Ep. 117: John Lemmex - Digitalization in Practice
John Lemmex, vice president, Chief Financial Officer, at Covestro LLC., joins Count Me In to talk about the impact of digital transformation on the finance function. In this episode, John shares valuable personal experiences on the value of digitalization, best practices for starting digital transformation projects, and ways to engage various stakeholders throughout the project. John is currently responsible for all aspects of financial management and controlling and has embarked on a diverse career in financial management. He uses his experience to continuously drive business strategy and business improvements. Download and listen to his perspective now!
FULL EPISODE TRANSCRIPT:
And we are back with episode 117 of Count Me In, IMA's podcast about all things affecting the accounting and finance world. Once again, this is your host, Adam Larson, and today's featured guest is John Lemmex. John is Vice President, Chief Financial Officer at Covestro LLC. In that role, he is responsible for all aspects of financial management and controlling. So in this episode, he joined my co-host Mitch Roshong, to talk about digital transformation, John shares many personal experiences and great perspective on how finance leaders can play an integral role in transformation projects. So let's head over to the conversation and listen to what he has to say now.
So John, from what you've seen, how do digital transformation projects typically get started?
Typically in our company, they get started in different parts of the business. It could be, you know, something happening within marketing or R&D or even finance. So it tends to be kind of individual and what our company has done is kind of putting together a digitalization group that's global, and they have kind of the skills and the ability to bring it all together. They are operating a data lake, and they have that kind of expertise, so when people put projects forward, sometimes they'll run as pilot so then you look at and see if they're scalable globally. And then we implement them, look at them and then move on from there. So anybody can kind of bring forward a digitalization project.
Now let's focus mainly on our listeners here and we're talking about accounting and finance. So how important is digitalization for finance? Why should these finance leaders really get started on these projects as soon as possible if they haven't done so already?
Yeah, to me, with the digitalization projects it always comes with efficiency and cost savings and, you know, and there's a business case behind them. So generally, I found most of these cases, we've been able to find a business case, been able to save money, gain efficiencies, reduce complexity, and it helps drive the business forward and make finance more efficient. So it's been, you know, waiting doesn't help drive the business forward so you need to drive these projects to gain those efficiencies.
Let's talk about that a little bit more, how does the finance team, or the finance leader go about building this business case, who is really the target or, the individuals who are most responsible for pushing this project forward? Who should the finance leader really focus on within these projects?
Well, I think that the finance leader for us is kind of internal, I'm kind of thinking of a project that we did. It was something internal in the finance area that was causing us pain. We stepped back, we took a look at it and the answer came using digitalization, using machine learning and robotics was the answer to try to solve the problem. And so then, the business case was put together, and again, it resulted in efficiency through FTE reductions, but it also ended up on a higher accuracy and more accuracy in the financial statements. Or one side, it was cost efficiency, the other side there was accuracy and when that case was put together, we piloted it and moved it forward.
Now you talked about machine learning, obviously there's robotics, a lot that goes into these different projects and for some in finance, that might not be necessarily their first language per se. It might be something that's a little bit outside their comfort zone or they need to upskill in that area in order to drive the project forward. So how do you really engage all these stakeholders and really keep the momentum going for these digital transformation projects?
Yeah, the one thing that we've done to try to get people engaged is actually offer kind of a, you know, online training, in the machine learning in robotics, to get people to start to increase their skill levels so that they may not be become experts in it, or be able to run a project, but they understand what maybe the IT or the data people are going to be asking those kinds of questions and they learn through that, how to drive these projects forward or at least understand what goes into them and there's been quite an uptake rate in our people and trying to do that online learning and develop their skills.
Are there any other obstacles that you've seen, anything else that may prohibit a digital transformation project from progressing how you anticipated?
I think sometimes we get into resource questions, you know, how much resources do we have, and if a project is simply kind of re-engineering a process and using the software, it's much easier maybe to get those projects forward when they maybe require, and I'm thinking of supply chain digital project, those require maybe capital investment using barcode readers, scanners, infrastructure upgrades, and then it becomes more difficult to find those resources and drive them forward. So less capital investment seems easier to drive the projects forward, more capital investment a little more difficult, but again, too is how many projects do you have going? I think sometimes, you get into project overload and there's just, you have to prioritize and get your biggest bang for your buck.
That was actually going to be kind of my next question and obviously there are many areas of the business where you could look for digital improvements, and I'm sure, like you just said many different projects going on all at once. Have you ever come across a case where a project just didn't pan out, you know, the digital transformation just never happened, for one reason or another, can you speak to that a little bit and what the company did in order to respond?
We have one project that in our end to end supply chain, where we feel like we could really upgrade our ability to track materials, move materials and we try to compare ourselves say to an Amazon, we're very far behind. I kind of think of them as the leader when it comes to digitization and supply chain. We had a project we wanted to move it forward, but it stumbled on cap ex and some of it was a business downturn, other parts was then entering the pandemic, but I wouldn't say the projects are dead, but more shelved until the business environment changes. I think if there's a good business case, and then you get into a resource issue, it may not move as quickly as you might want it and get those returns, but you know, you shelve it and continue to push on at a later date.
