Value Creation with Compliance

Complementary or Diametrically Opposed Goals

Is 2021 a good time to rock the boat even more. A time to sort out those deeper frictional issues that continually suck out your functional time. You know the ones that impact and undermine the speed of decision making activities across finance, operations, and HR.

Eco shocks combined with varying degrees of restrictions on resource movements are here to stay for the foreseeable future, and will continue to expose you to these types of process gaps and deficiencies within your organisation, as you continue to drive your focused value creation activities. However, timing to make these iterative or even those deeper process changes for operational efficiency are now arguably right, particularly around the current sense of urgency to drive value creation and ongoing business continuity with tighter compliance.

Coupled with that there is a can do attitude. Company-wide as well as personal changes have been tackled on a daily basis by everyone, and whilst some things have worked well, some badly and some not at all, there is no doubt that there is a strong sense of survival instinct, as well as competitive spirit.

Updated March 2021: Insights from the Office of 182 CFO’s: https://www.pwc.com/us/en/library/pulse-survey/cfo.html

Space exploration might seem an unlikely starting point here to gain inspiration, but it is an area that can provide some high level graphical clarity. One of the astronauts on the first manned space flight commented, from his then current viewpoint, that the earth was simply one world with no barriers, which was a stark contrast to how the global population was actually organised at ground level.

Corporates today might struggle to agree with drawing any parallels from this to their business. After all, it takes them far longer than any quick glimpse to rationalise their one world and to understand their corporate numbers to any sufficient depth. However, technologies are certainly helping all move in that direction, as long as the management mind-set exists to continually drive and iterate change.

Surprisingly, space itself is very topical today and might impact your business, sooner rather than later. With 4G and later 5G communications being put on the moon from 2022, and with the more imminent additional launches of low level broadband satellite communications from powerful global players, infra-structure is quickly rolling into place for those that need to leverage it.

You may be interested in: World’s first space hotel scheduled to open in 2027 https://edition.cnn.com/travel/article/voyager-station-space-hotel-scn/index.html

Global tax rate changes today are also very topical with some material movement expected soon, that will impact underlying corporate processes. Both, for example, will extend data classifications from today’s logical, legal, physical (data sovereignty) location of data, to also include taxable and space location. One hopes that data location on one side of the moon is the same as the other, but perhaps the conversation simply moves on over time from one world to just one galaxy, with the same detailed business intricacies as now.

Data classifications facilitate the handling of data loss that occurs through a cyber breach. Types of lost data as a result become more easily identifiable through well thought out and managed end to end processes. This is part of the bigger picture of managing the location of data throughout an end to end process.

Corporate governance and value creation activities are also not typically viewed as one world by all involved, due to functional demarcation lines including segregations of duty etc. They are of course intrinsically linked together to drive and protect value during broad process execution.

This is not the entire point here, as functional role execution typically means that different data sets or estimations are used for specific validations. In other words these functions might co-exist and be run in parallel, during or after the fact, and not be incorporated within a single process, together with logical compliance controls.

Fintech (including Insurtech) is a good example to highlight further, in that extended compliance processes are linked and integrated to operate seamlessly together, with or without additional control points, for regulatory sign off. FinTech also illustrates that compliance frameworks continually evolve in scope ie privacy implications that come from facial recognition; removal of bias in artificial intelligence (AI) etc, all pointing to the need of  having granular control within a process.

Some governments in some locations already extend some processes via API’s to their own systems for additional compliance checks. In the future some authorities will go even further. For example China’s emerging, but not yet available, national digital currency DCEP (Digital Currency Electronic Payment). Others will continue to slowly gather momentum as can be seen with recent commentary surrounding the emerging concepts re a Digital Dollar, with each one likely to have different operational characteristics, noting that the Bahamas has already launched a digital currency.

Digital projects that fail during execution often do so because the end result is not harmoniously organised to achieve the required goals for all core functional areas.  Look no further than retail or Fintech, where state of the art systems using latest technological know-how meets legacy to break a process, or even more extreme where the data has to be re-input from the front facing system into the back end.

Edge to Finance or Finance to Edge. The above raises the challenge of whether to deploy processes from the edge to finance or from finance to edge, with the subtle inference and ramifications being that one methodology will likely drive governance more tightly than the other, as that compliance discipline is already tightly entrenched into operational processes by virtue of stakeholder experience etc. On an individual basis, either way may make sense.

