Business relationships in difficult times
in the digital age
The inevitable has a habit of coming about gradually, then suddenly. In the 25 years since Amazon opened as an online bookstore, there has been a gradual shift towards online commerce. Over recent years, a virtual wave of new digital technologies has been threatening further disruption.
Now, suddenly, as business responds to the shock of the COVID-19 pandemic, there is a more urgent impetus to take advantage of new technologies to transform business models.
As we emerge into the digital age, where margins are tight and change is constant, it will be more important than ever to be able to respond promptly to threats or opportunities and to manage performance tightly. Business Partnering will be very much in demand.
but new skills
The CGMA report Reinventing finance for a digital world1 tells the story of how we updated the CGMA Competency Framework (2019 edition)2 and the 2019 CIMA® Professional Qualification Syllabus.3
Our research first considered how the world of business is changing. Next, we looked at how business is responding. Then we explored the role of finance in supporting the business’ response. This allowed us to determine the
competencies that our qualification must address.
As they prepare for the digital age, business leaders speak in terms of how they are transforming their business models, the importance of data analytics and the need for agile performance management. In progressive businesses, as business leaders steer the enterprise through the challenges ahead, there is an expectation that finance should be able to support as navigators or co-pilots.
Equipped to navigate
To help you rise to this challenge, this brief report provides an overview of the expectations of business partners in the digital age. It outlines some disruptive technologies and business model frameworks that you can use to frame conversations about business transformation and performance management.
The technology used by the first management accountants was a stylus and a tablet.
The earliest evidence of writing, Cuneiform script, dates from 3,000+ years BC. It was how Sumerian scribes kept the records that enabled trade and commerce. The stylus was a stick or reed and the tablet was of soft clay.
In the digital age, the discipline will still be as important as ever. But the technology will be different.
A need for
As they adapt to the digital age, business leaders are aware that digital initiatives can be expensive, and most will fail to meet expectations.4 Agility in decision-making is needed to enable businesses to stay alert, to innovate, to learn incrementally but quickly and to constantly adapt.
The accounts and analysis that management accountants prepare are never circulated ‘FYI only’ (For Your Information only). They must be shared, discussed and used if they are to inform and improve decision-making.
Business partnering is where the rubber hits the road; where management accounting is applied to help improve a business’ prospects and performance.
The term business partner is widely used. It usually refers to how a function works with the business to help with a task related to their specialism. The term was first used in the human resources (HR) discipline where an HR business partner helps the business with an HR matter such as recruitment.
Likewise, for in-house or management accountants, business partnering can refer to when they help business colleagues with a finance matter such as getting an expense paid.
However, management accountants also partner on matters relating to the management of the business itself. They are often engaged to contribute to conversations on business matters from their professional perspective, as partners working alongside business managers.
The case for management accountants being engaged as business partners stems from the fact that provide financial accounts, management information and analysis. This puts them in close contact with all aspects of the business, giving them a broad overview of its performance and direction.
Their role in stewardship and their professional objectivity give management accountants a mandate to question to help ensure that the business is managed closely in the interests of its stakeholders.
Their professional qualification gives credibility. The information they provide is trusted as it can be reconciled with both the financial truth and commercial reality. Accountants also bring professionalism, objectivity and skepticism, ethics and an awareness of public responsibilities to decision-making.
As management accountants usually report to CFOs, they are well-positioned to cascade the CFO’s influence throughout the business as business partners.
The Nike principle:
Just do it
Where capacity is tight and the mandate is not clear, good experiences stimulate demand and capacity is found. Busy management accountants often stretch and contribute to developing insights that improve performance. They soon find that their contribution is sought again.
The internet has already disrupted some sectors. Retail and banking, for example, are sectors where incumbents face stiff competition from new entrants who are unencumbered by traditional delivery channels, high fixed costs or legacy systems. These new challengers have very different, digital-first, cultures or mindsets.
Now, digital technologies that enable intelligent automation threaten further disruption.
Cognitive computing can be used as an umbrella term to cover artificial intelligence (AI), machine learning and natural language processing. It spans from
humans telling computers what to do through computers teaching themselves what to do, to computers being able to tell us what to do. Soon, computers will be able to get work done independently of humans:
Artificial intelligence (AI) is about programming a computer to use its superior data processing capacity to gain insights or derive algorithms. In 1997 IBM’s DeepBlue computer beat Garry Kasparov, the world chess champion. It had been programmed to develop algorithms that allowed it to process far more data about potential moves than a human could handle.
Artificial neural networks replicate humans’ non-linear thought processes by using algorithms to recognise patterns and correlations in data and to cluster and classify them.
