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Digital Finance & OperationsBold. Disruptive. Innovative. November 2016

Copyright © 2016 Deloitte. All rights reserved. 2

Table of Contents

Digital Finance

Digital Operations

Digital disruption in the market place


Table of Contents

Digital Finance

Digital Operations



In a business climate driven by powerful digital forces, disruption, and rapid-fire innovation, everycompany is now a technology company

Digital not just another technological advancement – it is an exponential transformation

… creating an ideal environment for exponential growth in Digital technologies

Rate

of

Develo

pm

en

t

Time

Disruption is continually heating up

today’s business climate…

Globalized Workforces

Social Media

Regulatory Changes

Internet of Things

Mobility

World Politics

Skill Gaps

Rate of Development for Digital Technologies vs. Time (Illustrative)


The exponential evolution of technology is transforming the way business is conducted and altering the competitive landscape, rewarding the adoption of Digital technologies

Digital requires organizations to think and act differently in order to generate value

Shortened product lifecycles demand new ways to extract value from assets - Look not only for ways to do familiar things differently, but also to do fundamentallydifferent things

Re-think work

Embrace the ecosystem

The borderless Digital ecosystem requires agility -Develop the capabilities to respond to competitors from outside their industry and leverage the Digital disruptors at play, seeking out new ways to compete

Digital culture varies wildly in operating style from a legacy culture – In a truly Digital organization, evolution is embedded in the DNA, requiring a constant ability to operate in multiple operating models

Be multi-modal

Digital value is rewarded…

8x Mark

et

capitalizationDigital models

Product and Service business models

1: Deloitte ERS research, 2015

Digital models are valued at 8x product-based business models, 4x versus service models, and 2x software and IP based models1

But to remain competitive in the Digital landscape, organizations must:


Table of Contents

Digital Finance

Digital Operations


CFOs of the Digital future

Options for the CFO and Finance

The Digital future for Finance functions


A typical day in the life of a CFO in 2020

All of the technologies required to realize this vision of the future exist today.

The CFO of a Fortune 500 company rushes to the office in self-driving car…

In the car, the CFO is updated on the financials via an alert on a wearable mobile device. Two global operating companies are flagged for coming dangerously close to breaching their Bitcoin denominated liquidity limits. The CFO has to act fast and act now.

7 AM

And makes a voice activated query for visualization of trading position…

And receives a real-time view of trading and balance sheet positions, including market movements and the competitor response. The CFO then asks for cognitive intelligence reports to analyze various scenarios and predicted outcomes.

10 AM

Finance teams globally virtually collaborate on a plan of action…

Gathering the right mix of business and technology skills across the business, Finance leads the development of the appropriate scenarios. The CFO collates the results and provides a recommendation to the business leaders.

2 PM

The CFO cascades the strategy to Finance in order to update the plan and forecast…

Customized communications are automatically generated and sent to each stakeholder, outlining the key business implications and the impacts on each individual. Yet again, the CFO has proven to be adept at utilizing Digital solutions to improve performance.

6 PM

The CFO messages the Accounting manager to prepare a virtual close…

And provide the necessary insights to the leadership team. In parallel, the Finance business partners are asked to collaborate and prepare scenarios based on predictive analytics.

12 PM

The C-level leadership team gathers to validate the plan of action…

And overall liquidity management strategy. Each leader verbally directs questions on the analysis to a cognitive platform which interprets their requests and mines swaths of data to provide meaningful insights that strengthen their decisions.

4 PM

In less than 5 years from today, imagine if you will …


Digital technologies are changing how businesses operate and the ways companies engage with customers. CFOs can either help drive the Digital agenda or be left behind

How CFOs react to Digital disruption will determine the future of their organizations

Responsibilities of Finance that cannot be automated or centralized are “unbundled” and absorbed throughout other business areas

Finance becomes increasingly relied upon for providing objective assessments of business results throughout the organization

CFOs and Finance lag behind in adopting new Digital technologies as other business areas drive the Digital agenda

CFOs take a “business as usual” approach to Digital, focusing on stewardship through production of financial statements and operating efficiently and effectively

