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The Digital CFO A LEADERS IN FINANCE MAGAZINE

The most common digital finance transformation pitfalls

ING, KPMG, and Aptitude experts weigh in >> Page 08

To IFRS 17 and beyond!

The emerging KPIs you need to know >> Page 12

A critical partnership: Establishing an effective CIO/CFO relationship Similar journeys have brought these leaders closer than ever >> Page 20

Building for Scale

Amit Shah, CIO at Excelitas, shares his big picture view on finance transformation >> Page 24

A conversation with Sara Dickinson, CFO of BSI, on what it takes to be a Digital CFO

Leading with curiosity “The skills finance leaders are now looking for are the ability to ask the right questions and direct the data teams to build effective solutions.”

ISSUE 01 / Spring 2022

The question is not where the CFO is going, but how they are going to get there. — Jeremy Suddards CEO, Aptitude Software

The Digital CFO

A LETTER FROM OUR CEO

Welcome to the inaugural edition of The Digital CFO! I recently read a piece of research1 that discussed the role of the CFO in 2025. The consensus? No longer just a CFO but a Chief Performance Officer – an expansive role that will take CFOs from being the “bottom line and compliance enforcer to a trusted business partner driving profitable growth.” So, the question is not where the CFO is going but how they are going to get there. In this edition, we start with a conversation with the recently named CFO at the British Standards Institution (BSI), Sara Dickinson, on what being a Digital CFO means to her and how she thinks it will change the finance function. We also hear from finance experts at ING, KPMG, and our new Head of CFO Business Architecture, Nick Shah, who previously led the finance transformation program at HSBC, on the most common digital finance transformation mistakes they’ve seen over the course of their careers. Finally, read on for perspectives on critical post IFRS 17 KPIs, embracing cognitive technologies in the finance department, and a quick Q&A with Amit Shah, CIO of Excelitas, on how automated revenue management is creating a finance team that is the definition of a trusted business partner. Enjoy and happy reading!

Source: 1 https://www. hfsresearch. com/research/cfovision-2025-drivinggrowth-now-and-inthe-future/ Spring 2022

Jeremy Suddards CEO, Aptitude Software 1

Contents 1.

Leading with curiosity

Christophe Kasolowsky speaks with BSI CFO, Sara Dickinson, on what it means to be a Digital CFO and the changes she sees coming for finance. “We’ve got to learn a new language in how we interact with our stakeholders.”

The most common digital finance transformation pitfalls

Finance experts from ING, KPMG and Aptitude discuss the obstacles that can trip up a successful finance transformation. “Don’t try and make one tool do everything.”

To IFRS 17 and beyond!

An overview of KPIs Insurers will need to think about once IFRS 17 goes into effect. “IFRS 17 is more granular and therefore understanding the impacts on KPIs at different levels of aggregation will be critical.”

Moving beyond RPA: Embracing cognitive technologies in the finance department

Stewart Rooks looks beyond RPA to the ways Finance is successfully using cognitive technologies. “The continued application of AI and Machine Learning technologies in the finance department will only increase.”

The Digital CFO

A critical partnership: Establishing an effective CIO/ CFO relationship

These two C-Suite roles have seen similar moves towards a focus on business partnering and strategic advising and will need to work together to achieve their goals.

Building for scale

Amit Shah, CIO at Excelitas discusses their big picture view of finance transformation and the role of automated revenue recognition and revenue management within that larger landscape.

Five minutes with...

Going beyond the business to get to know Jeremy Suddards, CEO, Aptitude Software

Spring 2022

Leading with curiosity By Sarah Werner

As the recently named CFO of the British Standards Institution (BSI) and the former SVP of Finance at Expedia, Sara Dickinson has deep finance experience across SaaS, travel, and technology businesses. She recently spoke with Christophe Kasolowsky about her vision of a Digital CFO, how automation is reshaping what a great finance professional looks like, and why she now thinks we are closer to the futuristic view of a CFO (think AIpowered glasses with real-time dashboards) than she expected. Christophe: Thank you so much for joining me today, Sara. Let’s start with the phrase on which this magazine is based – The Digital CFO. What does that phrase mean to you?

Location: London

Sara: Great question to start with - tough one to start with! A Digital CFO thinks with a sort of technology-first mindset, because what digital does is enable all of the great data and insights - which have become the purview of the finance function over the last decade - and accelerates access to data and the ability to drive insight from it. A Digital CFO really prompts that curiosity and insight-driving engine across the whole organization.

Sara joined BSI in early 2022 as CFO and Executive Director on the BSI Board. Prior to BSI she held multiple roles at travel technology company, Expedia, including SVP of Finance and CFO of Expedia Partner Solutions. She has over 25 years of financial experience as well as significant knowledge of scaling B2B businesses and digital transformations.

We (finance) are now the people who champion digital transformation for the whole organization because we are the people who have the unique ability to see end to end in a business. We see the start of a transaction or a sale or an interaction and we see right down to its very end conclusion all the way to closing the year end and reporting it. We therefore have

SARA DICKINSON Title: Chief Financial Officer Organization: British Standards Institution (BSI)

that ability to identify, across the whole organization, where digital capabilities can transform for the better. Christophe: How does this new focus on digital finance impact the skills and set-up of the finance function? Will the fact that now there’s all this time to be a business leader mean that you have to be a different person with a different background? Sara: Absolutely it will. It will change and reshape and redefine what a great finance professional looks like. But I wouldn’t want all my skilled and dedicated colleagues out there to interpret this as me saying, this is the end of our world. What it actually will mean is there’s still a great need for our skills. We will use them in a much more focused way to help guide our business around future decisions. It’s really just refocusing our energies and also thinking about how we can interact with our stakeholders in a different way. The Digital CFO

But I would suggest the skills finance leaders are now looking for are not an ability to code, or to run the machine learning, but the ability to be able to ask the right questions and direct the data teams within your organization to build effective solutions.

