Better resourcing, reduced waste, managed risk through the Internet of Things
When you boil it right down, the primary responsibility of the corporate Chief Financial Officer comes down to a few short words. “Allocate resources well, reduce waste, manage risk”.
For CFOs and the finance leadership in organisations, someone raising the overhyped term “IOT” has most likely returned only sighs and eye-rolls. Most finance executives have seen too many new technologies that promises to do astonishing things, but end up only putting new lipstick on the same pig.
IOT is not one of these technologies. It won’t change much. It’ll change everything.
Why? Because for the first time, it is easy and cheap to “instrument” the real world. To put it as an allegory, a company is a car driving along the highway as far as it can. You buy a car (capital), put in fuel (revenues), lose headway from air and tyre friction (operational costs) and sometimes break down (capex). You know exactly how much you spent on the car, and how much it costs putting in petrol and repairing it, and you certainly know how far you’ve gone (accrued revenue) … but you can only guess what is the main thing slowing you down, or what to change to eke out a little more mileage.
That’s because almost all of the ‘instrumentation’ available to the CFO is financial – Rands and Cents earned, Rands and Cents spent. This is generally the only easily available and accurate data a company has – it can be counted, tracked, measured, predicted.
Almost every other aspect of a company’s performance uses financial performance as a proxy. How efficiently are we running our office air conditioners (did we spend more or less on electricity this month)? How much utilisation are we getting from our expensive forklifts (well, they all appear to be busy at a glance out the window)? How much of the day is the square meterage off office space reserved for meeting rooms being actively used? (Gnnnn! No meeting room available again! All booked – but strangely empty!)
This is why CFOs need to look very hard at the Internet of Things. Certainly, modern IOT products are a technical person’s dream (easy to implement, low cost, flexible, connects the physical world with awesome software tools available in the Cloud). However: it also gives the CFO incredible tools that they never had before.
If the true job of the CFO is to “better allocate resources, reduce waste and manage risk”, then the ability for IOT tech to provide CFOs with a rich range of new tools is unprecedented in corporate history.
Instead of knowing how much was spent on inventory, and how much was totted up by the point of sale terminal, you can now know exactly how many of each item is sitting on the shelf. Instead of estimating metrics of how much spoiled dairy product was delivered to retailers and how much as “fake overstock returns”, you can now know exactly what the temperature is of every crate at all times until the milk is handed over. You no longer use a rough formula fed with usage guestimates to allocate how much meeting room space you need, you allocate the exact square meterage that is needed, and know exactly when it changes.
Having real-time physical data direct from your operating environment lets you know exactly how your systems suppliers are meeting their service levels. You can cost equipment maintenance better, and you can push it much closer to its operating limits, but still be able to do pre-emptive maintenance because you know whether failure is imminent through artificial intelligence based on multiple, accurate sources of physical data.
It changes everything.
This new world of real time operating data to validate financial data is going to be a huge challenge for the corporate CFO.
A decade ago, product design and marketing was totally upended by the oxymoron of “mass customisation”, and “mass targeting” – respectively manufacturing technology that allowed you to make a totally customised but mass produced item; and marketing technology that let you fine-grain target millions of people. These techniques used to be impossibly expensive in practical terms, but became totally affordable. Changing everything.
Now we have “mass instrumentation” – low cost, flexible, real time ways to measure our physical environment. IOT technology gives finance leaders fine-grained tools to get a firm handle on every aspect of their business environment. Instead of trying to make intelligent guesses using financial proxies, CFOs now have a direct way to measure efficient allocation of resources, exactly where waste is happening… and get a tight handle on day to day risks.
Combine IOT with modern Cloud software technologies, and it becomes unbeatable as a tool. You don’t need to drown in a sea of details – rules engines, Artificial Intelligence, Machine Learning, advanced analytics – all these can filter out the background hum of your business operating, and give you just the important information.
The modern CFO can’t leave the investigating the Internet of Things to the technical people – it’s far too important as the enterprise evolves.
With the Internet of Things, the Chief Financial Officer watching the Rands and the Cents must become the Chief Resource Officer watching everything.