With machine learning, computers use a neural network to learn iteratively from data about past outcomes or new data generated through modelling. In effect, they program themselves.
Natural language processing (NLP) allows computers to analyse text, speech, images, etc., to understand humans, answer our questions and even to tell us what to do. When IBM Watson beat the champions of ‘Jeopardy!’, a television game show in 2011, it demonstrated both its ability at speech recognition, etc., in communicating with humans and its superior computational power.
Deep learning, the combination of machine learning with NLP, allows computers to replicate human thinking. When DeepMind Technologies’ AlphaGo, beat Fan Hui, a Go world champion, in 2016, it relied on deep learning. AlphaGo had taught itself how to play Go through analysis of data from past games and from data generated in further games against itself.
Internet of Things (IoT): Allows objects to communicate or to relay data for remote monitoring. This data can be monetised by providing advisory or maintenance services. It can also be used to trigger automatic spare-part orders or to adjust machines to improve efficiency or prevent problems. In effect, this allows machines to get work done without human intervention.
A Digital Twin is a virtual or digital representation of a real, tangible thing or asset. Through the internet of things, the real asset can relay data about its performance or condition. This allows simulation and analytic analysis using its digital twin to determine any action to be taken.
This is for real
In their 2019 annual report and accounts, Unilever Plc shares a strategic report5 that includes an overview of what is happening in their industry.
This is how they outline some key trends affecting their stakeholders and markets under the heading of Digital and Technology Revolution.
In the strategic report section of their 2019 annual report6, Ocado presents its view of trends affecting the grocery sector.
Under the heading of Transformative Technology, Ocado notes the same disruptive technologies but can claim that they are already using them as a basis of their business model.
Ocado has developed an online shopping solution (the Ocado Smart Platform or OSP), Centralised Fulfilment Centers (CFC) and local logistics capabilities for delivery to customers’ doors.
They work in partnership with major grocery chains across the world who might use some or all of Ocado’s services to offer online grocery shopping.
Business model frameworks
In the course of our Future of Finance Research over 2017, when employers told us how they were adapting for the digital age, they spoke in terms of optimising or transforming their business model.
The business model frameworks they mentioned most frequently than were the Porter Value Chain, the Osterwalder Business Model Canvas and the St. Gallen Business Model Navigator.
In this section, we first provide a brief overview of each of those frameworks before introducing the CGMA® Business Model Framework. This is the Association’s more recent contribution to how a business model framework can be used to frame conversations about how the business creates value.
Porter Value Chain 1985
Professor Michael E. Porter developed the value chain7 as a tool for setting out the activities performed by a business across its value chain so that linkages are clear, and each element can be examined when developing strategies to gain competitive advantage.
The business’ primary activities are shown in a logical sequence from inbound logistics through operations, outbound logistics, marketing and sales to deliver value to the customer after a margin for the business. The business’ support or overhead activities are arranged above this sequence.
7 Competitive Advantage, creating and sustaining superior performance,
Michael E. Porter 1985
Unilever’s 2019 strategic report8 includes this representation of their business model. At its center is an explanation of “What we do” which follows a similar logic to the Porter Value Chain. It is shown as a feedback loop so the customer is at the beginning and end of the cycle. The resources and relationships Unilever depend upon are shown to the left. The stakeholders for whom Unilever create value are shown to the right. These lists reflect a recognition that to generate sustainable financial returns for shareholders, a business must also create value for customers, staff, suppliers, society and the planet (or at least minimise its impact on the environment).
Osterwalder Business Model Canvas 2010
The Osterwalder Business Model Canvas9 puts the value proposition for customers at the center. The partnerships, resources and activities needed to develop the value proposition are to the left. To the right are customer relations, the channels used to deliver the value proposition and the target segments. The resultant costs and revenues are shown at the base.
This diagram is a user-friendly template that can be used to frame conversations about the business model and how it might be developed. The layout of this framework should prompt proper consideration as to how the different elements of the business fit together.
There is even a free App10 that provides an online visual way to illustrate and record a discussion of a business model.
9 Business model Generation: A Handbook for Visionaries, Game Changers,
and Challengers, Osterwalder, Alexander and Pigneur, Yves, 2010
10 Business model canvas tool
St. Gallen Business Model Navigator 2014 11
The St. Gallen Business Model navigator is another intuitive framework. It challenges managers to address four simple questions to articulate their understanding of how the business works:
1. Who is our target customer?
2. What do we offer them; what is
our value proposition?
