How is the new breed of CFO in manufacturing enabling digital transformation?
Author : Brian Foster, Head of Industry Finance at Siemens Financial Services UK
23 August 2018
Deciding to embark on digital transformation is one thing for a manufacturer. Analysing and clearly articulating the commercial imperatives to do so – as well as the risk of not acting – is another. Operationalising Industry 4.0 is yet more challenging and complex. A growing reliance, therefore, is now being placed on the CFO to enable digital transition without undue strain on the business. Brian Foster, Head of Industry Finance at Siemens Financial Services UK takes a closer look.
Digital transformation is now a matter of ‘How’, ‘How quickly’, ‘How much’ and ‘How in practice’. Moreover, there is the issue of how to implement Industry 4.0 in a commercially sustainable way, with investments focused on digital transformation that truly delivers measurable commercial and competitive benefits over time. Moving from a relatively analogue manufacturing environment to a digitalised one is potentially very disruptive to a business.
A growing reliance, therefore, is now being placed on the CFO to enable digital transition without undue strain on the business. Respondents to SFS research – manufacturers and expert management consultants – have firmly emphasised that planning for Industry 4.0 needs to start with comprehensive awareness and understanding of the available financing options. Appropriately applied financing solutions can enable a wider range of Industry 4.0 options for a business making its options more financially sustainable, in a sector where slim profit margins are often the norm compared with other industries.
Key competencies for CFO 4.0
A number of studies have already identified that the role of the Manufacturing CFO is fundamentally changing . The new breed of CFOs – CFO 4.0 - are now playing an increasingly enabling role as “advisor, enabler and [for reporting data] operator” and has been shown to focus on supporting three main objectives achievable through digital transformation: 1. revenue growth; 2. profitability enhancement; and 3. operational excellence. CFO 4.0 is the creator of a growing number of lead-indicators for the business, as well as the master of measurability, according to one survey of manufacturers – with priorities including, “connecting workflow and production processes”, “medium- to long-term thinking in order to anchor the digitisation agenda across the board“ and “better transparency and higher control through digitalisation” .
How, then, does achieving such objectives translate into the key set of competencies for CFO 4.0? Our research respondents were able to identify five principal capabilities that characterise CFO 4.0. They are described below (in no particular order of precedence).
The size of the prize
Why are CFO 4.0 competencies so important? Because the commercial benefits that CFO 4.0 can enable are considerable. Reference to research conducted by Siemens Financial Services (SFS) helps to quantify the bottom-line gains that digital transformation is likely to deliver, made possible by the appropriate application of the competencies engendered in CFO 4.0.
The majority of manufacturers and industry experts interviewed for the SFS research confirmed that the ability to increase manufacturing productivity is a universal starting point for determining measurable value from digitalisation. The SFS research revealed that by automating and digitalising production systems, manufacturers can expect to make production productivity gains equivalent to between 6.3 and 9.8 percent of their annual revenues. Termed the Digitalisation Productivity Bonus, this gain was identified by respondents as an extremely reliable starting point to make a business case for investing in Industry 4.0 technology upgrades. Of course, once harnessed, the Digitalisation Productivity Bonus will be applied in different ways in each organisation – from returning value to shareholders, to increasing investment in product innovation, to driving more competitive market positions.
You can access the research here: www.siemens.com/cfo-4-0
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