The start of the year can be a great time for CFOs to consider re-setting business priorities for the year ahead. With an increasingly complex business environment it may be a good time to check whether the company is calibrated to cope with an ever-changing competitive landscape.
This could be particularly important given recent events in the local and global economies and their impact on different industries and sectors. Many CFOs have been surprised by the recent resilience of the Australian dollar, which at time of writing was persistently trading above 80 cents to one US dollar. This makes life tough for exporters – but is improving the outlook for importers.
With a federal election looking likely later this year or early next year, political risk is another factor for CFOs to take into account in their planning for this year.
Additionally, there's potential for significant change in the regulatory environment. In particular, for financial services businesses that are gearing up for the upcoming royal commission into the banking sector.
Together, these pressures could mean businesses have to constantly review how they can become more innovative to drive down costs and better engage with technology.
1. Keep an eye on disrupters
Disruption in the market has become a perennial theme and it's becoming increasingly important for CFOs to maintain a watching brief on the businesses and technologies that could threaten their operations.
Pitcher Partners' Partner David Staples says CFOs need to make sure their business model is sustainable for the next two to three years.
“Substantial technological change is taking place in areas like cognitive computing. On top of this, local businesses are facing growing competition from overseas firms," he says. “So, the onus is on finance chiefs to stay abreast of what's happening in the market and adjust their strategies accordingly."
2. Stay on top of the supply chain
The globalised nature of the economy means there's a lot more integration and interdependence of the supply chain. For CFOs, the potential risk is that the failure of one of the components of the supply chain flows onto their business.
“CFOs can't necessarily rely on what they have always done or what's always been there. Question how you have approached the business in the past and re-think what could go wrong," he advises.
Best-practice supply chain management starts with developing a real understanding of suppliers' critical components. “Understand who your suppliers' key suppliers buy from, and develop an appreciation for key links in the chain," says Staples.
“It's essential to do thorough due diligence," he warns. “Meet with suppliers and question them about what contingencies they have in place if one of their suppliers fails. CFOs must be active in managing the performance of contracting parties to avoid supply chain interruptions."
3. Develop robust disaster recovery plans
Aside from supply chain interruption, system disruptions or communication-critical breakdowns, as well as loss of data or data corruption can bring a business to its knees.
To help safeguard against potential calamity, savvy CFOs understand where the data for their business is stored and managed, and ensure the right IT security protocols are in place.
“One of the most pressing issues facing all businesses is hacking and data loss. Cyber-attacks are becoming increasingly common, as is business breakdowns due to significant data loss," says Staples.
He says in 2018, it's essential for the finance and IT teams to work closely together to reduce these risks.
“You can't put IT in a corner and walk away. CFOs have to proactively review the performance and actions of the tech team and run interruption tests so that if there is a fault or flaw in the system, they can work together to fix it."
Staples says there are huge reputation risks facing companies that fail to follow this process and experience a cyber-attack.
“Any business that has experienced a serious attack has suffered a hit to its reputation. Yes, there's a cost to run tests on the IT system, but the cost will be much greater and not just financial if the company faces a major breakdown or data loss," he explains.
4. Build a sustainable business model
“This involves consistently cementing business relationships and reviewing, on an ongoing basis, variables that have the potential to significantly impact the business," Staples explains.
He believes that in the current environment, it's essential for CFOs to challenge the way the business operates to ensure it's as efficient as it can be.
“There's no room for complacency. All the traditional business models are being challenged, and if your business has not already been disrupted, it's likely it will be."
He says that while CFOs must make changes in their businesses, it's important to bring your team with you – and tap into their expertise.
“Gone are the days when businesses could introduce change in the workplace without engaging staff and identifying solutions that will benefit employees and the business as a whole. There's always a lot of knowledge in the people who work for the business that's important to leverage in any change process," says Staples.
For instance, Staples says it's critical when introducing new technologies that team morale doesn't suffer as people become insecure about whether they will have a job in the future.
“Just mention the words robotics and change and people become worried they're going to be made redundant," he warns.
He advises that careful management of the process is key. “Identify opportunities to redeploy people or change the scope of their role. Engage with staff to find the best way forward for the business, otherwise you'll not only face disruption, but you may have to face the unions and deal with lower productivity as people become insecure and scared for their futures," he adds.
Setting clear business objectives may play an important role in steering firms through surprises that may arise this year.
- Continually review business models and assess how they could be disrupted.
- Develop a comprehensive understanding of links in the supply chain.
- Stress test IT systems so that the company is prepared and responsive to potential cyber-attacks.