Automation and adoption of Digital disrupts business models and renders traditional Finance obsolete

In a failed attempt to retain control, CFOs and Finance take a protectionist approach to managing financial data and knowledge

Finance eventually becomes a pure Center Of Excellence, providing highly specialized expertise upon request from other business areas

CFOs take a strategic leadership role in driving the Digital agenda forward, positioning Digital as a key priority for Finance

CFOs and Finance lead by example in adopting Digital, leveraging financial acumen and new technologies to help other parts of the business perform better

Automation of low-value transactional work frees up Finance to focus on analytical, value-added work

CFOs and Finance prioritize partnering with the business, leveraging structured and unstructured data and Digital technologies to provide strategic insights

Finance is now also responsible for ensuring consistency in the decision and investment making processes across the company

Digital Agenda

Role of the CFO

Role of Finance

Relationships

Responsibilities

End-State

Scenario 2: CFOs and Finance Lead the Adoption of Digital Technologies

Scenario 1: CFOs & Finance are

left behind in the Digital space


Digital Finance is the next generation Finance ecosystem that utilizes disruptive technology, innovation, data, and people to elevate and differentiate the capabilities of the Finance function

Digital Finance radically transforms how Finance delivers value

DYNAMIC DRIVER BASED FORECASTING

Cognitive computing and in-memory enables advanced planning & forecasting models to mine databases and perform real-time scenario analyses,

uncovering predictive trends and generating key data insights

AUTOMATED CONTROLS & EXCEPTION BASED REPORTING

RPA enables automation of controls while cognitive ………….computing tools produce exception based reporting from

blockchain databases to reduce risk

FINANCE COLLABORATION

Digital collaboration tools available on the cloudenable and support dialogue across central and local

Finance teams, the business and other functions, enhancing connectivity

EXPERT TEAMS

Finance practitioners demonstrate enhanced capabilities in the Digital space, leveraging specialized financial expertise and data-driven insights to become

key business partners

END TO END PROCESS PERFORMANCE

Cloud platforms are leveraged ubiquitously across the enterprise

provide consistency in processes

AUTOMATED TRANSACTION PROCESSING

Robotic Process Automation enables leaner operations, reducing costs and redirecting resources toward analytics tools that spot trends, anticipate risks and predict opportunities in high-value areas


Driving the Digital agenda toward value creation requires an evaluation of the technologies according to the needs of each particular organization

Where should organizations first focus their efforts when adopting Digital Finance?

Level ofMaturity Benefits Friction

Mobilization Complexity

RPAAutomation of low and medium complexity processes resulting in operational efficiency gains of x3 to x10 depending upon application

Highest ROI can be found in transactionintensive processes

RPA with Cognitive Science

Automation of medium and high complexity processes resulting in true process exception management; bots learn from new stimuli and evolve as new scenarios are presented

Integrating RPA and cognitive predictions is at the leading edge of applications and requires finance workers to develop new skillsets

CognitiveScience

Deeper insights allow Finance to enhance business capabilities and move to granular exception management; can be a driver to improve enterprise value and increase speed to insight

Cross disciplinary support required to develop and manage technological and analytics platform; new skills are required in the finance organization

In Memory Computing

Exponentially faster transaction and BI processing allows moment in time close and performance analysis; allows organizational data to be mined in real time to support business strategy

Requires organizations to refocus processes to support shorter cycle times; adoption is still in early stages

BlockchainDistributed ledger allows increased transparency of transactions, reduced auditing burden, and changes payment processing (AR/AP)

Early stages of adoption; commercially viable products are still evolving

InsightGeneration

Machine driven insights to sense patterns and trends in data, allowing for the automation of repetitive reporting, customer engagement, and data visualization insights

Early stages of adoption; use cases and ROI are still evolving

Opening PeakingDeclining TBD

Opening Peaking Declining TBD


High

Medium

Low

High

Medium

Low

High

Medium

Low




High

Medium

Low

High

Medium

Low

High

Medium

Low


Most Operational Finance processes could be centralized into “Finance Factories” that provide oversight and continuous improvement overly highly automated activities

What could Digital look like for Operational Finance?