As an example, most companies now accept that the new product solutioning cycle has rapidly sped up and that they must work globally. So, there is a huge need for really skilled finance professionals to be able to advise on what is the right pricing mechanism, what are the optimal pricing mechanisms, what is the tax compliant way of actually selling these products in multiple geographies on a worldwide basis? That’s where we bring real value and that’s where we need to put our energies. But that also means we’ve got to learn a new language in how we interact with our stakeholders. We can’t just hand a compliance textbook to people and walk away! Christophe: Do you see a huge data science component coming into play for future finance leaders? Sara: Definitely. But I would suggest the skills finance leaders are now looking for are not an ability to code, or to run the machine learning, but the ability to be able to ask the right questions and direct the data teams

Spring 2022

within your organization to build effective solutions. Key skills need to include curiosity, a global trade mindset, and the ability to adapt to compliance needs on a global basis. And then we do hear about this ability to be a good storyteller. I always have a little tweak of nervousness when we talk about storytelling and finance because there’s a little bit of a ‘we want the truth,’ element in finance. However, I think it’s the ability to articulate so that other people really understand the challenge you’re trying to solve for. And knowing enough about AI and machine learning and data and digital environments to be able to work with the technologists in a really productive way. Christophe: Where do you think we are on the technology journey, especially in what I call the poor cousin of any organization - the finance function. How close are we to seeing these new technologies make massive difference in finance?

Sara: I think if you had asked me two or three years ago, I’d have said we’re still at early stages. But we have seen so much change in the last two years because everybody has had that forcing factor of having to think about it. I’ll also take a step back and say digital finance is not just about technology readiness. When we’re talking about what it means to be digital it doesn’t mean putting a wrapper of systems around your existing culture, ways of working, and processes that you have. Being digital means actually taking that step back and saying, how can I use new technologies to really transform everything I do? Solutions, like Fynapse, which are fully integrated, cloud-based, and can interface with other technologies - the solutions are there. They’re not a dream. They are actually there to be used. I think we are much further along than people perhaps see. But it’s as much about freeing our mindset to take that step and really utilize the products that are there.

Digital finance is not just about technology readiness. When we’re talking about what it means to be digital it doesn’t mean putting a wrapper of systems around your existing culture, ways of working, and processes that you have. Being digital means actually taking that step back and saying, how can I use new technologies to really transform everything I do? I remember reading an article about three or four years ago and it said, imagine the world of the CFO where they wake up in the morning and they put on their VR headsets where they get their readout of their client list and their current sales, and it’s interfaced with macroeconomic risk data and predictive trading recommendations. And I’m thinking, oh gosh, that sounds great. I think we’re actually a lot closer to that now than I thought we would ever get. Christophe: What is your perspective around how CFOs can shape a transformation case that the internal stakeholders are not just inspired by but also happy to put some money behind? Sara: Thank you for asking this. I have a sense of empathy because it is, I think, the biggest challenge for CFOs. At the core of what we do there is a finance reporting requirement whether that be daily, weekly, monthly, quarterly, annually. It has to be right, has deadlines, has to be complete, you know, so when you think about transforming finance, the challenge is usually getting people comfortable with the risk of change. I think when we talk about persuading people and building the business case we need to give them the comfort that we can manage that risk factor. But that is where the 6

new solutions that we talked about come in because they are cloud based and can be bolted in. It’s not the world that it used to be where making any change had to be all encompassing. That always used to worry people and there was never a good time because there’s always a next month close and a quarter close that couldn’t be impacted. Now we’ve moved away from that and to solutions which themselves can be integrated in much shorter time frames, in a modular way, so you can test on one part of your business and then roll out across the rest. Everybody is looking to their finance functions and saying, how do I get better? How do I improve my unit economics? How do I get the insights which mean I hone down and use every single pound or dollar to really deliver value? Your compelling business case as the CFO is that this transformation is how I help you drive that insight. This is how I get even better and even faster at finding those solutions to improve the unit economics. This is how I guide you to find the gaps in your service delivery. That’s how you shape it. Christophe: What are one or two learnings you’ve picked up over the course of your career that have influenced your vision of what a Digital CFO should be?

Sara: First I would say just be really curious. The privileged role of finance is to be able to ask questions. So really hone your ability to ask great questions. I think that was something I learned really early on as the business partner to an innovation team sitting right at the driving edge of the strategic intent of an organization. If you are a young finance professional, try to get that type of experience, really see how organizations can use innovation to achieve strategic goals. I think the other great learning for me was to truly see myself as a business partner. Approach the role as if you are a partner in your own business and ask what you would want to see done. I think very early on I learned the role of finance is to help provide information and insight, to constructively challenge. But it is also then to help find the solutions. It is a true partnership dedicated to finding the best long-term solution for the organization. Christophe: And I suppose a related question but how do you go about nurturing talent? Sara: The easy, quick answer to that is to find what energizes people and empower them to lean into that. Often it is not that straight forward though, since many of us need to experience things to find what really ignites our talent and passion so it is key to offer varied opportunities to people. What is critical for me is that people demonstrate boundless curiosity and a positive, forwardthinking mindset. If they have that then I believe pretty much everything else can be developed. You can then coach for the critical skills of effectively influencing and interpreting different business models. Lastly, build a team that trusts and values each other. A team that supports each other effectively in my experience is always bigger than the sum of its parts. Christophe: Thank you for sharing your insights and expertise, Sara! The Digital CFO