3. How does our value chain create that value proposition?
4. What does our revenue model capture value?
By answering these four questions, the St. Gallen team has identified 55 patterns that explain how businesses operate. For example, the ‘Lock In’ pattern describes how in 1904 Gillette sold razors relatively cheaply but gained many years’ regular custom for blades. The same pattern has been used by HP with printers, Nestle with Nespresso Coffee and Amazon with the Kindle. An important lesson from the St. Gallen Business Model Navigator project is that successful innovations are seldom based on radically new ideas. They usually come through studying what already works elsewhere to find imaginative new ways to adapt, refine or combine proven approaches. Innovative use cases for emerging technologies can provide further opportunities.
The CGMA Business Model Framework 2018 12
Business model frameworks tend to focus on the value proposition for the target customer and the financial reward to the business. However, there is a growing recognition of a need for a more inclusive, or enlightened self-interest, approach to sustain value generation over a longer-term.
The CGMA Business Model Framework puts the value at the centre. It situates the business within its ecosystem and proposes four key questions to be considered:
1. For whom and with whom do we create value?
2. How and with what do we create the products, services and experiences that meet customer needs?
3. How do we match and deliver our products and services to the right customer at the right time, place and price?
4. How do we share the benefits of value creation to incentivise key stakeholders to continue to partner with us to create and deliver value?
The CGMA report, Connecting value generation for the long term,13 is a practical guide designed to help boards, senior executives and staff to quickly and easily gain an understanding of their organisation’s business model.
for the digital age
The need to adapt
for the digital age
Many successful businesses have failed because success kept their management too busy managing ‘business as usual’. They missed opportunities for major innovations in how their sector operates.
Unencumbered by success or a legacy mindset, competitors, new entrants or unexpected alliances can seize those opportunities and revolutionise the dominant logic in a sector.
Aviva Plc case study
This extract from the risk section of
Aviva’s Strategic Report could apply to almost any business.
Advances in technology present both opportunities and risks. There is a recognition of the importance of these opportunities. There is also a recognition of the risk that the business might not seize those opportunities before a new competitor such as ‘big technology companies and low cost innovative digital start-ups’.
Brand extension is a long-established growth strategy. We have seen how Amazon have extended from being an online store selling books to a global store selling almost anything, anywhere. What enabled this extension was more than the brand. It included core competencies in online shopping, data analytics and logistics. From Ocado’s strategy report, we can see that they too are considering how they could leverage their core competencies to work with relevant partners to disrupt other sectors.
In the digital age, a business model is not necessarily about how a business entity generates value. It can be about how two or more businesses form alliances across a digital ecosystem. Together they deliver a combined value proposition to each party’s commercial advantage.
Adapting for the digital age
Whichever business model framework is used, the first objective is to articulate an understanding of the current business model. This can frame a strategic conversation about how to modernise it, or even how to transform it, for the digital age. Each element of the business model can be adapted:
in the digital age
Value creation over the longer term
From the management accountant’s perspective, a shared understanding of the business model and the strategic objectives for its development provide a basis for determining the appropriate measures to be used in the management of operational performance and progress towards strategic objectives.
Long-term value creation is a greater challenge than meeting this year’s budget. Achieving both at the same time requires more advanced performance management than can be achieved using financial measures alone. It involves managing both how the business is performing and how it is transforming.
Drivers of value
Intangibles are often the main drivers of value and long-term success. These include the value proposition, customer satisfaction, brand recognition, supplier relationships, staff engagement, and other qualitative aspects of the business model.
But the first intangible on which all others are built is the quality of decision-making, including performance management. This is management accounting’s domain. Effective decision-making is measured and rational. It is based on relevant information, analysed with a focus on the value to the business and it is applied to achieve impact.
The measures used in performance management should be consistent with the business’ vision and strategy. Ideally, they should be leading measures with causal linkages to intended outcomes. Causality is seldom linear, so the measures selected have to be reviewed.
Determining which measures to use requires an ongoing dialogue to continually refine a shared vision of how the business works. Leaders’ articulation of the business model and its direction provides an opportunity to reconsider the measures to use.
New data for new measures
New big data sources of non-financial data should be considered for measures or descriptors of intangibles. Management accountants may not be expected to conduct advanced analytics, but they should be alert to the data sources available and how that data could
This table provides examples of how data analytics is used by supermarkets:
Balancing the short run and the long term
Research shows that the organisations with the best prospects of emerging successfully from a recession balance cutting costs to improve operating efficiency while investing in their competitive position.18
It may be unwise to defer investing in information technology to save costs:
Better analytics could provide insights into how to manage and improve performance.
Technology can save costs by automating routine tasks or even by automating some decision-making.
Technology can enable agility by providing scalability and the flexibility to relocate activities.
Management accountants should be alert to the use cases for new technologies and be prepared to assess the case for investments that might ensure the business’ long-term prospects.
