The Future for Business
In the past, organisations operated with well defined operating structures. Today this is no longer possible because of the rapid pace of change. The modern corporation has to be agile and always reinventing itself to respond to an ever changing, often turbulent business environment. The growth of global markets, the ongoing application of information and communication technologies and the permanent threat of corporate takeovers, mergers and acquisitions, compels business leaders to confront unpredictable challenges on a day to day basis.
In future, the business environment will be made of even more corporate elephants and entrepreneurial fleas. The elephants will be those ever expanding giant corporations dominating global, regional and national markets. The emergence of an expanding sector of entrepreneurial fleas will continue to irritate the elephants as they carve out for themselves profitable market niches in emerging and constantly changing market sectors, driven by the ever evolving expectations of restless customers. Already, we have a business environment in which small software companies located in the South Pacific compete with businesses in the south east of England to provide services to corporate clients located in Europe. UK banks are downloading their back office data processing functions to emerging entrepreneurial ventures in India and South East Asia. Financial service institutions in New York operate on a twenty four hour daily basis by collaborating with business partners across time zones in Australia.
In this emerging future business world, old textbook categories that separate the economics of large and small firms, different economic sectors and the importance of geographical location no longer apply. The core assets of companies cease to be their technologies and other tangible assets. Instead, the core competitive advantage of businesses is now intellectual capital; in other words, brain power. The utilisation of intellectual capital - knowledge employees - allows companies to be agile by diversifying and by making profits in what, on the face of it, appear to be very different product and market sectors. Witness how British Gas, for example, has evolved as a supplier of a single commodity product to a constellation of quasi-separate operating companies. Centrica now provides customer services ranging from household insurance policies, credit cards and motor vehicle recovery (through the AA).
With human capital as their core asset, companies are being forced to reinvent their management cultures and their operating practices. Knowledge workers, in whatever corporate function, refuse to be 'told what to do'. They expect to be motivated through corporate leadership, strategic vision and performance related reward systems. If these are not in place, those who trade with their intellectual capital simply 'walk out of the door'. Witness the problems many businesses, ranging from financial services through to advertising agencies, face when this happens. Knowledge employees can hold their employing corporations to ransom simply because their intellectual capital allows them to be mobile. Unlike their predecessors - machinists working in large factories - their skills are not bolted to the floor. Knowledge workers, by exiting themselves, can join competitor employers or even set up their own entrepreneurial ventures. There are many examples of fund managers who, through their personal 'brand reputation', have been able to do this successfully.
The future corporate challenge will be to design new models of organisation. These will be ones that leverage the creative capabilities of knowledge employees for the development of innovative products and services necessary for competitive advantage. In an ever -changing business environment, companies have to innovate continuously to stave off takeover and other competitive threats. Leveraging creativity will be the central corporate challenge. This is even more important than the application of internet technologies if companies are to survive. The Internet will, of course, play a key role in the future corporation but without the full utilisation of creative human assets, the potential will not be fully realised.
For knowledge workers to be creative, it is necessary to give them autonomy in the performance of their work tasks It means they need to be free from tight hand-on management supervision. They have to be trusted to get on with their jobs through remote, flexible and other preferred working practices. The capabilities of the internet allow for on-line working; but its application is hindered by the suspicion of management. They continue to subscribe to a view that unless employees 'clock in' they are not to be trusted. Creative employees work best if they are left alone. But their efforts need to be 'ring fenced' and performance-rewarded if their potential is to be realised for the good of corporate goals. The outcome is the schizophrenic or 'split personality' corporation.
It is the setting up of these future structures that corporate treasurers and others with financial responsibilities will take on added strategic functions. Traditionally, treasurers have been largely removed from strategic decision making processes, despite their presence at senior corporate levels. Their tasks were those of internal auditors and of other good housekeeping practices. They were the corporate police responsible for due diligence to both internal and external regulators. The factor accounting for this important 'support role' was the way in which companies were structured. They were essentially bureaucracies with highly centralised reporting mechanisms. Departmental and divisional budgets for income and expenditure were approved at 'the top' and on the basis of these, the company was expected to operate more or less as a well -oiled machine. The job of the treasurer was to monitor these processes, to ensure that everything was in order and according to plan.