Spring 2022

The most common digital finance transformation pitfalls Experts from KPMG, ING and Aptitude share what they’ve seen across their careers By Sarah Werner

Recently we gathered together a roundtable of finance transformation experts to discuss all things digital finance. The conversation ranged from technology cycles (hint, we’re in the renewal phase), to how to dispel common myths around finance change, to why it’s important to “follow the energy of the problems” rather than forcing change. A particularly interesting discussion involved the most common digital finance transformation mistakes the participants have seen over the lengthy course of their careers. Do any of these sound familiar? Failing to take a holistic approach For Rangit Chima, Executive Director – Business Transformation at KPMG Canada, when organizations fail to look across the entire finance landscape when approaching a finance change program, they can be left with solutions which are suitable for certain areas but leave gaping holes. “This is a classic mistake,” stated Chima. “Starting with Y2K, people started putting in ledgers. And in the absence of subledgers and the absence of EPM tools, you know, they bloated 8

their ledgers out to be able to do everything. And the answer was no.” Chima’s advice was to address each problem with a solution designed to address that issue. “Let the ledger do what the ledger is good at. Pick an EPM tool to do what EPM is good at. Let the subledger to do what a subledger is good at…don’t try and make one tool do everything.”

staff to compensate for the lack of foresight. And the way to avoid this painful misstep? Chima suggests adhering to the agile definition of minimum viable product where at multiple points along the implementation process, the product features are evaluated by users to make sure clear benefits are delivered and learnings and feedback are taken into account.

Failing to connect delivered capabilities with actual benefits

Making the big bet

Chima also articulated the risk of declaring a program finished at the end of implementation without understanding how to realize the benefits of the new solution. “It’s basically saying, I’ve put in a tool and then the business turns around and says, well, so what? When the program team has not gone the extra mile to understand how to realize the benefits of the solution we see smooth transitions to the new technology and then 18 months of hell as the business figures out how to use it effectively.” Chima notes that this lack of connecting capabilities to the broader vision and benefits leads to the need to ramp up additional (and expensive)

Peter Penning, IT Lead at ING, spoke about one of the most common finance transformation mistakes he’s seen in his career which he calls making the big bet. “This is essentially saying that against so many millions in so many years, I will change the world completely.” Penning acknowledges that this approach is appealing as it can generate the energy that comes with a ‘change the world’ mentality but ultimately you risk setting yourself up for failure. “If you put that kind of option on the table at the beginning, first of all, CFOs being CFOs, they will say, oh, that’s too much and too long. I can only give you a half. So, you’re already starting out negotiating about The Digital CFO

something that that you can’t even properly estimate to with a certain level of granularity.” He advises charting a path where you can make changes almost every day or at least every sprint to continually move toward the overall vision. At ING, they used a particularly painful problem in one area of the business – two countries that needed to support more granular accounting – to iteratively implement a solution, ensuring a strong business case and delivered value. From there, Penning describes how that became the first steppingstone in a strategic approach that could be rolled out across the broader global business. “If other functions or other locations need to solve this problem, this is the solution. And then we follow the energy that comes with solving problems. And that is what makes it doable. And it also makes sure that with every step you deliver value.” Failing to establish the foundations

Source: 2 https://www. aptitudesoftwa re.com/resource/ mistakes-to-avoid-fora-successful-digitalfinance-transformation/ Spring 2022

Prior to his current role as Aptitude’s Head of CFO Business Architecture, Nick Shah worked in a variety of finance transformation roles at HSBC. During the roundtable, he noted the importance of getting the basics and the foundations right. “I think transformation for any organization, any function, should be exciting. It should be invigorating, and it should be quite dynamic. But it becomes very easy to focus on the latest technology available or the latest

gizmo, the latest widget,” Shah acknowledges. However, he continued that if you haven’t got your foundations as a finance function in place, it becomes very difficult to enable that latest technology. “I just always come back to making sure you’re focused on your data architecture, your data sourcing, your ledgers, your subledgers, and making sure everything else can flow off the back of it. I think if you don’t get those basics rights in the first place, any financial transformation that then tries to progress without those foundations will be on a on a path to nowhere.” Consensus on building blocks for success All agreed on a few core building blocks for success. First, the organization has to be clear on the problems they are trying to solve. These discussions have to involve the broader business in addition to stakeholders throughout the finance department. Second, begin with a strong understanding of your data environment and data strategy to prevent issues later in the project. And finally, taking small steps and proving out what is working and what is not can build consensus and momentum for your finance transformation. You can access the complete roundtable discussion on demand.2

I think transformation for any organization, any function, should be exciting. It should be invigorating, and it should be quite dynamic. But it becomes very easy to focus on the latest technology available or the latest gizmo, the latest widget.