• Increased transparency to all transactions via the distributed ledger• Increase the speed of exchange between entities while reducing the

number of intermediaries (and the costs associated) to accelerate data consolidation and reporting

• Blending of teams involved in payment processing (e.g., A/P, A/R)

• Reduction in labor required across all routine financial transactions • Increased need for change management and dramatic revision of

talent models

• Self-correcting repetitive tasks such as AP/AR, leading to reduced costs and improved accuracy

• Identify, recover, and reduce overpayment in high volume, complex transactional data environments

• Enhanced visibility into information and more efficient processes• Speed up execution of transactional processes such as A/R, A/P and

Travel & Expenses

• Shorten close cycles and reduction of reconciliations / data entry through single platform implementation

• Increased access to more efficient, well defined data models

Imagine a future where …

Advances in technologies give rise to centralized shared service “factories” which perform the majority of transactional processing (e.g. payroll). These factories are overseen by a Finance Control Center that monitors process performance, exceptions and service levels for both people and RPA bots. These processes are completely web, workflow, and self-serve enabled.

Event-driven, real-time information updates and continuous process improvement are made possible thanks to advances with in-memory processing and integration tools. The close cycle becomes nearly continuous thanks to the advent of visual close-management tools, integrated sub-ledgers, and the automation of consolidation and intercompany transfers.

CFOs are no longer focused on processing lagging data, and instead leverage leading

analytics to make key decisions.

Digital technologies are used to advance Finance


Real-time scenario planning, forecasting and analytical capabilities could position Financial leaders as highly valuable business partners

What could Digital look like For Business Finance?


Advancements in Digital (e.g. in-memory and cloud) enable integration of the strategic plan, capital expenditure plan, workforce management plan, budget and forecast.

Finance now scenario-plays the planning models in near-real time, turning around revised forecasts same-day based on changes in inputs such as volume drivers, inflation, interest, and FX rates, labor, material and competitive activities.

Utilizing enhanced modelling and cognitive-based analytical capabilities, CFOs and Finance become increasingly embedded alongside partners in Sales, Marketing, Manufacturing, and other areas of the business, routinely providing business and analytics driven insights.

• Automate financial analysis with smart logic tied to management reporting software that can access quality data in real-time

• Enhanced budgetary controls enabled by increased reliability of financial data and transparency into how money is spent vs. budget

• Automate financial analysis through next-gen software robots that utilize machine learning technology to deepen analytical capabilities of “bots”

• Increased availability of granular data now available to business leaders at all levels of the organization

• Uncover patterns in financial data using prescriptive analytics to expedite decision making and enhance planning / forecasting

• Stack information from across corporate financial performance, managerial reports, external analyst’s assessments, and regulations using cognitive systems to create a holistic financial analysis

• Real-time processing of transactional and analytical data on a single in-memory database

• Decrease time to run plans, forecasts, and reports from hour(s) to second(s)

• Enables move from point analysis to an industrialized solution that allows for deeper/richer analytics

• Enhance customer profitability analysis through a shared view of all customer activity via shared objects on the same platform



Finance specialists could become increasingly relied upon for providing deep subject matter expertise in a center of Excellence

What could Digital look like For Specialized Finance?


Specialized processes (tax, treasury, risk, investor relations, compliance) are organized in centers of excellence (COEs) with specialists embedded in the business, providing guidance, direction, insight and advice. These Finance specialists are measured on the value they create and the risk they contain. They have differentiated career paths and receive extensive training in their domain of expertise.

Specialized Finance practitioners all use a single, secure electronic content management system to record and store information (tax, treasury, risk, investor relations, compliance) across the organization.

CFOs devote significant resources to arming the COE with highly educated and experienced “czars” in specialized areas such as tax and treasury.


• Allows for “Distributed Validation” where Audit is no longer required as transactions are independently verified via network

• Improved traceability of payment usage for transfer payments minimize employee theft and fraud through secure, decentralized ledger that is immune to tampering and hacking

• Automated tax processing enables companies to turnover financial data for processing in-lieu of complex tax forms

• Automate controls / compliance monitoring by coding controls into “bots” prior to performance of repetitive rule-based tasks

• Increased efficiency through the interpretation of rulesets to be applied towards specific accounting items such as rev rec.

