A-E - CGMA mindset

Embracing disruptive technology, understanding your business model, and developing a growth mindset

The CGMA mindset for a digital future

Embracing disruptive technology, understanding your business model, and developing a growth mindset

The CGMA mindset

A fast-changing workplace

"Ninety percent of senior finance leaders don’t think their teams have the skills to support their business’s digital ambitions."ⁱ

Management accountants have long developed acumen through experience. However, lessons learned through past experiences may provide little guidance for future events. Disruptive technologies are radically changing the way things work.

Senior managers are concerned about transforming their business model for the digital age. However, they are aware that most new digital initiatives fail to meet their revenue targets.ⁱⁱThese initiatives can also become a drain on resources, including management’s time.

Management accountants are well-positioned to remove the risks associated with changing business models and identify opportunities digital transformation can bring for businesses to survive and thrive. But first, they need to develop their mindset.
Management accountants, through providing the professional discipline that informs and guides the management control cycle, acquire a commercial learning mindset. However, the acumen gained through experience may not suffice if disruptive technologies change the way things work. Professionals need to be constantly horizon-scanning with a keenness to learn.

New cognitive technologies are emerging that have implications for business models, digital data has the potential to provide new insights, and automation will put more emphasis on value-creation skills.

Future mindset and the management control cycle

The ability to anticipate the way things could work in the future will become more important. Making uninformed judgments based on personal experience becomes an unnecessary risk when firm evidence is available by analysing digital data. It will not just be what management accountants have learned. It’s also how they question, analyse, learn, adapt and engage with others.

The management accountant’s mindset has always been forward-looking. It stems from the management and control cycle. The cycle (Figure 1) describes how managers plan, execute, review and report to achieve objectives. At each step in this cycle, managers need the information to inform a decision, to enable its execution, to review progress, to learn from experience and to determine any corrections or improvements to be made.

This is how businesses ensure they deploy resources where the returns or prospects are best. It is also how managers learn through experience. But, that’s about to change.

To anticipate and respond to change, organisations need to become agile while managing the business as usual. Rather than risk everything on unproven initiatives, they should experiment and learn iteratively.

Taking a twin-track approach means the business is managed effectively while agile teams develop and implement new strategies.

Agile is about accelerating the management and control cycle. A management accountant’s role is well-placed to support the business in a digital age and equipping them with:

Professional objectivity and skepticism
Accounting expertise and
business understanding
Questioning and analytical skills
Communication skills needed to engage
with others

Figure 1 shows the management control cycle and what must be considered for a digital age.

Figure 1

Disruptive technology is an opportunity

Embrace new technology, don’t fear it.

New technologies are automating many activities. Cognitive technologies can improve standards and reduce costs by enhancing the customer experience and streamlining supply chains, operations and delivery channels.

Some ambitious businesses are going much further, completely transforming their business model and delivering new value propositions. Some are re-inventing how they make money and create value for their stakeholders. Many finance functions are also transforming, using new technologies to improve their operating model, accessing and analysing digital data to provide insights into what drives cost risk and value. They are also taking on a broader role as strategic advisers and champions of evidence-based performance management.

Further technologies that
enable automation:

Internet of Things (IoT):

Allows inanimate objects to communicate, relaying data for remote monitoring. This can be monetised by providing advisory or maintenance services. Data can also be used to trigger automatic spare-part orders or to adjust machines for improved efficiency or problem prevention.

Cognitive computing:

An umbrella term covering technologies that automate knowledge work. Cognitive technologies go further than automation alone.

Artificial intelligence (AI):
Programing computers to use their superior data processing capacity to gain insights or derive algorithms.
Machine learning:
Computers teaching themselves, learning iteratively from outcomes or modelling and programming themselves to improve performance.
Natural language processing (NLP):
Computers analyse text, speech, images, etc. to understand us, answer questions and even tell us what to do.
Deep learning:
The combination of machine learning with NLP allows computers to classify and replicate human thinking.

In the UK, Virgin Trains combines robotic process automation and cognitive computing to automate customer refunds by using NLP to read customer emails and instructing bots. This solution is 85% cheaper than humans undertaking the same tasks.ⁱⁱⁱ

These technologies can perform many tasks humans currently perform, to the extent that there is a concern that roles may become redundant.^ivHowever, automation will take over routine tasks, giving people the time to focus on higher-value tasks. Management accountants must consider this impact, balancing the potential savings automation offers against the human impact of job losses.