The Digital CFO

Spring 2022

To IFRS 17 and beyond! What comes after compliance? By Brian Heale

Most Insurers are now nearing the end of their IFRS 17 solution implementation and are loading their opening balances. Once complete, they can start analysing their initial results and assessing the impact of the Standard on their business and reinsurance arrangements. This shift in focus will usher in the next challenge for Insurers impacted by IFRS 17, namely, how an Insurer can formulate optimal IFRS 17 results based on the scenarios and accounting judgements applied. This is of critical importance as IFRS 17 will have an impact on virtually all aspects of the business, from profit to dividends to reinsurance optimisation and through to KPIs. Equally, the Rating Agencies are awaiting the publication of the first IFRS 17 results in early 2023 to analyse and compare across the insurance market. To add another layer of complexity, they will also expect to see the key KPIs on both an IFRS 17 and IFRS 4 basis, at least for a few years!

Currently there is no market consensus on what the new KPIs should be. It’s likely many existing KPIs will still be utilised but adjusted for IFRS 17 while new IFRS 17 specific KPIs will be added and evolve over time. Metrics will, of course, differ between Life, P&C, and Reinsurers. So, what does this mean for Insurers gearing up for the first year of reporting under the new standard? The next 6-12 months will undoubtably involve simulation and forecasting to understand the impacts on key metrics under a variety of scenarios with the aim of producing favorable and explainable results to the market. Below, is a brief summary of the key metrics that are the most relevant for Life Insurers. A detailed analysis is beyond the scope of this article, but greater detail is provided in our White Paper entitled A detailed look at Insurance industry KPIs in a post-IFRS 17 world.3

Sources: 3 https://go.apti tudesoftware. com/rs/393-NMQ-179/ images/guide_ Insurance_industry_ KPIs_in_a_post_ IFRS_17_world.pdf

Brian Heale, IFRS 17 Expert, speaks on a panel on post IFRS 17 KPIs at the 2021 InsuranceERM Conference.

The Digital CFO

Life KPIs Below is a summarised analysis of the existing metrics that will be affected by IFRS 17 and the new KPIs that are emerging for Life Insurers Adjusted Operating Profit (AOP) adjusted by EBIT

Various adjustments are likely to be required and will be more complex under IFRS 17. The Standard may smooth out an Insurer’s AOP, but other factors need to be considered. For example, do you exclude mismatches? Do you take out short-term market movements caused by market fluctuations and economic variances? This will be down to interpretation.

Value of New Business (VNB)

This will remain an important metric for Life Insurers. VNB is a measure of the economic value of profits, which will change under IFRS 17, and is expected to emerge from new business, net of the cost of supporting capital. Some Insurers also use VNB Margin as a metric which is indicative of profit margins in an Insurers’ book of business. Equally, SII VNB will continue to be a KPI and compared to IFRS 17 VNB.

Embedded Value (EV)

This is a core insurance metric and a measure of the economic value of the shareholder capital in the business and the profits expected to emerge from the business currently in force.

Insurance Contract Revenue (ICR)

This is a new measure which differs considerably from the current equivalent of Gross Written Premium (GWP). ICR provides information about the amount of service provided in the relevant year. Depending on the expected duration of the contracts, the scale of the differences can be significant, particularly for long-term contracts.

Contractual Services Margin (CSM) & Risk Adjustment (RA)

These are designed to provide more uniform profit metrics and are major new KPIs introduced under IFRS 17. Cohort profitability and the associated narrative will be a pivotal contributor to improved transparency under IFRS 17. For Management Information (MI) purposes, Insurers will want to know the contribution to current profitability, in the form of CSM amortisation, from both current and historic cohorts. Reconciliation of the CSM and the Analysis of Change of the CSM over time will become increasing important to analysts.

CSM + Net Asset Value (NAV)

This looks to become a major balance sheet/profit metric moving forward as it also aligns with an own funds perspective under SII. Looking at the two together helps to understand balance sheet metrics such as gearing. The CSM and its release over time will become a key profit metric. One of the main challenges here is the CSM metric varies between books valued on a GMM versus VFA basis and there is no CSM for PAA/Investment business.

Return on Equity (RoE)

This typically represents net income attributable to shareholders, divided by the average shareholders’ equity, excluding unrealized gains/losses on bonds, net of shadow accounting at the beginning of the period and at the end of the period. It is another performance indicator for Insurers and will continue to be calculated and adjusted for IFRS 17 - primarily in relation to the CSM.

General Insurers P&C Insurers currently disclose fairly limited information relating to profitability and KPIs are primarily based on loss ratios on an aggregated basis, including prior period business. This changes under IFRS 17 and Insurers will have to adjust accordingly.

Combined Operating Ratio (COR)

This remains a key metric for P&C Insurers, although the underlying inputs will change because of IFRS 17. For example, long term claims now must be discounted, and the risk adjustment added. Additionally, Insurers have the choice of calculating CoR on a Net/Net or Net/Gross basis. From a P&C perspective, the market seems to be moving towards a net-of-reinsurance result (Net/Gross) ratio. For P&C Insurers using the PAA measurement model, excluding onerous contracts, there is no requirement to disclose the ultimate expected profitability on new business and doing so would require an additional calculation.

Gross Underwriting

Gross Underwriting results are included under IFRS 17 and are an integral part of CoR which also needs adjusting to take into account attributable costs (e.g., claims handling) and non-attributable costs. The Standard permits interpretation in this regard so different interpretations will be made by insurers. This may result in a reduction in CoR but underlying expenses will be broadly the same.

Loss Ratio

The Loss Ratio is another existing P&C metric which does not readily translate under IFRS 17. Under IFRS 17, line items are derived by various adjustments - for the variance in cash flows or for time value of money for example. However, the losses incurred will stay the same regardless of the accounting regime considered. Discounting those losses and the ICR from inception, means that results are subject to the sensitivity of the discount rates and the coverage units.

