The way businesses create value has changed significantly in the past few decades. This has occurred across the world and has focused on intangible value, or value which is not typically reflected in business’s financial statements. In the 1970s, over 80% of a company’s market value was reflected in its financial statements, according to research from Ocean Tomo.
Today, less than 20% of a company’s market value can be accounted for by its financial and physical assets. It is ‘intangible assets’ that now make up a majority of a corporation’s net worth.
This growth in intangible value has largely been driven by technological advancements, creating value while also increasing productivity and efficiency. Many successful modern companies now operate almost without any tangible assets. Uber, the world’s largest taxi firm, doesn’t own any cars. Airbnb, the world’s largest accommodation provider, doesn’t own any properties. It is often these companies’ technology or interface that underpin their value, even though their concepts start with human creativity rather than the raw data.
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In today’s business environment, investments in the right technology can help businesses increase operational efficiency, improve their customer experience and stay ahead of their peers. As a result, it is becoming vital for boards to have clearer insights into how technology is driving business performance, and being able to incorporate those insights into the decision-making process is critical to business success.
However, the pace of technological advancement is moving so quickly that it is difficult for businesses to keep up. One consequence of this is that many businesses do not have a complete view of how value is created by the company. The Purpose Beyond Profit report from the Association of International Certified Professional Accountants shows that only 11% of executives have the ability to make strategic decisions using information beyond financial metrics. This should worry boards because it effectively means that they are making decisions with only a partial picture of their business.
This trend makes collaboration between the CIO and CFO vital. The CFO is sometimes mistakenly seen solely as the custodian of budget, but this is not the case. Their role is centred on creating and preserving value for the business, making them a crucial strategic partner for CIOs in harnessing digital opportunities.
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While it is positive that three fifths (61%) of CFOs say that their collaboration with the CIO has increased over the past three years, according to EY’s CFO-CIO: A Growing Collaboration report, there is still room for improvements. CFOs’ main contribution to IT is still ensuring cost discipline rather than more strategic activities, with more than a third (35%) of CFOs stating that managing costs is their top contribution to the IT team.
Greater collaboration will benefit both parties and the wider business. CIOs can benefit from working more closely with the CFO, who is in a strong position to help them to prepare a business case for any major IT investment. Having the support of the CFO as an extra voice that can vouch for IT projects by illustrating the value of the project and potential impact on finances will help to win approval of the wider business.
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Similarly, CIOs can help CFOs to organise and analyse unstructured data, providing more insight into the company’s value and the role that intangible assets play within that. CFOs are responsible for ensuring data integrity and providing the single source of truth (financial and otherwise) from which to make decisions and assess risk, so it is important that they work with the CIO to collect as much data on the business as they can in order to build an accurate picture of how it creates value.
Ultimately, no one person or department can lead all the changes that are required for digital transformation. That means a more collaborative mindset and a shared sense of mission across all business functions is necessary for achieving future success. Digital transformation is here to stay, and is likely to accelerate over the coming years. As technology evolves, so must the relationship between CFOs and CIOs.
Sourced by Andrew Harding, FCMA, CGMA, chief executive – Management Accounting – at the Association of International Certified Professional Accountants