There will be a demand for people with the right mindset who can help businesses take advantage of the potential of these new technologies. The CGMA report Re-inventing finance for a digital world explains the impact of these new technologies on the finance function and how management accountants should act to remain relevant.^v

“Cognitive technologies can improve standards and reduce costs by enhancing the customer experience and streamlining supply chains, operations and delivery channels.”

Why you need to understand your business model

Don’t become another Blockbuster.

Popularising the term ‘business model’, the internet has provided new ways of doing business — such as ‘clicks and bricks’ to describe retail businesses with an online and offline presence. Traffic across the business’ digital ecosystem is now more important than location and footfall.

Now there are disruptive online-only retailers with global reach. Amazon originally sold books online. And now its digital platform and logistics enable it to sell anything from data services to groceries.

There are disruptive platforms that allow people to order food and taxis (Just Eat and Uber), enabling providers to sell services that others deliver, all via their digital ecosystem.

If a business is aware of disruptive technologies and continuously reviews its business model, it can grow and succeed. Unfortunately, there are examples of organisations that used to dominate their space but paid the price by ignoring new technologies and their business model. For example, Kodak developed but failed to recognise the potential in digital photography^vi and Blockbuster turned down the opportunity to partner with Netflix.^vii

New web-enabled business models also provide opportunities for entrepreneurs and small businesses to go from small beginnings to become major online retailers.

A widening gap is emerging between digital leaders and laggards. Amazon accounts for over 45% of online sales in the USA, and in the first quarter of 2018 controlled 33% of the cloud infrastructure services market.^viii Amazon continues to disrupt, recently introducing
tech-reliant brick-and-mortar stores that are completely self-service.

What do digital finance leaders have in common?

Building blocks that put the
customer first

Professionals need to be alert to the potential in new technologies to provide further opportunities for new business models. They must also understand how the finance function can use new technologies to enable them to contribute more to their success and their business’s success in a digital age.

Research conducted by the AICPA and CIMA for Oracle, published in the Agile Finance Unleashed: The Key Traits of Digital Finance Leaders white paper, considers how finance functions are transforming and the business model’s preparedness to a finance function’s transformation.^ix

A business model tells the story of how a business creates value,
usually by focusing on:

1. Its value propositions for the customer segments it serves and the needs it aims to meet.

2. External resources and relationships

3. Internal processes or operations and the intangibles needed to deliver the value proposition

4. How the business makes money

The CIMA ‘building blocks’ framework (Figure 2) puts the customer first and positions accounting information at its base. Additional blocks represent how:

5. The structure, scale and culture of a how a business influences to adapt.

6. The business model is dynamic. How it is managed and developed must be considered.

7. The digital ecosystem enables communication and digital transactions with customers, suppliers and its environment. Generating data to provide valuable insight into the customer journey etc.

Figure 3 reports on global research surveying 725 businesses in diverse sectors. Answers to questions about each block show that only a minority had achieved significant progress in transforming their business model. And businesses whose finance functions are further advanced in transformation had made significantly more progress.

Further advanced finance functions are
better-positioned to support business agility
and the ability to achieve digital ambitions.
This suggests there is great potential for management accountants to play an influential future role.

“Unfortunately, there are examples of major organisations that used to dominate their space but paid the price by ignoring new technologies and their business model.”

Management accountants and data

Considering new sources of data and conducting more advanced analytics.

While management information to inform and guide the planning and control cycle remains central to management accounting, information that managers routinely require will be provided via Business Intelligence (BI) applications.

Management accountants articulate expected outcomes, performance drivers, indicators to be reported and questions that might arise. Financial planning and analysis to inform decision-making and performance management will remain a key aspect of management accounting. Despite the hype about the sophisticated analysis of Big Data, management accountants appreciate there is still so much untapped potential in more readily available data.

Our future of finance research suggests the finance function’s remit will extend to considering new sources of data and conducting more advanced analytics. The CIMA syllabus has been updated to ensure management accountants have competencies in data management and some forms of more advanced data analysis.

Figure 5 shows Big Data provides opportunities for measures and analysis to improve performance in each block of the CIMA ‘building blocks’ framework (Figure 4).

The Agile finance revealed report reveals a weak alignment between what finance professionals see as the drivers of value in the business and the measures the finance function provides or monitors. The top five drivers of value were all intangibles: customer satisfaction, the quality of business processes, customer relationships, human capital (e.g. the level of staff engagement) and the brand’s reputation.