Gross Written Premium (GWP)

P&C Insurers use Gross Written Premium as a key KPI, and this will remain a KPI. Many Insurers also currently disclose Annualised Premium Equivalent (APE) or Present Value of New Business Premiums (PVNBP), as KPIs, which provide a view of the volumes generated over the period. For the next few years these metrics are likely to continue to be disclosed, although reconciled with ICR.

Spring 2022

Reinsurance Perhaps the biggest challenge IFRS 17 introduces is around measuring reinsurance treaties which in turn has a material impact on an Insurer’s Balance Sheet both at transition and at future reporting periods. Additionally, many Insurers use reinsurance not only to mitigate risk but also to potentially arbitrage for profit. Future profit emergence also impacts dividends, shareholder equity, and rating agencies expectations. Current practice is to use a mirroring approach, essentially matching reinsurance contract revenue, costs, assets, and liabilities to the underlying insurance contracts. IFRS 17 makes this approach redundant, requires reinsurance treaties to be measured separately, and introduces the concept of the reinsurance CSM that must be calculated and amortised over the reinsurance coverage. This requires a separate measurement of the impact of direct and reinsurance treaties on the recognition of reinsurance recoveries

in respect of any underlying onerous contracts. IFRS 4 allows the impact of onerous losses for expected recoveries to be factored in for direct contracts held, resulting in a netting out effect. IFRS 17 includes specific requirements for determining the reinsurance recoveries associated with underlying onerous contracts - the Loss Recovery Component (LRC) for reinsurance on new business. This new component may also be considered a KPI by some insurers. Currently, few Insurers report specific reinsurance KPIs, but this will change under IFRS 17. Separation of reinsurance in the P&L means the performance of an Insurer’s reinsurance portfolio will be more visible. For example, the netting of ceding commissions which shows the numbers net of these gross ups. Ceding commissions and profit commissions typically lower net claims ratios when using the Net/Net approach more significantly under IFRS 17 than under IFRS 4 or local GAAP reporting.

The post-IFRS 17 world The market and analysts will carefully examine and dissect the first sets of IFRS 17 reports to hit the press. They can then assess the impact of the accounting changes on an Insurer’s business. Analysis between the IFRS 17 and IFRS 4 numbers will have to be undertaken to understand the differences and many will look to calculate their KPIs under both regimes for the foreseeable future. IFRS 17 is more granular and therefore understanding the impacts on KPIs at different levels of aggregation will be critical. This analysis, while vital for the market, will also be important for internal management and shareholder education. A lucid explanation of the deltas will also be important. Whilst January 2023 will be the technical end for IFRS 17 projects, Insurers will likely spend the following few years refining IFRS 17 results and compare with those of their peers. So, in some respects the work has only just begun!

CSM, CSM + NAV

EV, VNB, SIVNB, VNB Margin

AoP

Insurance KPI’s CoR, Loss Ratio, Underwriting Results, Acquisition Expenses

Insurance Contract Revenue, GWP

RoE/ Equity, RoE/CSM, TVRoE

The Digital CFO

Spring 2022

The Digital CFO

Moving beyond RPA: Embracing cognitive technologies in the finance department How the application of advanced technologies can mean better business decisions By Stewart Rooks

Finance often gets faulted for lagging significantly behind in terms of technological innovation. However, it’s not hard to understand the reasons for their hesitancy. For a department that must sign their name and their reputation to the truth and fairness of financial statements, it’s understandable that placing these processes in the hands of technologies they don’t feel they control would make them nervous. This is not to say Finance has spurned all cognitive technologies. Robotic Process Automation (RPA), which involves the use of software bots to automate repetitive, mundane, and routine business processes, has been increasingly adopted by finance teams over the last 5-7 years. From automating data entry, to filling in custom information in a CRM, to enabling insurance policy comparison, RPA software has been a fairly risk-free way of allowing enterprise organizations to automate tasks that require performing the same action Spring 2022

over and over again while not posing significant risk to the business. There are clear differences between RPA, Machine Learning (ML) and Artificial Intelligence (AI). RPA involves bots that mimic human actions, but it lacks any built-in intelligence. Machine learning uses structured and semi-structured historical data to “learn” and make predictions without being explicitly programmed, but it only works within predefined knowledge areas. Finally, AI relates to algorithms that imitate human behavior making it a decision-oriented technology. Some organizations have used a combination of RPA and AI, called Smart Process Automation (SPA) which extends the scope of RPA. While the adoption of Machine Learning and AI is generally slower within the CFO office, there are a number of finance teams using it successfully and it’s poised to be a significant differentiator in the coming years. 17

In the past, finance was focused almost exclusively on a historical view of the business and generating the required statutory, management and regulatory reporting. They were seen as the bean-counters, always looking back at the past instead of predicting the future.

David Fourie and Matt Kelley present onstage at AptConnect 2021.

The Digital CFO

K Stepping up during a pandemic At a recent conference, the finance team at a large provider of services to the travel industry, spoke about the role of AI during the Covid-19 pandemic. In the past, finance was focused almost exclusively on a historical view of the business and generating the required statutory, management and regulatory reporting. They were seen as the bean-counters, always looking back at the past instead of predicting the future. However, during the pandemic, stakeholders from across the business came to finance asking for a view of potential scenarios. The finance team used an AI solution to generate potential outcomes based on hundreds of potential possibilities. Could they have used a giant Excel sheet? Of course. But the use of AI provided the transparency, automation, and processing power needed to put finance in the center of business success.

