AI_people_automation_margins_global_companies
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Companies have raised profitability by one third by both successfully deploying AI, automation, and robotics and knowing the limits of it. Here is how. Some of the topics include: Would controllers lose their job to AI? What AI, robots and automation can do Limits of AI. What AI cannot do as well as a Controller Including some real-life examples of how AI and automation are used today to answer #Pricing questions such as: 1. Will competitors follow a price increase? 2. Can the customer afford the price increase? 3. How expensive is to do business with this customer? 4. Can we gain market share if we don’t increase? 5. Would we lose the customer? and the use of AI, robotics for cost questions like Price variations, last 15 years on raw materials such as oil, maize, sugar, and aluminum Currency impact, last 15 years, for global multinationals
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- 1. 1 George Benaroya World Accounting Forum AI + People + Automation Higher margins, through Actionable Management Information
- 2. 2 World Accounting Forum George Benaroya About me. George Benaroya Career at Procter & Gamble, Tetra Pak and Beiersdorf Nivea as Vice President Finance, Global Controller & CFO. Half of career at Headquarters and ½ running local operations ($20 Mio to $ 2 Billion) in Asia, Europe, Latin America and the US. Visited clients, consumers and operations in 190 countries to enable profitable growth, powered by Finance Contact: https://www.linkedin.com/in/georgebenaroyacfo/
- 3. AGENDA Agenda 1. Will controllers lose their job to AI? 2. What can automation and AI do? 3. What do World-class Finance teams do? ____________________________________ See sources & methodology at the end of the presentation
- 4. 4 World Accounting Forum George Benaroya Cost reduced from 1.2% to 0.7% of NS, 0.5% Long TermFinance headcount was reduced by 40% the last 7 years 214 129 2010 2017 Will Accountants lose their jobs to AI? By function 2010 2017 Change AP,AR, T&E, Payroll1 91 45 -50% Financial Accounting 2 80 38 -52% Tax & Treasury 3 23 16 -29% Analysis & IT 4 21 29 43% Risk, Audit & Other 5 15 16 5% Finance 214 129 -40% 1-Accounts Payable, Accounts Receivable, Payroll, Travel & Entert 2-External & Internal Reporting, Financial Accounting, Cost 3-Includes Investor Relations 4-Forecasting, Budgeting, & Planning, Business Analysis, Financial Systems, IT 5- Includes projects and management Finance Headcount 2010 - 2017 Global Firms - $10 Billion Sales -40% FTE FTE Source
- 5. 5 World Accounting Forum George Benaroya Cost reduced from 1.2% to 0.7% of NS, 0.5% Long TermWhile headcount was reduced 40%, Finance cost remains unchanged Did Finance cost decrease by 40% the last 7 years? 1.8% 1.9% 1.9% 1.8% 1.7% 1.6% 1.6% 1.6% 10 11 12 13 14 15 16 17 Financecost%0fSales Year Finance Cost as % Sales 2010 - 2017 Global Firms - $10 Billion Sales Source
- 6. 6 World Accounting Forum George Benaroya 240 200 28 Facebook Google Amazon Median Pay ‘17 84 100 2010 2017 Total Finance ’10 to ‘17 Cost/head rose, as hiring was for higher-paying, analytical jobs Technology sector compensation tends to be higher driven by limited supply of skilled resources (engineers) Analytical jobs pay over 2X as much as data processing ones Headcount was replaced with automation for data processing, lower paid jobs. An increase in Analytical resources rose overall median cost 52 80 125 AP,AR, T&E, Payroll Financial Accounting Analysis & IT 2017 Finance functions Pay per head in ‘000 dollars Source: Wall Street Journal Change in skills increased cost per head 20% +20% +2X Source
- 7. 7 AGENDA Agenda 1. Will controllers lose their job to AI? 2. What can automation and AI do? 3. What do World-class Finance teams do? ____________________________________ See sources & methodology at the end of the presentation
- 8. 8 World Accounting Forum George Benaroya What AI, robots and automation can do Automation can consolidate 180 countries with different currencies, ERP systems and chart of accounts. It can solve intercompany reconciliations and automate management reporting. Automation can restate statements at different actual and budget rates. AI can tell us which product, customer, region is off budget. AI can easily decipher the impact of currency, raw material price changes and suggest when to hedge.
