Blue Hill Research's Hyoun Park explores how the Future of Finance will change as Digital Transformation, the Internet of Things, the Subscription Economy, and microservices start to take over the business world.

1. © 2017 Blue Hill Research. All Rights Reserved.
The Future of
Finance in a World
of Global Digital
Transformation

2. © 2017 Blue Hill Research. All Rights Reserved.
Hyoun Park
Chief Research Officer and Principal Analyst: Business Intelligence
and Technology Management
Key Themes:
• Analytic Business Transformation
• Consumable IT
• Demand-Driven Monetization
• Future of Finance
Expertise and Focus Includes:
Decade of startup operations experience
Experience in Data Management, Enterprise Mobility,
Enterprise Collaboration, Telco, Moneyball
Social Media Influencer in Enterprise Technology
Focus on Technology Lifecycle Management, Business
Intelligence, Enterprise Performance Management
To follow Hyoun or read latest research:
http://bluehillresearch.com/author/hyoun-park/
Internal Leader for:
Financial Management
Business Intelligence

3. © 2017 Blue Hill Research. All Rights Reserved.
Key Takeaways
• The CFO is the Doctor of the your company
• New Business Trends challenge the CFO Office’s ability to
remain the voice of sanity and determine your approach
• What do your departments expect?
• Create Your Single Pane of Glass to prepare for the future

4. © 2017 Blue Hill Research. All Rights Reserved.
Why the CFO is a Doctor

5. © 2017 Blue Hill Research. All Rights Reserved.
CFO Office
Manufacturing
Supply Chain
Sales
Marketing
Service
Service
Operations
Procurement

6. © 2017 Blue Hill Research. All Rights Reserved.
Numbers Don’t
Lie, But
Appearances
Often Do

7. © 2017 Blue Hill Research. All Rights Reserved.

8. © 2017 Blue Hill Research. All Rights Reserved.
Being the Doctor of your Company
• If Money is the lifeblood of the company, then
– You are the doctor
– The Company is the patient
• You have an objective view of the company
• Choose your approach

9. © 2017 Blue Hill Research. All Rights Reserved.
Multiple Approaches to Being the Doctor
• Are you the Surgeon: Cut costs now!
• The Specialist: Trusted expert in one
system with deep subject matter
expertise
• The General Practitioner: What’s
wrong with the business? What
should I watch out for?

10. © 2017 Blue Hill Research. All Rights Reserved.
Reality
• It is easy to do what it is expected
• It is harder to say no, especially for a task that is expected
• It is even harder to champion a better option and it takes
both data and a strong contextualization of the business to
do this right.

11. © 2017 Blue Hill Research. All Rights Reserved.
The Challenges of Being the Doctor
• Easy for status quo organizations: focus is on tracking
standard financial metrics, accounting, compliance
• Translating today’s buzzwords to formal finance can be
challenging.
• As an example, let’s look to the past

12. © 2017 Blue Hill Research. All Rights Reserved.
Business Transformation Hype:
Are We Stuck in the Dot-Com Era Forever?

13. © 2017 Blue Hill Research. All Rights Reserved.
The dot-com era
• Remember the late 90s?
• High-flying companies such
as Lycos, Geocities, eBay,
Yahoo, and Amazon had
insane valuations in a world
where “all the rules had
changed.”

14. © 2017 Blue Hill Research. All Rights Reserved.
• Launched August 1998
• $300M in funding; Amazon owned 54% of
the company
• Mascot designed by TWDA, who also
designed the Taco Bell Chihuahua
• In January 2000, taught us that “Pets
can’t drive!” at the Super Bowl
• IPO in February 2000
• Shut the doors November 2000
• Assets bought by Petsmart

15. © 2017 Blue Hill Research. All Rights Reserved.
What went wrong?
• The “New Economy” wasn’t new.
• Pets.com was selling products at 30-70% of their cost
• There was no immediate road to “higher margin” purchases
• Infrastructure investments required ~$300 million run rate,
which executives thought would take 4-5 years to achieve.
• So, was this a bad idea?

16. © 2017 Blue Hill Research. All Rights Reserved.
PetSmart to acquire online pet
retailer Pet360 for $130 million -
September 2014
Estimates: Global Online Sales of
Pet Food and Supplies reach $4
billion in 2015
4% of Pet Food and Supplies Are
Sold Online

17. © 2017 Blue Hill Research. All Rights Reserved.
The wrong lesson to learn from Pets.com was that
this was a stupid idea.
Pets.com as a $300M funded company is awful.
Pets.com as a $30M company focused on
eCommerce might have made it.
The right lesson: companies that require
fundamental change need to be guided correctly.

18. © 2017 Blue Hill Research. All Rights Reserved.
How do new business models affect what the
CFO should focus on?
• What are the key business drivers that are emerging across
the business in light of new economic models?
• How can CFOs support change rather than get caught flat-
footed?
• First, take a look at new business trends.

19. © 2017 Blue Hill Research. All Rights Reserved.
New Business Models
• Digital Transformation
• Subscription Economy
• Data Monetization
• Internet of Things
• Outcome-Based and Usage-based
models –Request-based, per hour, per
ton
• Microservices – monetizing internal
production or development capabilities

20. © 2017 Blue Hill Research. All Rights Reserved.
Subscription-based Business Models
• What does it take to turn this into your primary business model?
• First, a fundamental understanding of costs and inventory. Is the
current bottleneck to revenue based on supply or demand?
• Cash balance. Can the company support a short-term loss in
one-time purchases?
• Value proposition. Subscriptions solve a problem, not a one-
time issue.

