In early 2018, Dr. Michael Mandel, senior fellow at the Mack Institute for Innovation Management at the Wharton School, published new research arguing that increased access to emerging technologies delivered in the cloud via the cloud will add at least $2 trillion to the gross domestic product (GDP) to the U.S. over the next decade. In ‘Intelligent Finance: How CFOs Can Lead the Coming Productivity Boom’, Mandel explores the linkages between cloud services and productivity, software spend and industry leadership, and how the diffusion of cloud-based technologies and industry best practices can help all enterprises close the gap between high-productivity and low-productivity industries.
"The mix of software, top talent and good management attracts more investment and capital—which in turn accelerates market leadership"
At the nexus of these linkages are CFOs, who are rapidly embracing their new role as business transformation champions leveraging artificial intelligence, machine learning, blockchain, the internet of things, and other digital technologies to modernize their enterprises and drive the next productivity boom. Some are seizing the opportunity, others are being dragged into it, but eventually all CFOs must embrace this new role or face being disrupted by competitors.
Frontier Firms Are Driving the Change
CFOs are beginning to see a pattern. When a tech-savvy competitor like Amazon moves into a market, the status quo no longer applies; grocery stores and pharmacies are just the latest companies to see Amazon completely disrupting their markets, similar to how Netflix has disrupted Hollywood and Google and Facebook have disrupted advertising. Dr. Mandel’s research found that the productivity gap between these kind of “frontier firms”— the top 5 percent of companies across every industry and every geography that dominate in terms of profits and market share— and everyone else appears to be growing. CFOs can no longer afford to be complacent about embracing digital strategies, as their entire market may be at risk.
Frontier firms are pulling ahead as a result of better technology, better management, and better talent. Citing research by the U.S. Bureau of Economic Analysis, Mandel shows that on average, high-productivity industries spend more than five times as much on software per worker than low-productivity industries. This calculation is based on the measure of software outlays published by the US Bureau of Economic Analysis (BEA).
The mix of software, top talent and good management attracts more investment and capital—which in turn accelerates market leadership. In the entertainment industry, Netflix has become the hot destination for new shows and acting talent, setting the standard thanks to the company’s leadership and technology-driven philosophy. Other industry players such as Amazon (Prime), Apple, Hulu and Google (YouTube TV) have been quick to follow, and the stock market has rewarded these companies with high stock prices well in excess of other competitors.
CFOs Look to the Cloud to Help Close the Gap
Many CFOs still think of the cloud as an economizer, reducing IT infrastructure costs and shifting investments from capital expenditures to operational expenditures. However, the research found that the biggest benefit of the cloud is providing the best current thinking about how to employ new technologies such as artificial intelligence and machine learning, as well as continuous access to these new technologies as they mature and evolve. With these kinds of benefits, it isn’t surprising that finance is increasingly looking to the cloud to modernize, even among large traditional enterprises. Oracle’s recent ERP Trends Report found that 76 percent of finance and IT leaders said they either have plans for ERP in the cloud or have made the move already, with over a third citing rapid access to the latest technologies as a primary benefit.
These dynamic benefits will be especially important over the next few years, removing many of the low-value yet time-consuming human tasks and enabling humans to be deployed on more value-added, strategic projects.
The Promise of Greater Productivity
The addition of $2 trillion dollars in productivity gains will help to close the innovation gap in industries that have traditionally been lower on the productivity spectrum, such as higher education, healthcare, retail, and manufacturing.
The benefits of cloud technology are already starting to reshape these industries, with new business models emerging in areas that have long been ripe for disruption, such as retail. Stitch Fix, a digital native company with a cloud-first strategy, uses data algorithms to personalize and customize the retail experience for online shoppers. Stitch Fix standardized its financial management technology on Oracle ERP Cloud to support its hyper-growth and expansion into new market segments, getting regular access to cloud updates from Oracle as new features and functions are rolled out. The success of Stitch Fix has helped it attract one of the largest pools of data scientists in Silicon Valley, and provides a strong example of how cloud technologies are reshaping traditional business models and helping businesses scale and grow.
Propelling CFOs into the Corner Office
CFOs already own the business model and stand at the right hand of the CEO to set business strategy. In their new role as transformation and modernization champions, CFOs can also boost their chances of moving into the corner office, propelled by the benefits of the cloud. Currently, 25 percent of Fortune 500 CEOs rose up through the ranks of CFO. Expect this number to increase as advanced analytics and enterprise performance management (EPM) platforms uncover new areas of business growth and efficiency, improve accuracy of forecasts, and predict business performance in different scenarios—like a crystal ball on steroids. Add to this secure, distributed ledgers built on blockchain technology and the ability to see performance data at every stage of the production cycle via smart sensors and IoT, and it’s no wonder that CFOs are gaining predictive powers that will help them become the likely successors to the CEO.
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