The skills required to perform these tasks were technical, expert and high professional. Training and qualifications were need (and still are) that allowed practitioners to have detailed knowledge of fiscal compliance, company law as well as being the 'walking repositories' of corporate best practice. It was to Chief financial Officers (and Company Secretaries) that Company Boards would turn for both expert knowledge and guidance. But they would not look to these for major inputs into strategic decision-making processes. For corporate treasurers, the role was to execute but not to innovate.
The centralised corporate hierarchies of today are evolving into the decentralised flattened structures necessary for competitive success in the future. Even the elephants, with their global brands, are reconstituting themselves as disaggregated fleas. Each of these separate operating units, functioning as subsidiary companies, profit and loss units and cost centres, are expected to achieve pre-stipulated financial targets as agreed with their parent holding companies. The result is that companies are disbanding their traditional management 'backbones' and substituting in their place, the principles of project leadership. What this means is that operating processes, whether located at the corporate centre or within each of the trading units, are structured as project teams. Performance targets are agreed, as well as the human resources and time budgets necessary to complete the pre-agreed tasks. The project teams are then given the freedom to achieve their goals. This is a prevalent Anglo-American organisation model which is less used in continental Europe. One of the outcomes, incidentally, is that UK employees work longer hours than the rest of their European counterparts. This is the outcome of an almost inevitable 'corporate law' which is that the completion of projects always takes more time and requires more resources than was initially envisaged. The result is that project teams have to work long hours to achieve their goals. Work does not stop until the project is complete, unlike the 9 to 5 culture on mainland Europe.
In the future corporation, traditional functional structures will disappear as the design of organisational processes becomes multifunctional, customer focused and project driven. With their highly decentralised structures, with business units operating as project teams, companies t will be little more than 'brand umbrellas' functioning as strategic managers of a wide range of inhouse and outhouse service providers. These strategic centres will be responsible for protecting intellectual property rights, brand reputation and leveraging creativity. Companies as different to each other as Unilever and Ford envisage their futures in this way.
It is precisely these trends that will have a major impact upon the role of CFO's and other corporate treasury personnel. In the future organisation, their role shifts from one of support to that of strategic engagement. For a start, the project driven corporation has to be structured. Those with corporate financial responsibilities will have the tasks of determining the targets for each project driven operating team. They will have to work with project leaders to determine performance related reward systems, to set up performance related performance indicators and to ensure that these are geared to enhancing shareholder value. The financial director's role will consist of continuous negotiation as he or she constantly regulates the relationship between the operational targets of the separate business units with overall corporate goals. In an information -based business, the performance of individuals is often difficult to measure. Personal reward systems and how these are related to the delivery of corporate objectives, is often uncertain and subject to dispute. Unless equitable rewards are seen to be in place, employees become de-motivated, uncreative with an inevitable decline in competitive corporate performance.
A major consequence of the changing roles and responsibilities of CFO's and their treasury colleagues will be the need for them to develop new skills sets. Alongside their professional and expert competencies, they will need the ability to work with others in teams, to be able to negotiate, to explain, and to communicate. They will no longer be able to operate from behind closed doors. The irony is that, in an information age with a greater corporate reliance on internet technologies, it becomes even more important to work with, and to communicate with, others on a face to face basis.
The agile corporation of the future will put those with treasury functions at the very centre of the strategic core of these reinvented business structures. In addition to their reconstructed roles within the day to day operations of their businesses, they will need to respond constantly to the ever- evolving pressures of a changing business environment. Mergers and acquisitions will be an ever- present feature of the business landscape. The need to fund new business ventures and to operate through business partnerships will become more pronounced. On top of al this, will be the challenges of valuing intellectual capital for balance sheets, take-over bids and corporate funding. The future of the treasury function will demand new skill sets as companies re-invent themselves to meet the challenges of the information age.
© Professor Richard Scase