• Automated fraud detection through profiling

• Quicker adaptation to accounting standards• Allows for flexible, unified ledgers that are updated in real time• Improved accuracy / timeliness of tax applications• Enhanced reporting on liquidity

• Allows for integrated accounting and transaction solution• Reduce accounting errors and automate controls by utilizing latest

available technology (e.g. unified ledger multi-dimensional CoA)


Processes, people and systems will become increasingly integrated through Digital technologies

What could Digital look like for the enablers Of Finance?

Imagine a future where Digital technologies are used to advance Finance

Process and Policy

There is wide adoption of new process

management and process analytics tools

in the Finance Factory. These tools

monitor service levels, activity and event

durations, manual touch rates, process

automation and exceptions.

Governance, Risk and Controls solutions

are deployed to monitor, detect and

prevent policy breaches and measure

controls compliance. These solutions

provide proactive reporting of exceptions,

defects and breaches of policy or

compliance.

Organization and People

Shared services operations are the de-

facto organization model for the

management of operational processes.

Not only much larger in scale, they now

house a broad array of knowledge-based

processes.

Finance roles now include business

process consultants, business analysts,

and technical specialists. Business

process consultants are aligned with

shared services, business analysts are

aligned and embedded with the BUs or

other functions, and technical specialists

are managed in COEs and partner

extensively.

Information and Systems

Significant investments in an integrated

ERP backbone with an event-driven, real-

time integration layer are paying-off.

Near real-time processes based on in-

memory processing offer significant

advances in performance. Extensive use

of visual process management and

process analytics tools.

Adoption of cloud-based performance

management solutions is now the norm.

Speed to deploy and ongoing release

management favor the cloud model. The

prevailing Finance systems architecture

remains ERP at the core wrapped with

cloud-based applications.


Table of Contents

Digital Finance


Industry 4.0

Smart Products, Smart Processes & New Business Opportunities

Smart examples

Digital Operations


Industry 4.0 is a radical change in industrial companies, driven by the adoptionof new “digital” technologies

Industry 4.0 Application

Clusters

Increase process efficiency and competitiveness, enabling connection,

cooperation and other synergies between resources. The first applications may be related to operational processes, but they are applicable

to the whole value chain.

Smart Products

Launch new products that integrate sensors and software in

order to be (pro)“active”

Identify and enable new business models, such as pay per use, value

sharing, new after sales services

SmartProcesses*

New Business Models

*related topics: Smart Manufacturing, Industrial Internet, Smart Factories, Digital Manufacturing; Factory of the Future

Industry 4.0 aims to increase the company’s efficiency and competitiveness leveraging resources in the value chain,facilitating collaboration, optimization and synergies.

There are many potential application areas of Industry 4.0 technologies …


Industry 4.0 key elements are the connections of objects, enriched with sensors,via internet and the digitalization of operations processes

Physical Digital

Sensors enable continuous and automated reading

Implement strategies to increase value

Facts are transformed in digital information

Data are aggregated and elaborated

«Analytics» unveil trends and patterns

Supplementary analysis and follow-up enable

making accurate decision and forecast

Process

Physical to Digital

Digital to Digital

Digital to Physical

Customers

Product

Industry

4.0Equipment & other Asset

Real-time information allows for faster and better decisions


IoT: why we talk about it

-

500

1.000

1.500

2.000

2.500

2011 2012 2013 2014 2015 2016*

Enterprise Consumer

Mio€

Gartner Forecast Analysis: Internet of Things — Endpoints, Worldwide, 2015 Update

The Innovation Group - IoT annual report 2016 update

Gartner 2012 point of view: The 'Internet of Everything' Innovation Will Transform Business

Industry classifications: Heavy – e.g., Mining, Engineering, Construction, … Automobile, Manufacturing,; Mixed – e.g., CPG, Logistics, Retail, Pharmaceutical, … Education, healthcare; Weightless – e.g., Insurance, Media, Banking, Advertising, …