- 9. 9 World Accounting Forum George Benaroya Limits of AI. What AI cannot do as well, as a Controller 1. Identify errors caused by unprecedented data or causal models leading to wrong conclusions 2. Communicate effectively in stressful situations 3. Explain a price increase to a client
- 10. 10 Once upon a time, in Russia, a czar found the province with the most sick people had the most doctors, so he killed all the doctors Artificial intelligence did something similar, the BBC reported. A system was trained to identify which patients to admit first to a hospital, based on the risk of death. Those with pneumonia and asthma were sent immediately to intensive care, which reduced their risk of dying. The machine took this to mean: asthma + pneumonia = lower risk of death so it didn’t prioritize them
- 11. 11 World Accounting Forum George Benaroya Automation accelerates data errors
- 12. 12 World Accounting Forum George Benaroya
- 13. 13 World Accounting Forum George Benaroya Limits of AI. What AI cannot do as well as a Controller 1. Identify errors caused by unprecedented data or causal models leading to wrong conclusions 2. Communicate well in stressful situations: When you are late to close the books, you don’t want to speak to a robot When a subsidiary is late for reporting, if you ask a robot to call, no one will answer the phone 3. Explain a price increase to a client
- 14. 14 AGENDA Agenda 1. Will controllers lose their job to AI? 2. What can automation and AI do? 3. What do World-class Finance teams do? ____________________________________ See sources & methodology at the end of the presentation
- 15. 15 How World-class Finance teams spend their time Less on General Ledger Global consolidation Acct Payables Acct Receivables Through Focus Automation Robotics Simplification Standardization Shared Services More on Analytics for Price management Raw Materials cost management Global cash management Currency hedging
- 16. 16 World Accounting Forum George Benaroya Inflation, pricing & cost changes, last 15 years Raw material variations of +/- 50% can increase profitability through price management 1.9% 2.2% 2.1% Inflation Wages Pricing 8% -5% 3.4% 1.5% 3.8% -0.3% 5.9% 2.6% 2.1% 3.5% Sugar Maize Aluminium Oil 38% -50% 35% -16% 57% -26% 50% -32% 2003-2017 compounded annual % changes Inflation, Wages & Prices Raw Materials Source: Bureau of Labor Statistics Source
- 17. 17 World Accounting Forum George Benaroya Cost reduced from 1.2% to 0.7% of NS, 0.5% Long TermWhile consumer prices change 2%, Raw Materials change +/- 50% Raw Material price changes. 15 years 35%57% -26% 35% -35% 38% -38% -5% -60% -40% -20% 0% 20% 40% 60% 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 Averageannualpricechange Sugar Maize Aluminium Oil Average annual change in prices Source
- 18. 18 World Accounting Forum George Benaroya Cost reduced from 1.2% to 0.7% of NS, 0.5% Long TermIn 1 year, Russia’s currency declined 59%, the Euro 20% Currency impact. Europe, Asia & Africa. 15 years -59% -20% -60% -50% -40% -30% -20% -10% 0% 10% 20% 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 Averageannualratetodollar Russia Euro South Africa India Largest economies excluding China Exchange rate change Source: IMF
- 19. 19 World Accounting Forum George Benaroya Cost reduced from 1.2% to 0.7% of NS, 0.5% Long TermIn 1 year, Brazil’s currency declined 42%; the dollar 27% in ‘04-’08 Currency impact. North-Latin America. 15 years -42% -10% -1% -9% -7% -60% -50% -40% -30% -20% -10% 0% 10% 20% 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 Averageannualratestodollar(€for$) Brazil Dollar Mexico Largest economies Exchange rate change Source: IMF
- 20. 20 World Accounting Forum George Benaroya Pricing Analytics Customer Competitor Market SKU Currency Analytics Inflation, Interest, Hedging Raw Materials Analytics Highly talented People Act on this information Well managed pricing strategies increase results by one third, or 1-3% Impact of actively managed pricing and cost strategies
- 21. 21 World Accounting Forum George Benaroya Artificial intelligence and robotics analyze several million data for points to identify optimal pricing and cost strategies, including: 1. Will competitors follow a price increase? 2. Can the customer afford the price increase? 3. How expensive is to do business with this customer? 4. Can we gain market share if we don’t increase? 5. Would we lose the customer? Embrace AI for better informed decisions How AI, robotics and People enable superior results Will competitors follow suit? Having visited clients in numerous countries, many times to increase prices, I learned this: 1. A poorly communicated increase can result in a lost customer 2. Customers want to be reassured that they are paying the best price (compared to their peer group) To increase prices to a customer, don’t send a robot Price increases are highly emotional
- 22. 22 90% of respondents wouldn’t send a robot to increase prices to a customer Would you send a robot to increase prices?