W Guiding Business Decisions

Source: 4 https://www. mckinsey.com/ business-functions/ mckinsey-analytics/ our-insights/globalsurvey-the-stateof-ai-in-2021 Spring 2022

Advisory firm, KPMG recently presented at AptConnect 2021 about how their solutions, KPMG Signals Repository and KPMG Intelligent Forecasting are providing forecasting and analysis that can help guide business decisions. During their session, they referenced a 2019 video that featured a CFO in the near future who was able to stay one step ahead of the competition because she had the technology and the tools to quickly run scenarios and forecast the impacts of various decisions. David Fourie, KPMG Partner and session presenter, argues the future depicted in that video is now a reality. “Today we’re seeing technology solutions that can support the

future of finance – solutions that are best of breed, integrated, cloud native and AI enabled.” CFOs who have embraced these technologies are already outperforming the competition and that digital divide between finance organizations that can make use of these cognitive technologies and those that can’t is going to widen further in the coming years. During their session, David and Aptitude Senior Solution Consultant, Matt Kelley, walked through a demo illustrating how a CFO at a General Insurer looking to expand into a new state could use historical data at the policy and coverage level, held in the Aptitude Accounting Hub (AAH), to generate forecast models that can be augmented with data from KPMG Signals Repository. Signals, which uses structured and unstructured data to create complex expressions on anything from crime rates to home prices, can then apply those to subledger data to generate the most advantageous locations for expansion – in this case three counties within a specific state. Once the new locations are up and running, AAH can be configured to account for the new business and KPMG Intelligent Forecasting, using the AI technologies in the KPMG Ignite platform, can generate actionable forecasts for the newly selected locations over a certain period.

j Moving forward The continued application of AI and Machine Learning technologies in the finance department will only increase. A 2021 McKinsey survey on AI usage, showed a 30% jump in the percentage of respondents citing cost decreases stemming from AI adoption within the risk and the strategy and corporate finance departments between 2019 and 2020.4 While managing the risks of AI in the finance department will always be a consideration, CFOs must get on board or their organizations could be left behind. 19

A critical partnership: Establishing an effective CIO/ CFO relationship

A 2019 Robert Half survey found that 82 % of CFOs collaborate more frequently with their company’s CIO than they did in 2016.

By Sarah Werner

Today’s CFOs and CIOs have been on a similar journey over the last few years. After overseeing the mostly separate domains of financial and regulatory reporting and the technology landscape, both roles are becoming increasingly focused on their ability to strategically advise the business. According to Foundry’s 2022 State of the CIO Report, 84% of Heads of IT say that the CIO is becoming a changemaker, increasingly leading business and technology initiatives. And 58% of line of business respondents characterize

84%

of Heads of IT say that the CIO is becoming a changemaker, increasingly leading business and technology initiatives

their CIO as a strategic advisor – a significant increase from 28% in 2021.5 A similar shift is happening in the CFO role. In the recent IDC InfoBrief, All Eyes on Finance: Accelerating Outcomes in the New World,6 the research shows a CFO mission that is evolving to embrace the role of the change agent with the goal of supporting transformational, value-adding business change. When survey respondents were asked how the finance function would change in the next 12-24 months, the top two answers were, Greater

58%

of line of business respondents characterize their CIO as a strategic advisor

28%

A significant increase from 2021

Sources: 5 https:// resources. foundryco.com/ download/state-of-thecio-summary https://www. aptitudesoftware.com/ resource/the-future-ofthe-finance-office-idcresearch-study/

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focus on real-time financial data (41%) and A closer relationship with IT to support ecommerce and other solutions that require access to finance systems (40%). The role of technology Alongside this evolution of both the CFO and CIO roles, the continued embrace of technology in the finance department and the need for IT to get more proactive in strategic initiatives has increased their interactions and their reliance on each other. A 2019 Robert Half survey found that 82% of CFOs collaborate more frequently with their company’s CIO than they did in 2016. “A strong strategic partnership between the CIO and CFO has been critical during the COVID-19 pandemic, especially as many companies have had to scale back on expenses and rethink their digital capabilities,” says Greg Douglass, global lead of technology strategy and advisory at Accenture. “As data has become increasingly important to manage and analyze for businesses to succeed, CFOs depend on CIOs to help translate the data and insights into actionable initiatives, driving optimal results for the business.” 7 Sources: 7 https:// www.cio. com/article/189503/ getting-the-cio-cforelationship-right.html https://www.ey.com/ en_us/news/2020/11/ cfos-to-play-acritical-role-inreframing-the-futureof-the-enterprisebeyond-covid-19

https://lsaglobal.com/ insights/proprietarymethodology/lsa3x-organizationalalignment-model/

Spring 2022

Barriers to success But there are still barriers to collaboration and the CIO/CFO relationship can remain a challenge. In a recent EY survey8, nearly a quarter of CFOs feel they either have no effective collaboration or only limited collaboration with the CIO when compared to their other C-suite peers. There are a number of reasons for this ranging from personality differences to ineffective reporting structures. However, these barriers will need to be overcome for both sides to see success. Their fates are intertwined.

