Show me the money
Financial education on digital transformation is missing in action.
Digital transformation has come to be recognized by chief executives, founders, consultants and business professors alike as an essential part of competing in Industry 4.0. Reasons for this abound in realms as diverse as business books, blogs and YouTube videos. And in concert with the emergence of digital transformation as a key element of businesses’ survival and success, a growing number of courses on the topic are offered by the world’s top universities.
For examples, go to emeritus.org and witness the variety of executive education programmes on digital transformation offered by the likes of Cambridge, Columbia, Berkeley, Northwestern, Manchester or Imperial College London. A review of their course titles and outlines reveals several facets of digital transformation. The courses focus on strategy, technology, data analysis, marketing, business models or industries steeped in digital transformation, such as healthcare. But I have yet to find a course that focuses on the financial dimension of digital transformation.
One might argue that the financial dimension is covered in some of the existing courses. This might be true. Yet my review of course outlines suggests it fails even to merit being a separate module in a course.
Since I teach business finance in corporate education programmes, you might think that my pitch for adding finance to digital disruption curriculums is rather self-serving. Yet my recommendation for introducing a course on the financial dimension of digital disruption – or at least providing more finance modules in existing courses – is backed by experience. Over the past few years, I have repeatedly been asked the following questions in my finance workshops for non-financial professionals:
- What is the difference between ‘opex’ and ‘capex’ and why does it matter?
- What’s the big deal about being ‘asset light’?
- How can a platform start-up become a unicorn so quickly – even before it starts to make money?
- How do we measure ‘cost of revenue’ in a digital company?
These and others like them are great questions that are related to digitalization in one way or another. I think any finance instructor would love to answer them and use them as a trigger for further discussion. But, unless an instructor wants to sound like a ventriloquist’s dummy plugged directly into Google, there should be a big picture context and an adequate understanding of finance fundamentals, so the questioner gains a real appreciation for the answers.
For example, it is easy enough to explain opex as operating expenses and capex as capital expenses – and that the former refers to a company’s budget and spending for its day-to-day operations while the latter refers to the same but for capital goods such as new plant and equipment. But why is it important to know this distinction? Incidentally, this question was put to me in one of my workshops by a salesperson in a cloud-computing company. You can see why he asked the question. More than likely, a company with its own data centres migrating to the cloud would reduce its future capex but increase its opex.
A profound understanding of the financial element to digital transformation is more than a nice-to-have. It can tell the whole story of why successful companies opt to go through the huge pain barrier to adapt their models. In case anyone doubts the potential financial gains from a digital transformation, one need only look at companies like Adobe (formerly known only for its pdf and photoshop packages, now a leading provider of SaaS), Apple (since early this year a $3 trillion company) – and the usual suspects: Netflix, Amazon, Facebook and Alphabet.
Those names are all too familiar. But what exactly is the connection between their sky-high valuations and digital business models? I’d advise you to take a course in the financial dimension of digital transformation to find out. But you’ll have to find one first.
Phil Young is an MBA professor and corporate education consultant and instructor.