18 Roaring out of Recession, Gulati, Nohria and Wohlgezogen, Harvard Business Review, March 2010
Agile — turbo boost
and control cycle
Businesses need to become agile so that they can anticipate and respond to the changes ahead. They must also continue to manage how the current business generates value.
A twin-track approach can be taken to ensure that business as usual continues to be managed effectively while innovations or new strategies are also developed and implemented by empowered, agile teams.
New ventures into the unknown are risky. It is important not to bet the farm on unproven initiatives. Agile teams are empowered to get things done. They work closely with customers to ensure their needs are addressed, experiment on a small scale at a low cost, adapt iteratively and prepare to cut losses and learn lessons if stage gates are not met.
Essentially, ‘agile’ is about developing a culture where the management and control cycle is speeded up. Management accountants engaged in the management control cycle contribute professional objectivity and skepticism; accounting subject matter expertise and business understanding; questioning and analytical skills and the communication skills needed to engage with others to get things done.
We’re at an inflection point
The internet is a relatively new technology, but it is already well-established. It is 25 years this year since Jeff Bezos opened an online bookstore called Amazon. It’s been 15 years since Google became the most widely used search engine. And the Apple iPhone 3GS was only launched in 2008. Yet, the internet has already enabled new business models which have changed the nature of many sectors.
So far change has been gradual. The COVID-19 pandemic provides an inflection point. It will speed up the pace of that change and cause new digital technologies to be adapted more swiftly.
Keep calm and
carry on learning
New technologies have the potential to automate many tasks humans currently perform — from routine physical activities through to tasks knowledge workers like accountants currently perform.
To remain relevant in this brave new world, humans have three options:
- Do not compete with the technology. Upskill in other areas or ways that complement it; provide personal services and develop a human skill that is valued highly.
- Run alongside the technology, helping business to use the technology and using it to augment what a human can do.
- Stay ahead of the technology, provide expertise that a machine cannot replicate — yet.
This is not a time for panic but for a little creative anxiety when considering what to do for your continuing professional development.
Management accountants need to future-proof their careers
The management accountant’s mindset has always been forward-looking. It stems from the management and control cycle. This cycle describes how managers achieve objectives; they plan, execute, review and report. The same principles apply to the CIMA CPD Cycle.19
To remain relevant to employers’ needs and improve career prospects, it is important to keep up to date. We need to be strategically aware of new technologies and their impact on business models if we are going to perform effectively as business partners.
1. Define current and desired roles recognising expectations of employers and others.
2. Assess development needs using the CGMA Competency Framework to establish knowledge or skill gaps.
3/4. Design and act — choose and undertake development activities that meet your development needs.
5. Reflect upon and document the outcome of each development activity.
6. Evaluate progress against the objectives set at the beginning of the year. Any outstanding development can be carried over into the next cycle.
Working in association with the AICPA®, CIMA can offer both a qualification and lifelong learning support.
You should check out the resources available to you on the CGMA Store.
For example, the CGMA report ‘Connecting value generation for the long-term’ is a practical guide. It gives a background to the research on which the CGMA Business Model Framework is based and highlights how to relate the framework to your organisations’ activities. It also lists the salient questions at the heart of the tool with a brief explanation as to why these are important, helping you to understand the connectivity of key decisions and activities associated with how your current
business model contributes to wider
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Chartered Global Management Accountant® (CGMA®)
CGMA is the most widely held management accounting designation in the world. It distinguishes more than 150,000 accounting and finance professionals who have advanced proficiency in finance, operations, strategy and management. In the United States, the vast majority also are CPAs. The CGMA designation is underpinned by extensive global research to maintain the highest relevance with employers and develop competencies most in demand. CGMA designation holders qualify through rigorous education, exam and experience requirements. They must commit to lifelong education and adhere to a stringent code of ethical conduct. Businesses, governments and not-for-profits around the world trust CGMAs to guide critical decisions that drive strong performance.
Association of International Certified Professional Accountants
The Association of International Certified Professional Accountants® (the Association) is the most influential body of professional accountants, combining the strengths of the American Institute of CPAs® (AICPA) and the Chartered Institute of Management Accountants® (CIMA) to power opportunity, trust and prosperity for people, businesses and economies worldwide. It represents 650,000 members and students in public and management accounting and advocates for the public interest and business sustainability on current and emerging issues. With broad reach, rigor and resources, the Association advances the reputation, employability and quality of CPAs, CGMA designation holders and accounting and finance professionals globally.
Peter Simons, BBS, MBA, FCMA, CGMA
Associate Technical Director of Research –
Head of Future of Finance Research
Association of International Certified Professional Accountants
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