Aligning for best outcomes So, if you are a CFO, how do you align with IT to achieve the best outcomes? And viceversa? “I think the motivation to come together is there. If you are a CIO or CFO today, you know you need each other to achieve your business goals and metrics,” says Philip Wood, Deputy CEO and Chief Financial Officer, Aptitude Software. “Aligning the finance and IT teams’ goals to each other’s and to the business is critical.” This idea is not new. Organizational alignment is a key differentiator between highperforming and low-performing companies. Research by LSA Global found that highly aligned companies grow revenue 58% faster, are 72% more profitable9, and outperform unaligned peers in employee engagement, customer satisfaction and retainment, and leadership. In addition to aligning objectives, the relationship between the CIO and CFO must be cultivated like any other relationship and at every level of each department. Learning the other’s ‘language,’ common personality profiles, and meeting frequently can help ensure both parties feel understood. Simply bringing a willingness to learn from the other can bring huge benefits to both sides. With the pressure on for the finance department to become more proficient in technology and a requirement for IT to better understand the business priorities and gain managerial and partnership skills, there is a lot to be gained from an effective relationship between the departments.

Supporting the Digital CFO in a subscription economy Julian Morelis EVP Subscription Management & Billing, Aptitude Software

Jeremy Suddards Chief Executive Officer, Aptitude Software

As we think about what it means to be a Digital CFO, we come back repeatedly to the need for finance to expand from business guardian to transformation enabler. As a change agent, the finance team needs to quantify the value of risks and opportunities, advise the business based on rich, real-time data and accommodate new business models. There have been few business model shifts as pronounced as the rise of the subscription economy. For a subscription business with recurring revenues managing, tracking, accounting for, and reporting revenue accurately is a critical element of the entire end-toend subscriber lifecycle. However, the technology solutions the CFO often has at their disposal – Excel, monolithic ERP, siloed data sources – are not built to react with agility to the many changes that happen over the course of a subscription.

When we announced the acquisition of MPP Global by Aptitude Software six months ago, it was with the goal of combining the strengths of MPP Global’s subscription management platform eSuite, with Aptitude RevStream, a powerful revenue management, accounting and reporting solution. This end-to-end solution allows organizations to strategically automate every step of the business model - from subscriber acquisition to lifetime value optimization, to

retention, to revenue management and recognition. It also allows finance to unlock a wealth of subscriber, behavioral, and finance data to inform business decisions. We know there is an increasingly critical demand for Finance teams to provide a unified view of their businesses. The combination of eSuite and Aptitude RevStream is helping CFOs and their teams access a holistic view of subscription revenue.

Together Aptitude & MPP Global Power the Entire Subscriber Lifecycle Build, acquire, manage

Collect, grow, retain

Recognise, automate, report

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Unlock recurring revenue streams through subscriptions

If you’d like to learn how to power the entire order-to-cash lifecycle and drive recurring revenue growth through a subscription model, scan the QR code for a no-obligation demo

www.aptitudesoftware.com/subs Spring 2022

Building for scale By Sarah Werner

Excelitas is a private company operating in over 10 countries. With over 7,500 employees, Excelitas has a 90-year-old history, evolving from EG&G and founded in the 1940s in Massachusetts. We sat down with Amit Shah, CIO of Excelitas to talk about the drivers for revenue automation and the impact of Aptitude RevStream on the business. Sarah: Thank you so much for letting us interview you today, Amit. To start can you just tell us a bit more about Excelitas? Amit: Of course. Excelitas is a private company, operating in 10+ countries, across five different end markets. We have grown to over 7,500 employees, and we focus on what we call optoelectronics and photonics. Our products are similar to semiconductor equipment in terms of sophistication, and they range from sensors in thermostats to illumination systems, optics for UV/ IR, and more. Over the last 11 years or so we’ve experienced significant growth from the acquisition of about 10 organizations. Sarah: That’s so interesting. With that many acquisitions in such a short time what has your approach to technology in the finance department been? Amit: There is always this big picture view and the broader aim to enable finance transformation through the use of digital technology. I know 24

today we’ll talk more specifically around revenue recognition, but we have a number of projects running around close management, shared services, ERP modernization and so on and so forth. Automating the revenue piece is part of a much bigger transformation program to work toward the ability to quickly scale the business. Scale is the number one thing we want to build. Sarah: So, let’s talk about your revenue recognition automation project. What were you using prior to implementing Aptitude RevStream? Amit: We were using Excel and a bunch of macros. It took us, on average, six to eight weeks to do revenue recognition calculations. In the past, we didn’t have to do it on a quarterly or semi-annual basis but once you cross a certain threshold or if you go public, then you have to manage revenue recognition and reporting on a more consistent basis, as you know. So that was a key driver to think about a systembased solution.

Sarah: And talk to me about how you would incorporate all those acquisitions using Excel. Amit: That made it even more complicated. Absolutely. That’s what we used to do, and it was just unsustainable. You can throw a lot of people at it in the short term to get it done, you know, but it was unsustainable because of the error-prone nature of it and just the complexity of our business. We make a wide range of products so, sometimes, one product goes for three-quarters of a million dollars, and sometimes it’s a small sensor for a thermostat for 10 cents. We’re operating in that kind of range and you know, doing that manually in Excel was never going to be sustainable in the long run. We wanted to build for scale, build for M&A, so that as we acquired a company or companies, we could plug them into our revenue recognition system and the workflow we are building.

The Digital CFO

Sarah: Can you talk more broadly about what the business was hoping to get from automating revenue management? Amit: Yeah, you know, there are a number of things we wanted out of the solution. Having the ability to handle cost at the lineitem level or at the contract level, for example. The ability to handle both incremental and cumulative adjustment to our rev rec accounting, cost acceleration, the ability to do general entry with multiple cost lines for finished goods, so on and so forth. Having a way of writing custom reports on top of out-of-the-box reporting. RevStream is flexible enough so we can continue to evolve with your solution, to add more functionality or reduce complexity if we decide to do so. One of the things I remember during the evaluation process was this question around data quality issues - how are you going to fix upstream data quality issues? Most of the solutions we evaluated expected data going into the rev rec engine to be perfect. With Spring 2022

RevStream there is some flexibility to fix data quality issues directly within the solution. Sarah: That’s great. Any other key differentiators? Amit: Yeah, I think there was a big one and it has nothing to do with the technology. It has more to do with your company. For me, partnership with key vendors is very important. So, I always look for nimble and customer-focused companies. As we started doing more investigation, we realized that the agility you guys have, the willingness to get things done is very important to us. You have a unique approach to taking care of your customers and that played a huge role. I want somebody who is willing to grow with me, especially in a niche area like this, and it’s a bidirectional partnership. Sarah: That’s amazing to hear. Well, thinking forward three to six months, what sort of benefits are you seeing with RevStream? What

can you do then that you couldn’t do six months ago? Amit: I think we talked about productivity and scale, but I think the other benefit of using RevStream is spending less time questioning data and fixing data and more time supporting the business. In the past, if you were a business unit leader responsible for an $150M product line, you were asked to do sales forecasts, bookings forecasts, and revenue forecasts which was basically like throwing darts because you didn’t have a system to support that kind of reporting. You were forced to do data gymnastics. With RevStream those same folks will be empowered with better analytics so they can support the business units and add business value. That level of analysis is where the value happens for the business units and for the offices of the CFO and CIO. Sarah: Thank you so much, Amit!

The Digital CFO

Five minutes with... Going beyond the business to get to know Jeremy Suddards, CEO, Aptitude Software

Morning Routine I’m up at 6:30 every day mostly to make sure my son is up and dressed. My number one goal is to not check my phone until I actually get on the train! I find if I pick it up before then, the entire morning tends to go awry. So that time between 6:30 and about 8AM is really about getting our family set and out the door to school and nursery and being present for that.

In this business and role, it’s very rare that I get a chance to be ‘cut off’ completely so whether it’s a 6-hour plane ride to our office in Boston or a 3-hour train ride to our Warrington office, I try to be thoughtful about those times and take advantage of the chance to do really focused work.

Making the most of the commute I have about an hour commute into our London office, and I actually quite enjoy the ride in and the ability to be back in the office on a regular basis. I try not to work on the train and opt to read the paper or listen to The Times radio station. I’m a bit of a news hound and like to soak in what’s happening outside of Aptitude as that does have an impact on the business. On sticking with resolutions My goal this year is to really double down on once or twice a week with a trainer – either virtually or in-person. At the moment, I've not broken that commitment. In fact, last Friday, I was in the London office with a ruck sack of Sprite cans doing a session virtually because I’d gotten the date wrong! Spring 2022

So, I was hidden away at the far end of the hall trying to squeeze in a virtual 45 minute session on my phone – and I only broke one can of Sprite. Staying focused I don’t have any magical productivity hacks - not sure anyone really does - but I do believe in setting a firm start and end to your day. In a global business it’s easy to always be available so I try to be really intentional about that. I also try and take advantage of work travel. In this business and role, it’s very rare that I get a chance to be ‘cut off’ completely so whether it’s a 6-hour plane ride to our office in Boston or a 3-hour train ride to our Warrington office, I try to be thoughtful about those times and take advantage

of the chance to do really focused work. And I know I’ve said this before, but I am a big believer in people taking their holidays, especially given the last few years. I just think if you don't take time to recharge, your productivity just dies. When your ‘he-shed’ becomes your home office Historically, my garden room was a place I would spend time in on the weekends and play records. Of course, now that it’s become my home office, it’s a less appealing space to spend time in! But I use that time to listen to the music podcasts I bookmark during the week which give me about 6-8 hours of new music to listen to or I play the collection I have built up over the years. 27

The Digital CFO

Aptitude Software provides software solutions that enable finance professionals to run their global businesses, forecast decision outcomes, and comply with complex regulations. Uniquely combining deep finance expertise and IP rich technology, Aptitude gives finance leaders the tools they need to transform their business and achieve their ambitions. Aptitude is proud to have served the offices of finance for over 20 years, delivering financial control and insight to create a world of financial confidence for our global clients. Aptitude Software supports businesses with combined revenues approaching $1 trillion and over 500 million end customers. Headquartered in London, Aptitude Software is an operating company of Aptitude Software Group plc.

For further information, email us at info@aptitudesoftware.com or contact us: London (Headquarters) 138 Cheapside London EC2V 6BJ Tel: +44 (0)20 3687 3200

Boston Suite 1310 101 Federal Street Boston, MA 02110 Tel: +1 (857) 201-3432

Toronto Suite 700 2 Bloor Street West Toronto, Ontario M4W 3R1 Tel: +1 (416) 642 6508

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Copyright © Aptitude Software Limited 2014 - 2022 All Rights Reserved. APTITUDE, APTITUDE ACCOUNTING HUB, APTITUDE ALLOCATION ENGINE, APTITUDE REVENUE RECOGNITION ENGINE, APTITUDE REVSTREAM, REVSTREAM and the triangles device are trademarks of Aptitude Software Limited. Aptitude – U.S. and European patents pending. For more information, please refer to: https:// www.aptitudesoftware.com/patentsandtrademarks

www.aptitudesoftware.com Spring 2022

The Digital CFO