Change isn’t always easy to process, even for an industry as familiar with constant change and disruption as technology.
The rise in hybrid and remote working models, the need to scale quickly, the proliferation of new business models — all these factors pose potential challenges for technology companies working hard to adapt and thrive.
As a result, technology firms are accelerating their digital transformation plans to make sure they have access to modern, flexible systems and real-time, accurate data so they can be more proactive and less reactive.
For technology CFOs, they must take a central role in these transformation projects and the technology decisions involved. The outcomes will determine their ability to guide and advise the business through the challenges and opportunities ahead. If CFOs don’t lead the charge and sponsor these efforts, the chance of success is low.
Making the most of transformative events
Tech companies are also the most likely to go public, a transformative event that can bring significant disruption and requires a great deal of planning and preparation. According to PwC’s Global IPO Watch 2022, the computers and electronics sector accounted for 23% ($40bn) of global proceeds last year, the biggest share of all the industries. But pursuing an IPO comes with risk — in 2021, only 28% of companies were profitable after their IPO, according to Statista, down from 81% in 2009. The volatility and unpredictability of a massive undertaking like an IPO means companies need to be prepared for a variety of outcomes.
Economic pressures mean that, while IPOs are still happening, the requirements are much more stringent. Companies need to show a strong path to profitability, along with a strong revenue backlog and revenue growth. And the market includes these metrics in valuations and pricing, not just in IPOs but also in M&A and funding rounds for private companies. CFOs need to be on top of these metrics.
There’s also an inversion point happening in the world of mergers and acquisitions (M&A) in the technology industry. The dollar value of deals in the tech sector is going down while the number of acquisitions is going up. Tech businesses could also be looking to divest business units they developed or bought that aren’t successful.
Culture eats strategy – look after your people
While tech firms are keen to buy into new products and services, or on occasion sell off parts of the business, it very rarely ends well. According to most studies, between 70-90% of M&As fail. This isn’t due to firms selecting the wrong products or companies to invest in; it’s a culture clash.
In our recent Transformative Excellence project, we worked with analyst firm MGI to explore the key to IPO and M&A success. When the results were distilled, it boiled down to what management guru Peter Drucker said many years ago: “Culture eats strategy for breakfast.” The most common factor derailing these transformative events was cultures that didn’t work together.
While the reasons for entering a deal or divesting in a product or existing market may be financial and strategic, success is often determined by the people retained and folded into the organization. Products won’t mature on their own, sell themselves, or support the entire customer base without the right people running those key aspects of the business. And if those people are mismanaged, companies are much more likely to become a statistic … namely, the statistic that 70-90% of M&As fail.
CFOs, no longer just ‘book-closers’, can now be just as heavily involved with talent attraction, retention, and career growth as they are with the numbers. They’re also involved with other aspects of culture, like sustainability, and diversity, equity, and inclusion initiatives, where tech companies are often seen as global leaders. And these companies need systems that can help them measure the effectiveness of their efforts in these areas. So this is another opportunity for the CFO to take the lead, together with the CIO, to put the right technology in place.
Finance + data science = teammates for the future
Many enterprise companies are dealing with legacy systems that mire them with disparate data and siloed data, leading to compounding integration difficulties. This is where a modern system that brings together data from across the core assets of the organization gives businesses a huge advantage. It puts the power in the hands of the finance staff to reduce a reliance on IT to get them the data that they need. And in turn, it also frees up the CIO and their staff to focus on strategic, high-level tasks.
This ties into an emerging trend affecting the office of the CFO at tech companies of all sizes — the increase in people entering the workforce with both data science and accounting/finance experience. With these skills combined, these workers can provide insights that make a positive impact on decision-making.
But if a company’s choice of technology doesn’t enable this type of talent, there’s likely to be a negative impact on hiring and culture. For innovation to thrive, the systems need to keep up. This is particularly relevant at startups that must scale quickly to grow revenue.
To satisfy workers who expect cloud-based systems and a consumer-grade user experience, tech companies need to consolidate point solutions and combine them with a strong tech foundation that enables all the right integrations. And to make this happen, they need an enterprise management cloud for finance, HR, planning, and analytics. With this at the cornerstone, the tech CFO will be best equipped to manage change, navigate transformative events, and welcome the best possible talent into their organization to thrive in whatever the future brings.