21. © 2017 Blue Hill Research. All Rights Reserved.
Founded in 1982
IPO in 1986
Stagnant market cap in 2000’s.
May 6th 2013 – The day everything
changed. Adobe went all-in on
subscription and stopped commitment
on its on-premises Creative Suite.

22. © 2017 Blue Hill Research. All Rights Reserved.
May 6th 2013

23. © 2017 Blue Hill Research. All Rights Reserved.
Adobe Stock Performance
• Part of this performance came from transforming a one-
time sale into a recurring purchase
• Also, in software, the cost of production is basically null.
Who cares about a 70% upfront price cut if you can renew a
customer for 5-10 years at the same rate?
• We’re not all software companies, but do we have excess
capacity? Do we have ongoing value as a service?

24. © 2017 Blue Hill Research. All Rights Reserved.
Internet of Things and Usage-based business
• In more mundane industries such as construction and
manufacturing, the Internet of Things provides new
opportunities for similar reasons.
• Highly complex machinery is now being sold on a per use
basis or with outcomes-based billing from the per ton
processing of air, concrete, dirt, or water.
• What is the outcome you are selling? And how does that
change the unit of production? Fixed costs?

25. © 2017 Blue Hill Research. All Rights Reserved.
Not Just for Standard Customers
• Patients, Students, Donors are all customers as well, but
with different needs.
• Patients have both elective and non-elective health needs.
Elective needs are a customer issue.
• Students have a lifetime value as they become donors
• Every donor has a different definition of ROI

26. © 2017 Blue Hill Research. All Rights Reserved.
Practical Aspects of Business Transformation
• Billing Issues
• Contract Issues
• Tax and Revenue Recognition for Services
• CapEx/OpEx categorization
• Managing Distributed finance inputs and teams
• Close, Audit, and other Compliance-driven activities
• Data Governance
• Risk Mitigation

27. © 2017 Blue Hill Research. All Rights Reserved.
Building the Single Pane of Glass

28. © 2017 Blue Hill Research. All Rights Reserved.
Start with a Balanced Scorecard approach
• We’ve seen this before, but the balanced scorecard can be
messy
• Balanced scorecard – based on “target” metrics
– Customer, process, and growth categories
– Based on identifying appropriate Performance Drivers
• Supply Chain, Sales, Marketing, Service must accompany
Finance

29. © 2017 Blue Hill Research. All Rights Reserved.
Problems
• Every department thinks they have 50 metrics that matter
for the CFO
• Departments mistake operational control for financial
control
• I’m going to assume you know the basics: cash flow, working
capital, A=L+E, AR, AP, Inventory, Profit, Quick Ratio, DSO
• But what do departments THINK you want and how can you
integrate this into the Single Pane of Glass?

30. © 2017 Blue Hill Research. All Rights Reserved.
Manufacturing and Supply Chain
• Start with your basics: inventory turns, Overall Equipment Efficiency
– Sound simple? Depends on what your inventory is…
– Is it the asset, itself? Or is it a software license install that enables the asset?
• Does inventory even matter to your product?
• Will inventory turn acceleration increase COGS?
• Which bottlenecks truly affect product or service delivery?
• Which aspects of production and contract delivery can your company
control?
• Can you sell your inventory?
• OEE based on Quality, Efficient Performance, and Constant Availability –
set standards for resource capacity

31. © 2017 Blue Hill Research. All Rights Reserved.
Sales, Marketing, and Service
Increasingly
one integrated
department
based on the
Customer
Journey

32. © 2017 Blue Hill Research. All Rights Reserved.
Marketing Metrics
• Today’s trendy metric: LTV/CAC (Lifetime Value / Customer
Acquisition Cost) – How practical is this metric?
• Customer Payback Period - ~1 year is normal in the
subscription world, making service mandatory
• Marketing-originated customers vs. Marketing-influenced
customers

33. © 2017 Blue Hill Research. All Rights Reserved.
Sales Data
• Is sales per visit or sales per opportunity the right metric?
Or should sales be analyzed on a product, location, or
customer/patient/student level?
• Which service activities are associated with renewal and
upsell?
• Integrated view of the customer: Sales, Marketing, Service

34. © 2017 Blue Hill Research. All Rights Reserved.
Is Service treated as a Revenue Driver?
• When does the renewal start?
• How engaged is the customer on training, upgrades, upsell?
• How much technical or consulting support vs. sales support
is the customer asking for?
• Is Customer Satisfaction measured correctly?

35. © 2017 Blue Hill Research. All Rights Reserved.
In Thinking of Your Single Pane of Glass
• Look at current and proposed business models
• Look at these departments in context
• Find the right data sources
• Re-evaluate data and metrics annually or as your business
considers fundamental changes

36. © 2017 Blue Hill Research. All Rights Reserved.
How useful?
• Is financial data abstracted from operations?
• Are “asset” and “service” categories related to company
operations or are they defined by accounting?
• Do non-finance personnel use your data to plan, or just to
define their budget?
• Do you have access to detailed operations, facilities, IT, and
expense reports?

37. © 2017 Blue Hill Research. All Rights Reserved.
Takeaways
• Be the Doctor and take care of your patient: The Business
• Provide Guidance for Future Business Models – the CFO office mus
be a core stakeholder in any significant sales, product, or service
changes.
• Don’t follow trends blindly
• Don’t stick to the status quo in a time of rapid business change
• Maintain a view into all areas of the business
• You are the center for business transformation: All Roads Lead to
You.

38. © 2017 Blue Hill Research. All Rights Reserved.
Phone: +1 (617) 624-3600 Contact Research: research@bluehillresearch.com
Thank You!
To join the conversation, follow us on: