Episode 19: The Effective Approach to Digitization For The CFO’s Office

Madhurima Gupta:
Hi, welcome to the mid-market CFO circle. I’m Madhurima Gupta, your host. And today I have with me, Michalis Samonas is working as a group CFO at SMA SA a member of Alco group of companies. He teaches finance modeling and equity evaluation as well at the American college of priests. He has worked in the past for various multinational companies, including Vodaphone essay, and telecommunications organization conducting a range of models for business planning, valuations, mergers projects and data analysis. He’s also an author and finance executor with extensive experience in financial planning, analysis, and modeling. So Michaels, thank you so much for taking time and getting on a call with us today. Would you want to say hi to our listeners?
Michael Samonas:
Hello, good morning. For my part,
Madhurima Gupta:
Very good morning to you. So thanks a lot for taking this time. So for our listeners out there today, we are gonna talk about the right path CFO’s office should take digitally transforming their finance function. And this is a topic which is very important to be discussed because there are times that people or CFO offices do plan to implement a digital transformation strategy, but they don’t always end up being successful at it because it’s not planned in the very right way. And because of this reason I thought it’ll be a good idea to understand how the adoption of digital transformation risen up to another level. And what impact did pandemic have on performing the tasks manually. And given that digital transformation is a powerful leverage for companies that aim to stay relevant. It is important to understand how and where the market is headed. Even for that matter as per research, it indicates that 89% of companies have already adopted a digital-first business strategy. And digital transformation market is expected to grow at a CEG R of 23% until 2025. But what is interesting to also notice as per a research by McKenzie less than 30% of digital transformation processes are success. So let’s understand how should we overcome this gap wherein when we are planning to digitally transform our CFOs function, we are planning it the right way. And for that we have Michael today and he’s gonna help me understand that better. So, Michael, what should a digital transformation roadmap for finance function? For example, accounts receivable department at a growing mid-market firm looks like.
Michael Samonas:
An ideal digital transformation in a, as you said, the account receivable department should be to set up in at least in my mind to set up robots so that customers can quickly find out what is their balance to set up robots, to be able to monitor account receivables to try to eliminate the human factor as much as possible, meaning to have electronic invoices so that they can immediately record it into the ERP of the company. We have SAP, for example, and at the final stage, whatever is not collected on time. There should be an automatic way to show that the lawyers of the company or the student company, the company that ensures the receivables be notified and start the legal procedure at the higher end. Let’s say customers should be able to record the initial data by themselves. Meaning that in my organization right now, when I want to open a new customer, it is a lengthy process. I have to collect financial data to put them into shop, to find registration data about the customer. And so on it take, let’s say it can take up to two hour, ideally, that could happen automatically. We are not that at that level, but I said, ideally,
Madhurima Gupta:
And you know, it said that it’s better late than never. What would you say are the reasons for a midmarket CFO to start thinking for digitally transforming their finance function today?
Michael Samonas:
There could be many reasons. I think the first reason is that it’s something trendy and everybody would like to say, ah, I am on the trend. But apart from that reason, that for me, I dunno, it’s not so serious. There should be a necessity, a necessity to do something in a better way, meaning the closing it can, it can help you do the closing faster and more accurate. It can mean satisfaction of the people in the finance function. For example after COVID we are seeing the great resignation. A lot of people are resigned cause they want to work from home. And although during COVID it was successful to work from home right now, companies let share more reluctant, at least in Greece to leave people work from home. And this is something that make them embarrassed. If a finance function can have the proper, let’s say technology and functionality, it would be nice, at least for me to leave people to work from home and make them satisfied and reduce this turnover, let’s say.
Madhurima Gupta:
And how, what role can automation play in ensuring employees’ satisfaction at work?
Michael Samonas:
It can reduce errors, first of all, and reducing errors by default increase satisfaction, meaning that the boss of let’s say of an account receivable accountant, if he or she cannot find many errors, it’s the whole how can I say not only communication cooperation is, is easier. The second thing is that some things, some trivial things can be automated so that the employees not frustrated for data. And let’s say in order to, to record and an invoice, we need, let’s say 10 minutes, cause there are many information invoice and you have to, to manual it data, enter them into SAP by automating this process. We have order OCR systems and we have ask our clients and our suppliers to, to use electronic invoices. So it’s easier to record this information into SAP and people are let’s say less frustrated from data entry
Madhurima Gupta:
And it helps improve productivity. It frees up people to do value-added work. So I think all of that also
Michael Samonas:
Do other things. Yes, yes. Some kind of analysis. Yes.
Madhurima Gupta:
Yeah. And I don’t really agree. Right. It gives people the option to upskill themselves as well, which could be another lever, another lever to retain talent. So my next question is on understanding the challenges a CFO should plan for when they’re you know, thinking of or when they’re shocking out their digital transformation roadmap. So what would you say are the key challenges that a CFO should plan for?
