If CFOs want to forecast their way out of the current economic crisis, Jeremy Suddards, CEO of Aptitude Software, suggests this is the perfect moment to turn inclement conditions to a future advantage by adopting a data-led approach.
Jeremy Suddards was still only relatively recently installed as CEO of Aptitude Software, a company whose sole focus is on the chief finance office, when the pandemic hit. Not only did he suddenly find his staff flung to the four corners of home working but, as the market dropped for six successive sessions in six days, CFOs were scrabbling for help in predicting what was essentially the unpredictable.
“Many of them were experiencing market falls they had never seen before,” he says. “It’s not like the banking crisis, or even the dotcom crisis, which I’m old enough to have lived through, where there was a sort of self-infliction at an industry level. This was right across sectors.”
Nobody knows what shape this recession will take or how long it’ll last. For finance teams, there are so many ‘unknown unknowns’. Regulators are now manoeuvring around temporary changes and tackling operational challenges, too – like a less glamorous Lionel Messi on a very wet pitch where the goal posts keep moving.
The ongoing market volatility feels like a rogue firework display. We’ve seen vast changes in consumer appetites and slippery lockdown rules, which are not easy for businesses to decipher. So how are companies reacting to all of that?
“We saw a lot of our clients almost huddle down at the start,” says Suddards. “Then they suddenly worked out that if they had to model every bit of their business, the only place they could do that from is the data in the accounting function. Forecasting is only real when it hits the P&L. But if the accounting data isn’t automated, you don’t have the ability to run those scenarios.”
Certainly, for anyone reliant on manual processes, it could take weeks – weeks they don’t have – to figure out what lines to pull or how to conserve cash.
“And the minute you give a board one set of scenarios, believe me, they want another one straightaway. So, I think we see this moment as a catalyst for automation,” says Suddards. “There was a quote from McKinsey recently, which I loved, which said ‘we’ve moved digitalisation forward five years in eight weeks’. I completely agree. You’ve got to have an economic reason, a great technology, but some other catalyst, too. And this is it.”
One significant permanent outcome of the pandemic, he believes, will be a move to more regular reporting for listed entities in the UK, as happens in the US.
“The good thing about our business is that we can help clients in the short term, but we can also help them with long-term forecasting and simulation. We’re just releasing a forecasting and simulation product, which our clients are now even more eager to get their hands on because I think quarterly reporting is going to become more standard for all companies.”
According to Suddards, if firms want to stay relevant, now more than ever they need to address lumbering manual process blockages. And Aptitude, which for 20 years has been helping CFOs navigate rapid finance and technology change, is standing ready.
“If you’re a bank or an insurer, you’ve maybe digitised your frontend – set up all your channels, got a mobile app and can sell your products online. And you’ve digitised some back office systems, too – you might even have outsourced a few business processes, offshored them. But there’ll still be some elements in the middle which businesses have sort of decided to live with, or the business case hasn’t been there to improve them,” says Suddards.
“Well, those are the bits that will slow the business down post-COVID. Because the world’s going to get faster, and commerce is going to get faster, expectations and reporting are going to get more aggressive. If you’ve got a slow wheel inside your organisation, the organisation will only go as fast as it does.
“With some CFOs, 60 or 70 per cent of their team are just running the same report on a monthly or quarterly basis. They’re manually turning the handle on it. I talk to insurers that have 600 people in their finance department, I mean, this is a huge issue.”
Interestingly, being forced to adopt distance working has given them an excuse to change that.
“If they’re all remote, and Phyllis can’t walk down to Bill to go through that manual process, the opportunity to really automate that is now, so that a) you’ve got control of the numbers, but, more importantly, b) you’ve the automation in place for the future. That allows the CFO to spend all of their time on strategic foresight without worrying ‘can I manually close the books this month?’.”
So, as the man with all the tools to help predict the unpredictable, what, in Suddards’ opinion, should CFOs be focussing on right now?
“They are the guardians of reporting, and they need that to be absolutely rock solid, to make sure they can make some bigger strategic decisions, but with less risk attached to them. I think a CFO will want to look at all of the costs that are going to be expended over this year, and probably most of next year as well, and work out how much of it is absolutely needed and how much of it is discretionary. Then, ask themselves what are the five to 10 things that are going to drive the business forward and sustain it, not for the next six months, but from January 2021 and even 2022?
“You have a period of time, at the moment, where, in my view, every dollar of investment you make now is probably going to pay back two or three when the market returns, so make sure those investments are really carefully thought through. If you’re doing something that’s not going to be more than 20 or 30 per cent of your business in three years’ time, you shouldn’t be doing it.
“If I think about my market, for instance, I know that, over time, the partner model is going to really drive our success, so we’re doubling down on how we do partnerships, on our learning and development to work out how we make sure those channels open, we’re doubling down on the markets we think will recover fastest.
“So, I think it’s about those manual processes; the M&As that you’ve built up over time but never really integrated; it’s the transformation of some of those systems where you felt you’d get another three or four years out of them if you just sweated them, and nothing happened. Those are the things you need to focus on. You’re not going to go and tackle your core banking system or replace your main policy system. Those things are just too long, too fraught with danger, too much risk, and the capital outlay is too high. But there’s a whole set of microservices that you can really address.
“If you’re currently half-baked on a transformation programme, there is a point where, of course, you could say
‘you know what, we’re just not gonna do that?” But what we’re seeing is that those that have really started that data and analytics transformation journey are doubling down on it, rather than pausing, because they’re realising that this probably won’t be the last time we’re in this situation. More importantly, they can be a winner out of this, rather than just survive it.”
The Aptitude website features a movie short called CFO Hero. Set in the near future, it stars an executive armed with intelligent data and an automated forecasting suite that gives her the upper hand in a menacingly tense City of London.
If you’re a CFO inclined to heed Suddards’ advice, that hero could be you.