Questions should go deeper. Are you driving financial compliance at the same time that you drive value creation, or is compliance being driven after the fact. Who is in control.

Compliance can become disconnected in daily operational terms.  Many of today’s digital projects are in fact quite focused operationally without a lot of detailed thought on compliance, meaning that corporates are potentially executing non-compliant transactions.

For example within procurement, ensuring that all transaction execution takes into account various aspects of supplier management, as well as those trickier areas of ensuring that budget is actually fully available; as opposed to being authorised, allocated, but unused to date ie budget balance shows available dollars regardless of being used up or not…

Part of the above is not necessarily an understanding issue at corporate level, but more about them being able to execute processes at an ultra-granular level, with all required transformations ie the ability to execute the intent.

Proactive cf Reactive Process is another area to consider. For example, the ability to track and instantly have actionable contextual reporting or workflows generated @anywhere @anytime based on ranked circumstances, as well as resources available ([see below under Other Information – Process framework (Qualitative and Quantitative)].

Compliance considerations today have evolved to be more multi-tiered than ever, with more detailed considerations (more details below) that have to be taken into account from day one. All process owners will have to execute granular changes within a more sophisticated thought through environment, and have it engineered into the process, rather than being added as an afterthought.

Progress cannot be made overnight and will have to be iterative as well as prioritised, over what will be a long journey in overall terms. One way to think about your processes is in terms of primary process flows and secondary dependent process flows, all interlinked (perhaps multi stepped) to drive actionable contextual reporting and workflows depending on needs ie value, type of goods, variance materiality etc etc. For example, consider business flows for corrective actions to product managers in different locations for fast or slow moving stocks.

To break into the interconnected circles of operations and compliance, some quick thoughts / pointers follow, recognising that these days reporting is not to be viewed necessarily as being at the end of a process but @anytime @anywhere within it. Many decisions to be made during any deployments, interconnect back to many aspects of the above and will likely be highly iterative:-:

  • Integrated Compliance. Think of how to keep all monetary related transactions and payments within all policies. Sounds easy, but it is important to drive and / or leverage detail. For example, keeping tabs on all authorized but not necessarily executed business flows for procurement as explained earlier. Also expanding on that, for certain types of procurement thinking several levels deeper as to which ones involve capital goods or where there might be other special considerations to take into account eg cybersecurity; insurance implications; building remodeling to get an asset in situ; or where broader IoT considerations are needed to turn data flows to both forward and backward looking $ flows, for ongoing ESG goal management.
  • Braindump all the tech buzz words. Not all will be relevant in deployment now, but it is always good to future proof as far as is practical, noting that much of this comes from being able to insert new steps within existing ultra-granular processes. Worthy of note here, is that these new steps might have to link to other specialist vendors, which also highlights an important consideration re avoiding vendor lock-in. Examples include bottom up and top down artificial intelligence, machine learning, 5G including mmWave, new types of digital transformation flows ie different data handling, multi-cloud handling (think here of data sovereignty),  IoT (including wearables), Open Banking as well as payments, plus other required API’s x-application, x-ecosystem for some high level context.
  • Societal Drivers. Consider the following that might have an impact on your data flow processes re “proactive” reporting and active management etc: DEI (Diversity, Equity, and Inclusion), algorithmic bias / digital ethics / company values, ESG. Also Wellbeing, with that intersection between the ever blurring lines today between home and corporate life with health / fitness / sleep, including those win-win emerging opportunities to drive down health costs with Insurtech..
  • Cybersecurity and privacy. Data location classifications for compliance and cyber-attacks, as well as quantifying the value of your data for prioritised cyber investments. Note that there is a blurring of the lines in certain areas like facial recognition for time and attendance (alternate check ins / data holding longevity rules, rules for regular visitors etc) and also more broadly the monitoring of driving skills / behaviour with corporate owned vehicles which will challenge safety cf privacy etc. So building a checklist is useful to help ring fence compliance issues.
  • Digital Meets Legacy. Think through when digital meets legacy. Specifically the handling of the various technologies like databases (proprietary, open source), mobile OS environments, cloud keys, and technical know-how, as this is often not within one person, nor within one company for either old tech or new tech.
  • Follow through. Technology does not stand still, and whilst no one wants change for change sake, there are times when it does make sense, so ensure to cover this in ongoing annual budgets. Examples might be leveraging latest iOS changes.