- 23. 23 World Accounting Forum George Benaroya Explaining Financial Results To explain financial results, a human is better Robots excel at breadth of information At the touch of a button, they can read through data and use standardized statements to explain performance, like the media did for Berkshire Hathaway Q1 results Robots don’t work well when the data is insufficient or incorrectly labeled. They can’t put material in context or understand new rules
- 24. 24 Berkshire Hathaway Q1 Results. 2018 vs. 2017 4,060 (1,138) 778 505 307 142 Q1 2017 Insurance Manuf & Retailing Railroad Other businesses Stock investments Q1 2018 Geico Pricing, mix +8.2% Pricing, Forex at Lubrizol, others Volume +5.1% Price +1.8% Net Earnings attributable to shareholders (in Millions) -6930 Most increased, but Wells Fargo -4% Kraft Heinz -20% (BS -5 Billion) Insurance Manuf & Retailing Railroad Other businesses Stock investments Total Q1 2018 1,419 1,822 1,145 902 -6426 -1,138 Q1 2017 641 1,317 838 760 504 4,060 Change 778 505 307 142 -6930 -5198
- 25. 25 Summary ► Automation has reduced by half the headcount devoted to repetitive tasks. It has also enabled robust business analysis, increasing both headcount and pay for resources with those skills. ► Beware of artificial intelligence limits. Solid arguments are not enough. To increase prices to a customer, don’t send a robot. ► World-class Finance teams focus on pricing & cost management. Robust analytics and executional excellence enables them to achieve results 1-3% higher than their peers. Embrace automation + AI; beware of AI limits
- 26. 26 Thank you. Sources & methodology on next page You are welcome to reuse the data on this presentation
- 27. 27 World Accounting Forum George Benaroya • Proprietary database of 57 companies, mostly in the consumers industry, mostly doing business in over 100 countries, with sales normalized at $10 Billion • Interviews with CFOs, Controllers, Accountants and other executive firms • Public domain information from Deloitte Touche, PricewaterhouseCoopers, Ernst & Young, KPMG, Accenture, McKinsey and Hackett • Annual reports of selected firms Slide Title Source & Methodology 4 Will Accountants lose their jobs to AI? Proprietary database of 57 companies, mostly in the consumers industry, mostly doing business in over 100 countries, with sales normalized at $10 Billion 5 Did Finance cost decrease by 40% last 7 years? Proprietary database of 57 companies, mostly in the consumers industry, mostly doing business in over 100 countries, with sales normalized at $10 Billion 6 Change in required skills increased cost per head All Finance functions were reallocated into these 3 main groups based on how they spend most of their time 16 Inflation, pricing & cost changes, last 15 years Inflation: Consumer price index all urban consumers, all items. Wages: Employment cost index, wages and salaries, private industry workers. Pricing: Producer price index, total manufacturing industries. Source: Bureau of Labor Statistics. 17 Raw Material price changes. 15 years Raw material data. Source: Bloomberg, Energy Intelligence Group, Organization of Petroleum Exporting Countries and World Bank. 18 Currency impact. Europe, Asia & Africa. 15 years Annual average based on daily closing rates. Source: International Monetary Fund 19 Currency impact. North -Latin America. 15 years Annual average based on daily closing rates. Source: International Monetary Fund Sources & methodology
Editor's Notes
- #AI #Artificial intelligence #Global Finance #Actionable Management Information
- #George Benaroya #Procter & Gamble #Tetra Pak # Beiersdorf #Nivea #VP Finance, Global Controller, CFO
- There will be 3 topics #Will controllers lose their job to AI? #What can AI and automation do? #How do Best-in-class Finance teams at Global firms manage the business?