Michael Samonas:
The key challenges, the first of all is to understand what is the real need. We’re not doing digital transformation for the sake of, as I said before, digital transformation CFO must have a real need, accurate data, faster close, and so on. So first of all, to understand the need then to plan a budget to plan with a company and to have a budget in mind because even for CFOs, it’s more difficult to justify big investments. So he must have a particular budget in mind with particular deliverables and then can see how, what is the role, let’s say the return investment on this expenditure then to have the proper resources in place, people that will deal with a particular project and are dedicated then he has to support from top the whole project so that everybody sees that this is something forced, let’s say, or supported from the top management, not only the CFO, but even, even the CEO. And I would say as well to have a particular definition of data. So when we’re talking about something, everybody in the department and in the company understands the definition by the same way, when we’re talking about turnover or sales, what do we mean? Net sales, growth, sales transportation inside. So there are a lot of things that it’s, person or it’s employee, depending on the department and on the position and the funds in a different way. So the, the data let’s say definition it’s very important. Everybody should understand the same terminology by the same way sales. Exactly. What do you mean by sales profit? What do you mean by profit and so on?
Madhurima Gupta:
You just mentioned about you know, planning out the investments right for a particular digital transformation roadmap. So so let’s say if you are in the market for buying a solution, that’s gonna help you transform a particular process or an entire function. How important is it to balance building capacity for tomorrow while being on a budget?
Michael Samonas:
First of all, it is important because otherwise, you wouldn’t do it. It is important to build capacity. And on the other hand, work so many high margins where commodity companies we sell still, we do not sell something fancy. So we’re working with a very, let’s say modest margin. It’s very important to stick on budget and to do certain things at the time. If I work for Coca-Cola, my view would be different, but working for a steel industry I have to balance both the and the capabilities for the future.
Madhurima Gupta:
Absolutely. And what if in case, you know you implement a solution today that is not going to be a hundred percent on catering to the capacity that you expect your company to grow into. Let’s say, in the coming five years, then how should a CFO foresee the roadmap or think about a plan to transition and be able to have the capacity, let’s say five years down the line. First
Michael Samonas:
First of all, I would choose a solution that is scalable. I wouldn’t go for a solution that I know that it will work for me the next couple of years, and then I have to, to change. I would go for something how can I say minimum? But at the time, for example, right now we have chosen grant fortune. We’re doing, we are going to start digitalizing to, to not to start to further digitalize our processes. It’s not a very big let’s say project, it’s a 150,000 project, but we are working with a product solution that can help us. How can I say expand in the future? It’s not it’s, it’s a scalable solution. We are building databases and the, the commercial tool that we choose. I dunno if, if we’re free to, to, to, to mention it it’s something that can go as far as we, as we grow.
Madhurima Gupta:
And and what would you say is the right time to start measuring ROI, post-implementation? So you did say that when you are choosing a particular partner for particular process automation at that point, it is also important to measure the ROI. So once the solution has been implemented, what would you suggest is the right timeframe to wait before you expect an ROI from the solution?
Michael Samonas:
I said before that, it’s not how can I say wise to expect a huge ROI of 30-40%. I will be happy to implement something double-digit, 10, 11, 20% of, of ROI. Now, when is the proper time to start monitoring this at least one year after the implementation of a project, you have to wait for a certain period of time to see what are the benefits, and then starting implementing and monitoring ROI.
Madhurima Gupta:
What do you think is more expensive? The opportunity cost of let’s say not automating a process that is in dire need of it, or investing in automation of a process to let’s say, strengthen cash flow. If you take example of accounts receivable,
Michael Samonas:
Definitely the second one at some point in time you should start, otherwise you’ll be left behind and the competition will make you obsolete. So, yes. I think definitely the second thing you mentioned is that we have companies has to start slowly, but has to start implementing some accounting works; otherwise, they will be left behind and by left behind meaning either there people will live or competition will make them left behind.
Madhurima Gupta:
And if I ask you what are the fears that you see your peers have to implement a digitization strategy, then what would that be?
Michael Samonas:
For me, the priority always is from the commercial or the sales department. So if you have, if a company has a particular budget, definitely they will start from digitizing sales and commercial activities. And then we’ll come, to finance because don’t get me wrong. But the steam power of every company is sales. First of all, you have to sell and then you have to account for the sales. So since the majority of companies have a certain budget always start the digitization from other departments and then come, to finance. So the first thing is budget constraints. And then it is who is hiring the higher. We have the CEO commercial guy, the finance guy, depending on the company in trading companies like our in the higher, there is a bit higher, the commercial guy. So he has a priority in other companies, let’s say service companies maybe there is the finance guy. So if there is a particular budget, he can start digitizing his processes first.