+30,9%

+29,7%+35,4%

+39,4%

+36,7%

IoT market sizing for Italy

2012: Big bet 2016: Trend confirmation


How Italian companies are reacting: a survey on a sample of 500+ Italian companies shows the increase of launched and planned Industry 4.0 initiatives

Industry 4.0 technologies are already introduced

Several industry 4.0 initiatives are planned for next year,

in both B2B and B2C industries

Source: Federmeccanica, 2016

B2B Industry 4.0 planned projects

Companies that have already implemented Industry 4.0 solutions

+20%

0% 20% 40% 60% 80%

Nanotech

Rob. Collab

Mater Intell.

Big Data

3D Printing

Cloud Comp.

IoT

Simulation

Robotic

Mechatronic

Inf. Security

In next year Before 5 years

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Nanotech

Rob. Collab

Mater Intell.

Big Data

IoT

3D Printing

Cloud Comp.

Mechatronic

Robotic

Simulation

Inf. Security

+20%

+40%

+20% of sample companies have already implemented industry 4.0

technologies, such as IoT, 3D printing, big data

+40% of sample companies have already implemented solutions similar

to traditional ICT and manufacturing projects, such as Information security,

simulation and cloud computing, robotics and mechatronics

B2C Industry 4.0 planned projects

0% 20% 40% 60% 80%

Rob. Collab

3D Printing

Nanotech

Mater Intell.

Big Data

Mechatronic

IoT

Cloud Comp.

Robotic

Simulation

Inf. Security

In next year Before 5 years


Piano nazionale Industria 4.0 2017-2020The Italian government is taking actions to support investments in Industry 4.0

• Proposed subsidized and

incentive for industry 4.0 related

investments and R&D:

- “Iperamortamento con

aliquota incrementata dal 140%

al 250% per investimenti in

Industria 4.0”

- “Credito di imposta alla

ricerca interna incrementata dal

25% al 50%” con credito

Massimo per contribuente da

5M€ a 20M€”

- “Detrazione fiscale

incrementata dal 19% al 30%

per investimenti fino ad 1 M€

in start up e PMI innovative ”

• Support to develop competence

and knowledge: university,

innovation hub, etc.

• Extension of high speed internet

connectivity

Source: Federmeccanica, 2016


Objectives of Industry 4.0

SMART PRODUCTS SMART PROCESSES NEW BUSINESS MODELS

Innovation in product design and funcionalties:

-Products and components reengineering adopting 3D printingproduction to achieve: weight reduction, scrap material reduction, component integration without shape constrains

Enhance product “intelligence”:

-Add “Intelligence” to Existing Products: sensors and connectivity, embedded software, remote control, integrated services

Enhance integration:

-Mobile apps and integration with other complementary products

Efficiency:

-Speed: rapid prototyping e rapid manufacturing, realization of custom tool for production and assembly activities

-Manpower training efficiency adopting augmented reality

-Predictive Equipment Maintenance, reducing unplanned downtime

-RFID tag and other sensors to monitor inventory level and need to refill

Flexibility:

-Components / spare parts customization and production on demand using 3D printing

Insight:

-Leverage new data coming from connected equipment and analytics to optimize internal processes

Growing the business

- Enable new business models e.g.: “Pay per use” or “Value sharing”

- New sales channel for services and software components

- Grow aftermarket revenue stream, e.g. asset and stock level monitoring, technician remote assistance


SMART PRODUCTS - Examples

Coffee machine equipped with sensors

Data collected by sensors is shared via web

Control room Analytics help to prevent failure

All equipment is on line and provide status updates

Connected Coffee Machine

Key words: Condition Based Maintenance, Analytics to adopt Preventive Maintenance

Nest Learning Thermostat

The Learning Thermostat is a home temperature controller that understands the required temperature profile while it is used with simple adjustment (as cooler or hotter)

It can be connected with burner or air conditioned system, and help to decrease gas and electricity consumption, on average, up to 15% on cooling bills as well as up to 12% on heating bills.

