How to embrace digitisation strategically to preserve cash flow while encouraging profit growth.
Chief financial officers (CFOs) are usually under lots of pressure to drive a company’s profit while preserving cash flow. While COVID-19 has made the task a challenge over the past 18 months for many companies, the pandemic has accelerated technologies that now present opportunities for cash optimisation. As a result, according to a recent Gartner survey, 82 percent of CFOs plan to increase their investments in digital capabilities, and 70 percent plan to increase their investments in information technologies.
Here, Gary McGaghey, the CFO of the end-to-end marketing and office services group, Williams Lea Tag, explains what it means to invest in digital technologies strategically and how CFOs can make the most of the value creation opportunity created by COVID-19.
COVID-19’s Impact on the Business Environment
‘Some businesses have found that the pandemic has opened opportunities for them, but – in many cases – businesses have also been negatively impacted,’ Gary McGaghey explains. ‘Either way, the business environment has changed, and the pace of business has changed. For those whose businesses have been impacted by COVID-19, they need to understand how it’s been impacted and how to move with that. Many businesses now need to change their business models to create value and ensure they’re not seen as a risk.’
As technologies are becoming increasingly integral to the corporate scene, it’s essential to consider digitisation strategies when reshaping a business model.
‘The ways that companies deliver digital functions haven’t changed much materially during the pandemic, but it is still important to deliver these functions,’ Gary McGaghey says. ‘Digital tooling can reduce your exposure to risks. For example, Williams Lea uses a date-stamping tool that details the dates that invoices are received instead of the dates that invoices are sent. This has enabled a big cash flow improvement.’
Investing in Digital Technologies and Artificial Intelligence
Emerging technologies are rapidly changing business processes and procedures, and many companies are now making the most of advanced analytics, artificial intelligence (AI), and robotic process automation (RPA). The Gartner report concludes that nearly 20 percent of CFOs believe that AI or digitisation will have the biggest impact on the finance function over the next three years. Several case studies support this prediction. Gary McGaghey refers to an example of a team of more than 150 who previously processed over 3.5 million invoices per year. The company has now downsized to a team of 12 who process the same number of invoices. The company achieved this by investing in RPA.
That said, investing in technology alone rarely solves a business process issue, and RPA usually only accelerates existing processes. For example, if your current process requires a high degree of exception management, this will be no different if you perform the process with RPA. Choosing the right digital tools at the right times is key to streamlining cash processes and promoting profit growth.
Meanwhile, AI offers unlimited potential for the future of the corporate world. Paired with RPA, AI is set to have an immense impact on the next generation of companies. However, investing in both AI and RPA at present can leave companies trying to cover up underlying issues in data and processes. It’s important to consistently invest in technology, process, and data. Over time this will generate sustainable efficiencies in a business’s cash cycle. This evidence of sustainable cash flow efficiency improvements can also be key to securing funding from lenders, which is often more difficult in the face of the pandemic.
‘Lenders and banks are typically asking for more information in the aftermath of the pandemic because they’re concerned about cash flow,’ Gary McGaghey says. ‘The same applies to stakeholders in private equity businesses. Providing more information about your company’s technologies, processes, and data analytics of one’s cash cycle can improve your chances of securing finance.’
The Post-COVID Value Creation Opportunity
CFOs need a holistic, enterprise-wide view of their company to drive operational efficiencies, ensure insightful value creation, and deliver company growth – all while maintaining cash flow. As a CFO evaluates a company’s resources, they may find that their team and technology tooling (ERP systems and/or integrated systems/tooling) can’t perform well because of the company’s poor data. Similarly, they might conclude that their team and tools cannot meet the requirements needed to optimise the company’s cash flow. In this case, a chain is only as strong as its weakest link. Thus the priority of the finance function needs to be firstly on addressing the data quality and completeness issues. Once this is addressed, only then can the finance function drive for further improvements through leveraging AI and delivering process efficiencies in the finance function.
‘Many companies in different countries have found it difficult to secure talent during the pandemic – and this has been the case even more so as we come out of the pandemic. For Williams Lea Tag, this challenge has accelerated the need for digital transformation,’ Gary McGaghey explains. For example, Williams Lea Tag has developed a geography-agnostic business model, which has made it easier for the company to operate around the world and meet demand in different countries through its technology enabled offshored operating centres.
Having adjusted to new technologies to fulfil the need for remote processes during the COVID-19 pandemic, most CFOs have already shifted to a wider adoption of technologies and streamlined processes. Now is the time for CFOs to lay the foundations for a solid integration of technologies, processes, and robust data to promote profit growth while preserving cash flow.
About Gary McGaghey
As a globally experienced divisional and group CFO, Gary McGaghey leads a carefully crafted finance team and oversees Williams Lea’s cost restructuring, carve-outs, mergers and acquisitions, balance sheet refinancing, and divestitures. His experience as a CFO in a range of sectors – like FMCG, beverage, pharmacy, and media – has proven invaluable to his role with the private equity firm, where he applies a growth-oriented approach to the finance department. Gary McGaghey is also the non-executive director of the award-winning children’s fitness solutions provider Fitmedia UK. He has held multiple non-executive and statutory executive director roles for privately owned and listed companies.