Madhurima Gupta:
Got it. And Michael, as a CFO yourself, what is today your biggest priority for automation at your company?
Michael Samonas:
We are trying first of all, to automate some sales reports. We have started automating some sales reports because we have more than 100,000 SKU. And we have different locations in Greece, abroad, different salespeople, and it’s we have a very lengthy daily sales report. So we first trying to automate this and have one single screen and with various boxes, I can pick up what I would like to see. What I mentioned before was about, what do we mean by let’s say sales is it in invoice sales? Is it not in invoice? Does it include transportation expenses or not? So in the majority of time, me in accounting and finance and trying to reconcile sales with commercial people, I see a different sales number and commercial people see a difference in our number. So the first priority here is to reconcile commercial data, that everybody in the company, when we’re talking about sales and why I’m insisting about sales. Cause it’s the first line of the, of the income statement of the revenue. We’re talking about the same thing. And apart from that I have in, the roadmap, digital, trying to digitize some accounting functions or finance functions, for example, cashflow management, cashflow forecast, which is very difficult in Greece because we have postdated checks. I don’t know if you have ever heard of it. It is a check with a future date date. Yes. So part of the receivables are covered with cost. Part of the receivables are covered with post checks, but you don’t know if the post check will be on maybe the guy who has signed the check request a further increase in time. So it’s very difficult to forecast this. So my, my first priority account to get finance wise is to automate cash flow forecasting.
Madhurima Gupta:
And Michael though, I think this is a little not on the lines of what we’ve been discussing, but why do you think businesses increase, still rely on paper checks? And do you think it’s sustainable?
Michael Samonas:
Look, this is a very good question. Why they’re relying, the first obvious answer is because this is what they know, because if you have a check is not money, you can sign it and pass it over and over and over. And with a single piece of paper you can make let’s say 20 transaction in, row one after the other, sign it and give it further. And why the Greek government is supporting it. I don’t know, I have to tell you that we in Greece and know we have subsidence money. They have also postdated checks, but not in the extent we, use them in, Greece with one word it’s how can I say it’s for a company like us to cover an open balance with a check run to leave it open for 90 days? Cause our payment days are 90 are a lot. So if I have a postdated check for 90 days, it’s safer legal wise because the law is very strict for somebody that signs a check
Madhurima Gupta:
And talking about checks when, pandemic hit how easy or difficult was it to manage these papers paper-based checks during the pandemic and managing your account close.
Michael Samonas:
It is, it was very difficult. It was very difficult because the government suggested that some sectors let’s say tourist restaurants and so on during the pandemic could further increase the payment the payment time by 90 days. So at one point I had checks in my hand for 90 days, I used to factor these checks to assign them to bank and get financing. And suddenly we recognize that these checks will be honored in the next 90 months. So we should plan our financing because when you assign a check to a bank, there is a certain limit. You have this check, you are waiting this check to honor. So the, the limit empty and then take a next check. But if this check is extended for 90 days, then your limit remains frozen and you cannot take new financing. So it was yes, it was a challenge, a great challenge for us.
Madhurima Gupta:
And as a mid-market company yourself, are you ready to adopt and promote e-payments?
Michael Samonas:
Yes, yes. We’re adopting. We’re by low, we have to adopt e-payments and we’re towards in this direction. So we change in SAP to adopt the payments and we are encouraging our clients to send them electronic invoices. Our suppliers for since our suppliers are located 90% of them abroad, not in, not in Greece, in Europe, it’s easier with the suppliers. They already have adopted payments with clients. It’s a bit more difficult, but we are toward in this direction. Yes.
Madhurima Gupta:
What would you say are some tips for your peers, that’ll help them, let’s say enable digital payments at CFO’s office?
Michael Samonas:
To explain, and communicate what is the benefit from this to explain to their customers to everybody. What is the benefit? Because if somebody, if you’re trying to force somebody to do something it’s very difficult to do it, but if you try to explain to them to educate them, what will be the benefit, the mutual benefit? I think it would, it, it is much easier. This is what I’m doing. I’m trying to, to educate people and to explain what is the benefit, what you will have to get from this.
Madhurima Gupta:
Absolutely. And what, according to you would be the most significant benefit of moving to E-payments. First CFO’s office
Michael Samonas:
Time, automatically you record this invoices into your ERP, whatever it is, and reduction of errors, which it’s different to manually into something, into a screen. And it’s different to have a NOCR system and automatically records then invoice into, into E and don’t all the time.
Madhurima Gupta:
Absolutely. Perfect. I think those were my questions for today, Michael. It was a very interesting discussion. Started from digital transformation, touched integrities of ePayments. So thank you so much for sharing your experiences.
Michael Samonas:
Yeah, I thank you very much.
Madhurima Gupta:
Absolutely. I mean, thank you so much once again. And I hope that we have you once CFO circle podcast, soon a podcast that’s powered by highradius.