The digital revolution in the economy and its effect on processes in companies are becoming something of a nightmare for finance departments, especially in banking. This applies equally to internal IT infrastructures, which have to comply with BAIT requirements or the Basel regulations, and to the digital interface with the customer. At the same time, the expectations of departments such as marketing, risk, and IT are diverging from those of finance.
The finance department, meanwhile, needs a reliable basis for planning and has to justify its actions to auditors, the board of management, and shareholders. This dilemma requires new approaches and innovative ways of thinking:
The digital revolution is bringing lasting change to how we work and make decisions in companies. Departments demand – and are granted – a far greater say in capital expenditure as they need to implement new business models quickly in order to remain competitive. The IT department is both the driver of innovation and the service provider that delivers the structures for implementation. Financing models that may have been suitable 20 years ago, such as standard leasing and hire purchasing, have become obsolete. Lean processes and customized billing models are key. That is why a growing number of ‘intelligent’ and more flexible leasing and financing concepts are becoming established in the market. They give the finance department the flexibility that it would like to offer its colleagues in other departments.
Turning these three decision-makers into a single powerful unit is one of the key challenges that companies now face. This is where being agile has its benefits – it involves not only optimum collaboration on innovation and manufacturing, but also agreement on how to finance them. In this respect, the term loans of yesteryear are hopelessly out of date.
There is always a certain amount of risk involved with innovation, and risk is the treasury department’s natural enemy. With standard finance strategies, it is rarely possible to strike a balance between these attitudes to risk. Instead, new approaches can provide a long-term boost to innovation. One example is ‘try and use’, where equipment is supplied with a short-term exit option in case the project does not work out.
Having a customized finance strategy for each project is only possible with total transparency and maximum control. That is why the mechanisms for control must be adapted to the financing structures. A powerful, comprehensive tool for the technical and commercial management of all contracts and services, both inhouse and external, is essential.
To find the best financing available, companies must be able to compare the market and draw on experiences from a wide range of projects. Very few companies have the experience and capacity to produce such comparisons and benchmarks. And IT infrastructure providers are biased – their assessments will always have an inherent commercial preference. Banks often lack the necessary expertise and skills beyond what standard tools can offer. The ideal solution is a non-captive service provider that is able to work with the CFO, CIO, and auditors on an equal footing. It is vital, of course, that this provider works in partnership with, not against, the customer.
Joachim Schulz, member of the Board of Management and CFO at CHG-MERIDIAN
The IT department wants to be a service provider and driver of innovation, and is therefore dependent on flexible short-term capital expenditure.