Adam Gates, Head of Odgers Connect, explains how organisations can overcome the common challenges of implementing large-scale transformation within their finance function
Very rarely is finance the first port of call for an organisation’s transformation agenda. For many senior executives, the notion of transformation is more closely associated with customer experience, improving sales or some form of e-commerce development. What’s more, ‘change’ is unfamiliar territory for what is by nature a cautious area of the business.
It means that finance transformations can suffer from a lack of senior leadership buy-in and from internal resistance. However, for those organisations that prioritise finance as a business-critical enabler, the benefits can be extraordinary. Business insights leading to more accurate forecasting, clearer decision making and effective risk mitigation are just some of the outcomes of transforming a finance function from what traditionally covered events from the past, into the lynchpin of how the organisation drives itself into the future.
However, a finance transformation is not without its hurdles. These are some of the common challenges organisations face and how they can overcome them:
- Don’t transform in isolation
Organisations need to start by working with the wider business to build a vision of what the future finance function will look like. This means securing buy-in from other functions to ensure that the transformation is wholly supported from the outset. Explaining the value-add to the rest of the business is the quickest way of securing cross-functional support and alignment.
If an organisation fails to do this, functions closely aligned with finance, such as IT and sales, will quickly come into conflict with any of the changes being implemented. For example, an analytics project that requires data analysis from the sales team is unlikely to materialise if the sales team don’t have the capabilities to provide that data.
Importantly, whether it’s increasing market share, business growth or driving efficiency, a finance transformation should align with the organisation’s overarching strategy and demonstrate how it will help bring that to bear.
- Communicate how tasks and responsibilities will change
Finance transformation is often driven by the desire to bring about resourcing efficiencies; the ‘freeing up’ of employees so that they can conduct more strategic and insight-led tasks. A noble pursuit for any finance function but one that means the traditional reporting tasks are often distributed to other areas of the organisation.
The unannounced off-loading of reporting and clerical tasks to other teams is not going to be met with enthusiasm. Business leaders need to have a clear public and agreed approach for what they are going to do with this work. A clear communications strategy that explains the rationale behind workload changes is critical.
- Build a picture of the skills required by the future finance function
Given that most finance transformations aim to dramatically change the work that is carried out in the function, an organisation should not assume that its current employees are going to be able to perform the tasks in the future roles.
Organisations with a classic finance function will be very ‘numbers oriented’; with individuals skilled in reporting and making sure everything ‘adds up’. These individuals may not have the investment or business forecasting skillsets required for what will become an insights-led finance function.
When mapping out the future finance function, training and upskilling of current team members or even a workforce reorganisation, needs to be a consideration. During the planning stage, a workforce assessment will be necessary to ascertain whether the current organisational structure can effectively transition to the future state.
- Secure senior leadership buy-in
Prepare the senior leadership and finance management team to go on the transformation journey. They are not a group of people who regularly go through change so the team directing the transformation need to educate and coach them to be managers of change, not just managers of work. Facilitation is critical here to ensure all are on board with the direction of travel.
Organisations need to ensure that the senior leadership group communicates and champions the programme from the top and throughout management levels. Junior team members are too distant to relate to the CFO and other senior leaders and therefore managers need to communicate the ‘why’ and ‘how’ through robust change management discipline so that the plans cascade from top to bottom.
If an organisation doesn’t have the senior leadership on-board, its workforce won’t be engaged and employees won’t see a reason for carrying out the transformation. The project meets resistance as employees are asked to carry out tasks they don’t understand, morale can drop and ‘change-fatigue’ can set in.
- Don’t let technology take over
With finance transformations often being driven by the desire for efficiency gains and the reduction of manual work, it is very easy for business leaders to become consumed by the technology that will achieve this. However, senior leaders must ensure the focus on technology does not come at the cost of managing people and culture. It is far more important to change mind-sets and secure buy-in from stakeholders than to implement a shiny new platform.
Organisations that get this wrong often find that the technology engulfs the transformation journey, drawing it out to the extent that there is often little money or energy left to complete the project.
There are many different technologies on the market, so the big challenge for CFOs managing a transformation project is ascertaining whether it is ‘fit for purpose’ and coinciding these with the longer-term needs of the business. A strong relationship with the CIO is crucial in achieving this.
Finance transformation requires a clear vision of where the function is now and where it will be in the future. It means engaging the senior leadership team and managing the evolution of skillsets and mind-sets. If this happens, then the result is a business that has a true capability to make forward-thinking decisions, is more able to predict market events and is more resilient.
WILL BLOCKCHAIN REVOLUTIONIZE FINANCE?
By Ken Timsit, ConsenSys
Over the last 10 years, researchers, software developers, start-ups, and large companies have been conducting experiments aimed at determining whether networks based on blockchain technology can ultimately – in whole or in part – replace the infrastructure on which financial institutions and capital markets are built.
In today’s electronic databases, any information can theoretically be replicated at will. This is why most governments allow only regulated actors to keep records of digitized assets (banks, depositories), to avoid pitfalls such as the execution of misleading transactions or the creation of artificial assets. With blockchain, these pitfalls can be avoided at the source code of the technology, which is available to all members of the network. The creation of Ethereum enabled a more robust blockchain network capable of “smart contracts”, which once programmed, can run automatically without the results being modified or manipulated.
Contrary to what some critics argue, the potential of the blockchain is not the creation of a free and unregulated space in which everyone can invent new financial instruments. Rather, the potential lies in creating a much more efficient and globalized commercial and financial infrastructure, in which many layers of control and intermediation are no longer needed as they are replaced by transparent and immutable IT rules that ensure the same risk management functions.
For example, bonds are essential financial instruments on which a large part of our economy and savings are based. The issue and exchange of a bond requires the intervention of several dozen financial institutions (issuers, intermediaries and investors). Some regulated players in this intermediary chain exist mainly to ensure that it is possible to know, at any time, who holds each bond, in order to guarantee their rights to its bearers.
It is theoretically possible to simplify these stacks of operators by linking them to a global blockchain network, open to all stakeholders in the industry. The blockchain network can thus ensure at any time that the number of outstanding bonds corresponds exactly to the number of bonds issued, and that each exchange transaction is carried out without the risk of default.
The blockchain revolution is first and foremost the reduction of costs and delays caused by the current financial infrastructure. The blockchain revolution also creates innovation opportunities for consumers, savers, and investors.
The Web3 revolution, often used to refer to the blockchain revolution, will be driven by the reduction in transaction costs, allowing the emergence of new peer-to-peer business models that we are not yet able to accurately predict, but which will probably participate in a rebalancing of the relationships between financial institutions and their clients. Some international peer-to-peer payment and loan-to-peer savings investment models are already attracting increasing interest from the most sophisticated consumers.
Where are we in 2020?
Today, the blockchain revolution is still in its infancy. Transaction volumes through blockchain networks, public and private, are low compared to those of existing systems. The fixed costs of the technology are still relatively high, and the user experience leaves something to be desired.
However, innovations abound. It is already possible for me, from my smartphone, to buy digital assets whose value is equal to about one US dollar, and to lend them in three clicks to other users who will pay me between 1% and 10% per year for this service, depending on the type of platform.
The number of large operational business projects is still small, but very promising. Numerous international commodity trading players have joined forces to create Vakt and komgo, two platforms that contribute to a significant simplification of trade and oil financing. Similar and competing projects, Voltron and Marco Polo, are being launched. On the corporate side, the Capbridge 1x platform (Singapore) already allows shares to be traded on an Ethereum blockchain network. Other important projects such as LiquidShare (France), SIX Digital Exchange (Switzerland), Daura (with Deutsche Borse and Swisscom in Switzerland), Synapse (Hong Kong Stock Exchange) are in preparation. The World Bank, Société Générale and Santander have issued bonds on an Ethereum blockchain network. These initiatives are still experimental but have attracted significant interest from financial institutions around the world.
And of course, many projects aim to revolutionize global payments by creating digital assets on blockchain networks that are fixed in Euros, U.S. Dollars or other currencies, such as those of the Monetary Authority of Singapore, the South African Reserve Bank, and Union Bank of the Philippines. Since the announcement of the Facebook-initiated Libra project, many governments have expressed concern about the possibility of private companies controlling global payment flows, and have asked their domestic financial institutions to redouble their efforts to explore competing initiatives.