- When we look at the Finance headcount of a company with $10 Billion in sales, we see that headcount has been reduced by 40% the last 7 years, from 214 to 129. Financial Analysis and IT positions have increased, but they are the smallest group. Functions like Accounts Payables, Accounts Receivables and Accounting have been reduced by half; through robotics, automation and digitalization. Intercompany reconciliation, a labor-intensive activity, has been reduced from 3 days to a few hours. Overall, finance headcount was reduced by 40% #Finance Headcount reduction #Accounts Payable, #Accounts Receivable, #Payroll #Travel & Entert #External & Internal Reporting #Financial Accounting #Cost Accounting #Investor Relations #Forecasting, Budgeting, & Planning #Business Analysis #Financial Systems #IT
- Headcount was reduced by 40% the last 7 years, but Finance cost, as % of sales, remains about the same. We are looking at the Finance departments of Global companies, with $10 Billion of sales. The Finance cost as % of sales declined from 1.8% to 1.6% How can that be? #Finance cost as % of Revenue
- The last 7 years, the skills required for good finance jobs have changed. On the left hand side, we see the median compensation at Facebook, Google and Amazon, published by the WSJ. At AFacebook and Google, compensation is in excess of $200,000; while at Amazon, where many resources are warehouse operators, it’s about 28,000. We see the same in Finance departments. If we split the activities in 3 groups we see that -Those doing transactional work, make $52K While Those doing Financial Analysis, make over2 times as much, at about $125,000 Automation replaced folks doing lower paying jobs That is why cost per head rose by 20% ___________________ #Median Pay #Facebook #Google #Amazon #Cost per head
- Agenda
- What AI, robots and automation can do Automation has drastically improved the closing process: Intercompany reconciliation exchange rates management reporting and variance analysis have been automated. Today we can drill at ease from region to country to product to customer. Artificial intelligence is helping us predict which currency or raw material needs hedging. Automation, robots and Artificial intelligence enable us to easily answer what, where and how much ______________ #closing process #Intercompany reconciliation #exchange rates #management reporting #variance analysis
- Limits of Artificial intelligence. What Artificial intelligence cannot do as well as a Controller One. Identify errors caused by unprecedented data or causal models leading to wrong conclusions Two. Communicate effectively in stressful situations And Three. Explain a price increase to a client (I will explain that) _______ #Limits of AI #What AI cannot do as well as a Controller
- Once upon a time, In Russia, one czar found the province with the most sick people had the most doctors, so he killed the doctors Artificial intelligence did a similar reasoning, the BBC reported A system was trained to identify which patients to admit first, based on the risk of death. Those with pneumonia and asthma were sent immediately to intensive care, which reduced their risk of dying. The machine took this to mean: asthma + pneumonia = lower risk of death
- Automation accelerates data errors On July 4th, 2017, a stock market data error on the Nasdaq reported the price of Amazon had dropped 90%. The error was replicated across Bloomberg, Google and Yahoo. On December 2016, a data error made it seem like the Chinese currency had drastically dropped. In minutes it was all over Google and XE.com. The problem with letting robots manage this, is that they don’t have common sense. ____________ #Automation accelerates data errors
- One robot cannot ask the other, what do you think? Doesn’t it look weird to you?
- Limits of AI. What AI cannot do as well as a Controller Identify errors caused by unprecedented data or causal models leading to wrong conclusions Communicate well in stressful situations: When you are late to close the books, you don’t want to speak to a robot When a subsidiary is late for reporting, if you ask a robot to call, no one will answer the phone Explain a price increase to a client ______ #Limits of AI. #What AI cannot do as well as a Controller
- Agenda Will controllers lose their job to AI? What can automation and AI do? What do World-class Finance teams do?
- How do World-class Finance teams spend their time We have worked with many Fortune 500 companies to understand what World-class means. World class companies have automated their General Ledger, consolidation, AP and AR functions. They spend most of their time (up to 40%) on analytics. Through Automation and robotics, they are able to focus on 2 main tasks: 1)pricing and 2)cost (both of raw materials, hedging and SG&A)
- Inflation, pricing & cost changes, last 15 years On the left hand side, you can see that over the last 15 years, inflation, pricing and wages rose 2% per year, with small variations up and down. On the right hand side we see that most raw materials also rose 2 to 3% per year, but the range was huge. Some years, raw materials increased or decreased by 50% World class companies take advantage of Raw material variations to increase profitability through price management
- Raw Material price changes. 15 years Here are the details one by one. Sugar, which is important for companies like Coca-Cola rose by 50% in ‘06 an 35% LY Same is true for other raw materials. While consumer prices change 2%, Raw Materials change +/- 50%
- Currency impact. Europe, Asia & Africa. 15 years When we look at the largest economies, excluding the China, the ones affecting global companies the most, we see that the Russian rubble dropped by 59% and the Euro by 20% in just one year.
- Currency impact. North -Latin America. 15 years Similar impact in the Americas. The Brazilian real dropped by 42% in 2015 and the dollar, we should remain Mr. Trump, dropped by 27% 04-08.
- Our survey shows that over 90% of respondents, would not send a robot to increase prices
- . Explaining Financial Results Robots are able to look at many data points and quickly read through data. Let’s use as an example the Q1 results of Berkshire Hathaway, managed by Warren Buffet. Minutes after the 52 pages of results were issued, the financial media published headlines referring to the drop on profitability as “an accounting change” A robot is able to read quickly, but cannot manage well: changes in rules or -when data it’s incorrectly labeled, as we saw on the example of Amazon and the Chinese currency
- Berkshire Hathaway Q1 Results. 2018 vs. 2017 A controller, on the other hand, will be able to put things into context For Berkshire Hathaway results, he will show the impact of price increases, volume and mix and conclude that the overall business is in good shape. It will then look at the $7 Billion drop and conclude that the root cause is not an accounting change. Rather, it’s because some stocks have declined in price, and will mention which. All these data, is new and was not readily available