What better way to get the year started than to round up some buzz phrases for a much-needed sense check?
We heard a great deal in 2017 about the rise of technologies such as blockchain and artificial intelligence (AI) – as well as financial methodologies such as zero-based budgeting that were challenging more traditional approaches.
However, there were few clues as to what sort of immediate impacts they would have upon treasurers’ activities, or corporates’ organisational habits.
With that in mind, The Treasurer asked futurist Rohit Talwar to provide his professional horizon scanner’s insights on these areas – and what they will mean for the treasury function in 2018 and beyond…
A whole set of technologies are coming through that will disrupt every business area, including finance. AI, blockchain, big data, cloud computing and hyperconnectivity are all coming together to change the portfolio of systems we have in our firms.
AI is now moving so fast that any attempt to predict where it will go in the next five years will almost certainly be wrong. But it’s clear from how hardware is evolving that we’ll be carrying AI around in the palms of our hands. Our smartphones will be massively intelligent devices that will manage information on our behalf.
This will have significant impacts across the treasury function. It will change the way we operate. Our people will be liberated from routine. They will be free to focus in greater detail on people-focused tasks, such as problem-solving, generating new ideas, supporting their firms’ entries into new markets and evaluating the financial impacts of new revenue sources.
There’s huge scope for AI to unshackle treasury’s immense brainpower.
The main problem with those is that only a very small number of firms accept, for example, Bitcoin as a method of payment. We’d need the likes of Barclays, WH Smith or Tesco to accept Bitcoin for it to be considered safe.
But we’re not going to move to a framework any time soon where big brands have no idea where the money has come from, and can’t gauge its value on the basis of a reasonable set of assumptions.
There’s a clear treasury issue here, because Bitcoin’s extreme fluctuations have only garnered greater attention of late.
If firms get into the habit of taking Bitcoin today that are suddenly worth a lot more tomorrow, it would destroy everyone’s financial management systems. If the currency appreciates, why would anyone spend it? And if it crashes, why would anyone keep it?
We’re going to see an almighty crash in these currencies, and I think it’ll be government-engineered. We need to examine very carefully what China is doing here. It is closing down Bitcoin exchanges and cutting down transactions, because it can see that this stuff will wreak havoc.
China will create its own coin – let’s call it ‘Chinacoin’. It will get 50-100 countries to sign up to regulations that will make Chinacoin the single currency for digital transactions within China. Other digital currencies will be outlawed. Everyone will move to Chinacoin – and then China will have a rival to the dollar.
Cognitive dissonance in business occurs when leaders are caught between conflicting mindsets, and this leads to noise and confusion: major barriers to decision-making. There are two different types of cognitive dissonance at large in firms right now.
Firstly, corporate CEOs are hearing a lot in the marketplace about how disruptive new technologies are going to completely change the way we do business, building new philosophies for how the economy works. But customers aren’t asking for these things anything like as much as market hype would suggest. They’re mostly after routine stuff, as in, “Can you provide your services faster, and less expensively?”
So, for CEOs, the dissonance stems from a tension between working out how much to invest in tomorrow – thereby bringing in the kind of tech that could eventually cannibalise parts of their businesses – and how much to focus on meeting current customer demands.
Secondly, however, newer firms – such as fintech start-ups – are changing how business is happening at ground level, genuinely startling customers by delivering outcomes in totally new ways. CEOs are hearing their people say, “Oh, we can’t do that, because we’re wrestling with all the controls and regulatory hurdles that affect us – yet these new players aren’t bound by those constraints.”
Both types of dissonance come down to the same question: how do we optimise our organisations for the future? I think there are three parts to that:
Each of those approaches represents a fundamental shift to a faster-thinking and deeper-thinking culture, which too few corporates are seeking out. That’s the main reason why I think that, in 10 years’ time, 75% of the firms in today’s Fortune 500 simply won’t be there. They’ll have completely disappeared.
In the past, lots of firms took for granted that the revenue they’d make next year would stem from exactly the same market channels and customers that they served this year. But now we’re in a world where markets are being disrupted, and new players are coming in to take business away from us.
Just look at Toys R Us. They assumed that they were a fundamental part of the toy economy, and didn’t notice that the world was changing. Things came along like Black Fridays – which turned into black fortnights, increasingly held online – and suddenly competing became almost impossible.
The lesson? We can’t make assumptions about next year’s revenue in the ways we used to. The way forward? Assume nothing, and say, “How would we generate our revenue next year if we were starting from scratch?”
It’s a great business ethic, because it encourages us to think about a whole series of new propositions – whether they happen to be markets, challenges to markets, partnerships or ways of charging for our products and services.
From a treasury perspective, it’s more volatile. Your cash management requirements and risk models will get a bit more complicated. You can also expect a lot more wrangling within organisations when they do zero-based budgeting, because there will be arguments about existing assumptions versus the new method’s realities.
But zero-based budgeting is really about going back to square one and saying, “What are we going to offer the market that we think will have real value – and what can we genuinely expect to generate from those offerings?”
If anything, it should get treasury closer to the business, and make it a more integral part of discussions about how we make money, and how we’re going to make it in the future.
Rohit Talwar is a global business consultant and founder of Fast Future Publishing