information systems via smartphone or mobile device, and 78% of respondents believe that there is a large gap in usability (regarding the interface and user experience, for example) between consumer technology and finance technology. Of those who believe that there is a large gap in usability, more than 7 in 10 (72%) expect that it will take at least three years to close the gap. (See Figure 1, above.)
Respondents whose companies have an enterprise resource planning system indicated that the system they use most often needs the most improvement in “reporting and display,” followed by “ease of customization.” (See list.) In addition, an open-ended survey question asked what one thing respondents wished theirERP system did better, and “reporting” was cited far more frequently than any other response.
The fact that respondents saw opportunities for substantial improvement in all the attributes listed points to the challenges of ERP system management. Respondents were also asked what advice they would give to their peers who are newly assuming management oversight of their organization’s ERP system. Again, responses covered multiple areas:
• Strategy. A CFO counseled: “Align ERP enhancements with your overarching IT vision. For me, that means making it easy for our customers to do business with us and enhancing efficiency and productivity.” Another CFO added: “Prioritize the key pieces that will ensure that you are compliant with requirements for your industry. Then focus on maximizing those pieces.” She concluded: “Ensure that all existing systems are using full capabilities before adding more systems. Do not let systems be added in silos, to support siloed teams.”
• Configuration. An IT finance director suggested to “keep it as ‘vanilla’ as possible. Customization leads to increased cost of ownership as upgrades are needed.” A CEO summarized: “Use the cloud and keep it simple.”
• Reporting. A controller cautioned: “Don’t adapt your reporting to the system. Find a system that works with your reporting.” A financial reporting manager added: “Get user-driven reporting set up early (that is, so you are not reliant on IT).”
• User Experience. A treasurer counseled: “Use champions/power users in each department as go-tos for department users.” A controller suggested: “Get training on the system — significant training.” A CFO added: “The loudest complainers may not be the parts of the system that need to be addressed first. Do your homework on the return on investment in changes/integrations/customizations.”
Respondents’ personal relationship with technology is shifting as well. Figure 2 shows that senior finance executives have made a concerted effort over the last five years to “stay current” with technology. Interestingly, though, the percentage of self-described technology “geeks” and “early adopters” in the senior finance ranks has declined.
We asked respondents to tell us their favorite apps, both those that are related to their finance roles and those that are part of their personal lives. The apps cited most frequently that are related to a finance career (in addition to those associated with enterprise/business intelligence systems) can be categorized into news/markets (for example, theWall Street Journal), research (Google), financial calculation (HP 12C), productivity (Evernote), expenses (Concur), and networking (LinkedIn). A controller summarized the focused-app strategy of many respondents: “Most of my mobile usage for finance is based on the acquisition of news and information.”
The personal apps most frequently cited (in addition to personal banking and investment apps) were related to music (for example, Pandora), fitness (MapMyRun), commuting (Waze), dining (Open Table), wine (Vivino), travel (TripAdvisor), sports (ESPN), and social media (Facebook). Perhaps the most unexpected personal app cited was Fish Rules, which employs GPS locating to keep users apprised of the saltwater fishing laws and regulations relevant to a given location.
But several respondents noted that they intentionally limit personal apps and avoid social media, citing the risk of a social media miscalculation. One senior finance executive drew a clearer line: “I view technology as a vehicle for business and do not use it for personal reasons.”
Which is probably just as well. After all, more than one executive has landed in hot water for an inappropriate tweet or Facebook post — you can Google it.