All of this is to say that adoption is happening, albeit gradually. The middlemen and intermediaries of the financial world will not be replaced overnight. Moreover, the exact formation or architecture of the new financial system is impossible to predict with accuracy. However, it’s safe to say that blockchain will enable a financial system that is more efficient and yields more value-add to consumers, users, and investors.
RECOLLECTING 2019 CRYPTOCURRENCY TRENDS & LOOKING FORWARD TO 2020
Marie Tatibouet is the CMO at Gate.io
It has been a bold and progressive year for the digital asset market with exciting announcements flowing in from technology behemoths and government bodies around the world. However, Facebook’s launch announcement of Libra (though they are now facing regulatory issues) and China’s new cryptocurrency law caught all the attention, affecting the Bitcoin price, and the overall market sentiment.
In 2019, the global market saw several catalysts emerging for mainstream adoption despite increased scrutiny around several burning issues such as wash trading and security breaches. For over 400 cryptocurrency exchanges in the world, being able to constantly improve on aspects around user experience and fund security is the only way to be sustainable. However, only a handful have real trading volume and technical expertise to build strong trust in the community. For instance, global wash trading has been the hottest topic of discussion in 2019 but new rankings on CoinMarketCap clearly indicate that the industry is working towards eliminating market manipulation.
Looking back at 2019
In 2019, digital asset organisations have constantly innovated to attract users but at the same time, the trading process has become increasingly fragmented, spiking the time gap between new users becoming long-term users.
Holding & Lending Funds
Since 2014, the Bitcoin margin trading market has expanded from $10 million to $100 billion. Margin trading has been a great use case in the cryptocurrency space. Many exchanges launched the feature to provide diversity to the trading experience and attracting a huge amount of users to the platforms. It allows traders to multiply their profits on successful trades, providing a range of possibilities for both profits and losses.
Staking is a process where users can buy digital assets and earn interest by keeping (holding) them in a cryptocurrency wallet for a particular period of time. It has proved to be a strong use case for digital asset companies as it encourages user participation. In 2019, staking programs brought stable earnings for cryptocurrency investments made by the users. For instance, HODL & Earn launched by Gate.io in August 2019 has been bringing stable earnings for cryptocurrency investments made by its users. The competitive advantage for HODL & Earn is its annual interest rate, which is as high as 32%.
Crowdfunding as an approach to build and grow products has seen a lot of traction over the last decade or so. One of the highlights this year was the emergence of “Initial Exchanges Offerings”, more commonly termed as IEOs, an alternative to traditional IPOs where companies can raise funds by selling a quantity of digital assets to investors, supervised by cryptocurrency exchanges. With over 1.5 Billion funds raised, IEOs shook the entire cryptocurrency space in 2019.
Owing to the richness and variability that we have seen so far, there has been no one clear winner to pick, but there’s also no ignoring the leaders; Gate.io has the second best average IEO returns, raising over 80 million dollars in its first 5 projects and has similar offerings panned out for 2020.
Deals and Discounts
Discount deals are being increasingly leveraged by digital asset companies, encouraging users to maximize their capital. Holiday seasons such as Black Friday are packed with jaw-dropping discounts. However, as an industry, we should aim to integrate discounts in digital currencies into the mainstream world, which would bring price stability.
Dynamic User Relationship
Cryptocurrencies are being taken seriously and companies are designing consumer-specific strategies. It is a great indication of the fact that more and more people are interested in trading digital assets. However, we have a long way to go when it comes to tackling the industry challenges and unlocking value for the entire ecosystem.
Regulation, Security, and Mass Adoption
Central banks of the US, Europe, China, and Ghana are looking at creating their own central bank digital currencies, putting a structure to the adoption of the blockchain technology across finance and other industry verticals. Japan’s recent regulation amendments, China’s new crypto law have laid the right frameworks for mainstream crypto adoption.
While we have major countries pushing for the mainstream adoption, security remains a major concern. Cryptocurrency thefts and frauds in Q3, 2019 annual stand at USD 4.4 billion and this will only increase if fund safety mechanisms aren’t strengthened. Therefore, the strongest will survive as far as digital asset security is concerned.
Nonetheless, blockchain technology is helping to create an innovative and accessible financial system around the world and its mainstream adoption is closer than we can fathom.
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