World Realignment. The world is potentially and to various degrees re aligning from an era of think global, act local to more of a  x-application, x-ecosystem environment ie a more granular as well as localised best of breed situation where connectivity joins the dots to drive smarter end to end processes. Think of the impact of when the world moved from single user to multi user and now to x-application, x-ecosystem on the speed of business and on compliance. Implications re space can wait for now, but it is coming, as is the Chief Health Officer!

Smart processes need to be as technologically advanced as needed, as opposed to being positioned from day one as doing everything. Lean processes that are specific in execution, and that contain less code makes them easier to maintain, faster to execute, easier to modify and are able to leverage other areas of tech like compression, processor core management, GPGPU leverage where needed, and cloud bursts to name a few.

Value creation with expanded compliance, including data classification management should be on the radar for all corporates as x-application, x-ecosystem processes come together to build the enterprise of tomorrow. By being able to work at an ultra-granular level, resultant processes can be iteratively extended or enhanced for different stakeholders, using only the required technologies. As a result execution barriers that prevent timely information across the “ever extending” global enterprise within one world will gradually be a thing of the past with systems producing actionable contextual insights for management, but we all have to start somewhere. A game changer in the making!

FlexSystem is a financial and operations business software vendor to 1 in 10 Forbes Global 2000 (May 2020), and 1 in 5 Global Fortune 500 (August 2020), operating at the intersection of new process and payment technologies, whether on-premise or cloud, to provide you with iterative opportunities for value creation with or without AI at both gross and net margin levels.

Other Information:-

  • Digital cf legacy is best categorised as being able to drive semi or fully automated processes x-applications from different vendors, as well as across other leading industry application ecosystems to deliver process outcomes to both internal and external stakeholders.
  • Process framework (Qualitative and Quantitative). End to end process definition, from data collection thru all required x-application / x-ecosystem transformational dependencies (including use of API’s), with actionable contextual reporting @anytime and @anywhere in the process + simulations. Consideration for various data type handling for both process types so that information can be presented meaningfully. Examples IFRS 16 or ASC 842 and understanding differences between them etc.
  • Connectivity will be at the centre of driving smart efficiency, innovation and deep value creation x-application, x-ecosystem and x-geography. This is not going to be a one off, as there is going to be continual opportunity to drive multiplying value and convenience at both macro + micro levels, and increasingly both; eg top down or bottom up AI or leveraging AI in other applications eg https://www.uber.com/hk/en/business/
  • Quantifying the Value of Data. https://hai.stanford.edu/news/quantifying-value-data
  • Timely transformations. Leveraging processes across applications with the end result of having resultant processes that are therefore fully defined for the task in hand, are specific in design scope, meaning that coding is less complex, more robust and easier to maintain. Combined with other technologies, like compression gives the already smaller code base additional practical execution advantages.
  • Cloud is one deployment option alongside hybrid / on premise. Our customers are choosing Alibaba Cloud, Amazon Web Services (AWS), Citic Telecom CPC Cloud, Google Cloud Platform, Huawei Cloud, IBM Cloud, Microsoft Azure, Tencent Cloud as well as other service providers or solutions (eg Nutanix) based on their specific needs to create a single or multi cloud collaborative software deployment platform for overall business agility, governance, risk management and compliance purposes.
  • Cloud PAAS Vendors. Note that not all cloud services nor vendors are consistently available across geographies ie need to assess cloud service within cloud vendor by geography.
  • Artificial intelligence. Laser focused by definition, but always positioned holistically in general industry marketing. Once processes are defined, and fully understood end to end, then AI may be a viable “within process extension” to consider further for purposes of deeper value creation. Ie only started once one can define the exact output required. https://flexsystemhk.wordpress.com/2020/09/02/artificial-intelligence/
  • HR Structures for Digital are critical. https://flexsystemhk.wordpress.com/2018/10/09/digital-in-2019-is-still-about-technology-but-more-about-organisational-structure/
  • Greater Bay Area. https://en.wikipedia.org/wiki/Guangdong-Hong_Kong-Macau_Greater_Bay_Area
  • RCEP, Regional Comprehensive Economic Partnership. https://en.wikipedia.org/wiki/Regional_Comprehensive_Economic_Partnership
  • Chief Ethics Officer https://en.wikipedia.org/wiki/Chief_ethics_officer
  • Ethics in Health Ethics and governance of artificial intelligence for health https://www.who.int/publications/i/item/9789240029200

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