It can be remotely controlled via smartphone app.

Philips Hue-Smart Home Lighting

Philips Hue is an example of internet of the things applications.

It is a programmable lights that switch on, off or change colors on the occurrence of other events, such us leaving the house with gps smartphone or receiving a notification on a social network.

It is compatible with smart home platforms like Home Kit for Apple iPhone and Amazon Echo.


SMART PROCESSES - Examples

Area Solution Benefit

Inbound supply chain

RFID tags support items identification and trigger signal when items are used to other plants or supplier

• Speed up main warehouse activities related to items identification and quantity check (inbound, storage, picking,…)

• Electronic kanban

Warehouse RFID tag and weight sensors constantly monitor inventory level and need for refill

• Increase systems stock level accuracy and as consequence increase planning accuracy and reduce the risk of stock out

Warehouse Augmented reality guides operators in picking activities • Reduce training time, in environment with elevate manpower turnover, as warehouse usually is, reduce the risk to decrease service level due to lack of operators experience

Prototyping 3D printing of prototypes directly from CAD model (no need to design/purchase/realize tools to make the prototype) and 3D scanner to get 3D CDA model from physical items

• Rapid prototyping• Reduce scrap and waste• Generate CAD model from physical 3D objects to

leverage reverse engineering and physical designer modelling and test

Manufacturing Autonomous robots are relatively cheap, can operate in safety close to human operators and no technical programming required.

• Cost saving for automate activities that usually are cheaper if done by manpower, such as picking and placing parts, lifting objects off a shelf, and loading machines

Manufacturing (also after sales)

Augmented reality provide instruction to manpower for assembly operations and for aftersales services. Combined with wearables such as Google Glass do not decrease manpower ergonomics.

• Reduce time for training• A Tampa university of technology study shown an average

reduction of 14% in engine assembly time using augmented reality for training manpower

Maintenance Oil & Gas operations: Integration with assets SCADA legacy systems for video surveillance and data acquisition

• Remote control room of asset and processes• Issues notification

After sales 3D printing of spare parts: Spare parts inventory cost is high because their inventory rotation is really low, and cost is higher for high value spare parts; furthermore spare parts stock should be managed even after end of production for each specific variant ever sold

• Reduce inventory stock and related cost• Reduce lead time• Make any variant with a 3D model available

3D scanner

3D printer


NEW BUSINESS MODELS - Examples

Data as a Product or Service Insurance telematics

From standard car insurance policy to pay per use policyblack box is installed in the car enable payments based on mileageor on user driving stile.

Car Sharing

From car sale/rent to transportation service: Enjoy is an example of car-sharing.

It is notable that the service is offered with the collaborations of two companies, FCA and Trenitalia, that provide alternatives transportation solutions.

Michelin embedded its tires with sensors that track key metrics such as wear and air pressureand installed telematics systems in tires to relay this sensor data to a mobile network.

The company uses the sensor data to produce cognitive analytics that recommend strategies for reducing fuel costs and increasing a tire's useful life.

Michelin also built compatible apps which displayed analytics in an intuitive dashboard and offered users paid subscriptions to data.

… and more …


Some of the most promising technologies enabling Industry 4.0

SMART , CONNECTED PRODUCTS (IoT)

SMART FACTORIES (IoT) AND DIGITAL OPERATION

ADVANCED MATERIALS

ADDITIVE MANUFACTURING (3D PRINTING/SCANNING)

HIGH PERFORMANCE COMPUTING

ADVANCED ROBOTICS

OPEN SOURCE DESIGN/ DIRECT CUSTOMER INPUT

AUGMENTED REALITY

DIGITAL, DESIGN, SIMULATION AND INTEGRATION

PREDICTIVE ANALYTICS

Program

Management

Office

Industry

4.0

21st century advanced manufacturing competitiveness has fully converged the digital & physical worlds where advanced hardware combined withadvanced software, sensors, and massive amounts of data and analytics may result in smarter products, processes, and more closely connectedcustomers, suppliers, and manufacturers. Here’s a deeper dive look at some of the most promising technologies

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