The intangibles on which the development
of all others depend on is the quality of
decision-making. Finance functions currently tend to provide data analysis related to financial outcomes and analysis of performance against financial objectives.

"Our future of finance research suggests the finance function’s remit will extend to considering new sources of data and conducting more advanced analytics."

While management accountants probably won’t need to become expert data scientists, management accountants should also develop a good understanding of data sources and analysis, as well as sufficient understanding of data architecture and analytical techniques to engage with IT, business colleagues and Data Scientists.

This will enable them to tackle bias in
decision-making so they can operate as effective business partners. Ensuring decision-making is properly informed, the ethical implications of all decisions are considered, and performance is managed in the interests of stakeholders.

“An effective business partner is the one who makes connections between people and issues. They will have the courage to speak up, to challenge, to hold up the mirror to the business and ask questions.”

– Anton Broers, Finance Manager, Royal Dutch Shell

Growth mindset: embracing challenges and constantly learning

Soft skills are not enough.

Emotional intelligence was developed by Daniel Goleman in a book published in 1995. A few years later, in a seminal Harvard Business Review,^xii he described emotional intelligence as being essential in making a leader. Management accountants are often told they need to develop soft skills particularly, emotional intelligence, so here is a handy checklist:

It is human nature to break complex matters down into simple checklists that are easy to handle. Unfortunately, the real learning comes from embracing complexity, making the effort to understand nuances, accepting challenges and being willing to learn from occasional failures.

Prof Carol Dweck of Stanford has developed the term ‘growth mindset’^xiiito describe a more effective attitude towards learning, describing two types of mindset; fixed mindset and growth mindset.

Fixed mindset:

This is fostered where praise is given liberally, and people learn to be confident in their natural talents. People with this mindset have a sense of entitlement to succeed. They find failures difficult to accept, so they begin to fear challenges.

Growth mindset:

Holders are willing to learn because they believe that qualities can be cultivated through efforts, coping strategies and with help from others.
A growth mindset is characterised by a preparedness to try to learn and change, stretching oneself, tackling challenges and having the resilience to overcome setbacks.

The management and control cycle (Figure 6) is consistent with a growth mindset. It makes the effort to take an informed decision but manages implementation closely and responds positively to poor performance which is corrected promptly.

Figure 6

Future-Proof Your Career: Human Intelligence Ep. 1

What’s next?

Explore more resources.

The pace at which new technologies and innovations become mainstream continues to accelerate, shortening business life cycles and making old skills redundant. Digital technologies have also generated unprecedented volumes of data. New cognitive technologies will cause further disruption.

Management accountants need to understand the potential of new technologies to transform their business model and realise how the finance function can use these technologies to automate many tasks. This will enable them to contribute more to ensure both their success and their businesses’ success in a digital age.

Management accountants will have a key role in considering the effects of new technology on people as well as profit, and that their approach to lifelong learning and continuing professional development is consistent with the growth mindset.

Through the combined strength of AICPA and CIMA, we are in a strong position to help members prepare for the digital age, providing opportunities through CPD to learn more about digital technologies.

Do you believe you are doing enough to remain relevant in a digital world?

Yes
Just about
I’m not sure what to do
I’m not interested

Do you understand your business model well enough to seize disruptive opportunities?

Yes
I do, but I don’t get involved
I’m trying to learn but I need support
I don’t understand my business model

Do you think your finance function displays the characteristics primarily of a fixed mindset or
a growth mindset?

Growth mindset
Fixed mindset
Both
Not sure

What technology are you most interested in learning about and executing in your role?

Robotic process automation (RPA)
Blockchain
Cybersecurity
Data analytics
Cognitive computing

Have you redeemed your free Digital Mindset Pack yet?

Use the code BENEFIT19 and take the leap into the future of finance.

Plus, you’ll receive a digital badge on completion to add to your CV
and LinkedIn to showcase your new expertise.

Redeem here→

Explore more resources here.

Endnotes

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 CGMA designation holders to guide critical decisions that drive strong performance.

cgma.org

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 657,000 members and students across179 countries and territories 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, CGMAs and accounting and finance professionals globally.

aicpa-cima.com

Report author:

Peter Simons, BBS, MBA, FCMA, CGMA
Associate Technical Director of Research —
Management Accounting

Head of Future of Finance Research

Association of International Certified
Professional Accountants

aicpa.org
aicpa-cima.com
cgma.org
cimaglobal.com

September 2019
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ISBN:978-1-85971-881-0