That's a good point. And, you know, prioritizing, like you said earlier, with so many different things going on and so many functions of the organization being involved in these projects, while it may enhance the efficiency, let's say in finance, obviously you're going to rely on IT and other departments. So, how important is the communication across the organization, with these different projects going on and really, what is that communication path? How do you typically, speak with and listen to other departments while these projects are going on?
Absolutely, the communication is key in all these projects and how to prioritize. And we have a, we call it a digital governance board. So all projects have to go through this digital governance board and be prioritized and that's whether it's a finance project, supply chain, innovation project, they all go through this digital governance board. In fact, our digital governance board is actually chaired by our CEO. That's how important it is to us. I think he acknowledged that he wants to drive digitalization, but the other time we have limited resources, so this board engages in the prioritization of the project.
So it might be the same answer that you just shared, but when it comes to communicating and working, cross-functionally putting these projects out there, how do you ensure that what you're doing really aligns with the core values or the overall business strategy. I'm sure the governance board here that you've mentioned has a lot to do with that, but how do you really make sure that what you're proposing and actually doing aligns with the business strategy?
I think you hit on it that this digital governance board, there's always a question when presenting, how does it fit into the strategy? What is the strategy? And sometimes, if it's cross-functional, it's a little more clear how it fits into the strategy and then other times you can have a simple digitalization, maybe it doesn't have to go through the board because it's such a simple project, that there's just gains from it, but doesn't take so many resources that you can just drive it forward, because it might make sense within the finance area.
Whether you're driving forward or working with all these different departments, you know, governance, what's the typical timeframe? Some people who might not be so familiar with these projects or are interested in starting for the first time, obviously you want to get it done. You're very results oriented in gaining those efficiencies, but what's a realistic timeframe for some of these projects.
Yeah I think sometimes they, when it gets involved into machine learning and into robotics, I think they take a little longer than people might think. Our first foray into that, it took a lot longer than we expected. I mean, we got the gains we expected, and the benefits and the quality we expected. It just took a little longer than I would have liked to get there. So I think you have to learn from that and okay, how do you drive the process faster going forward, and other cases, with respect to digitalization, we've been able to make very quick gains, seeing results within months, not necessarily with machine learning or that a different type of digitalization and with that I kind of refer to, here during the pandemic, or just actually prior to the pandemic, we realized we were printing checks. You know, we still print checks. We put them in an envelope, we put a stamp on it and we mail it. And well, some of the vendors are electronic we said, well why can't we go to a hundred percent electronic? It's really just changing the vendors. And again, you have some leverage with your vendors. So we went from printing 3,000 checks a month, and we're now printing 50 or 60 checks a month. But when we started that project, we started to see very quick returns because we didn't have to involve many departments. It was kind of an internal finance type thing, working with vendors to do that. But, by the time we got into the pandemic, we were no longer worried about printing checks, putting them in envelopes and mailing them to customers. Again, for me, that's kind of a digitalization taking something that was coming out of the computer and into paper and move into complete electronic transfer and we gained a lot of benefits from it.
So that's an example that probably has a much longer return also, but I'm kind of thinking just digital transformation projects in general, what's the typical shelf life? And what I mean by that, is when you complete a project and you recognize these efficiencies, when is it that you then again, have to kind of revisit that project or that area of the business and see if it can be improved even further, how do you really prioritize what needs to be done new and what needs to be done again?
Yeah, that's a hard one. I think technology keeps changing and I’ve seen it through my career. What we thought was leading edge technology five years ago, today is not leading edge technology. I think sometimes report delivery and doing automated online report delivery through reporting factories, those types of things. What's cutting edge in one time quickly becomes no longer cutting edge and you have to go back and say, okay do we change the technology? What's the cost to change the technology, what are the benefits to change the technology? So, I think some things can have a shelf life of up to five years, others might be shorter. I even go up to looking at SAP, you put an SAP system in and all of a sudden, eight, nine, 10 years later, you're looking at redoing it all over again as the technology keeps changing. Those are a little bit longer shelf life I would say, like an ERP system, but still your ERP system eventually becomes outdated and you have to reevaluate and move on with them.
Absolutely. I think it really lends itself to the fact that finance particularly, and really just organizations in general, need to stay agile, right. They need to be nimble and flexible and adapt to everything that's going on. Obviously it's really hard to predict and nobody has this crystal ball, but I like to give our guests an opportunity to kind of share their perspective. If you could look into the future a little bit, what kind of predictions do you have as far as what might be coming down the road for finance and how might digital play even more of a role and whether it's a certain aspect of the day to day or bigger projects that you look to implement, how do you see the function changing even further in the future?
Yeah, I think as, you know, in the future, things like, SAP HANA as those types of things change and what it does to the information that it starts to create within your system. And then how even finance closes the books, you know does things, implements new legal entities, that entire package I think is going to continue to change as the technology changes. Even the fact now that we're no longer sitting on assets and server farms anymore, it's going to the cloud. So how SAP works and how your ERP system works in the cloud, how people interact with it and work with it. I think those things, whether it's Oracle or SAP or others, how that finance function works and how things are integrated with them, I think is going to continue to change and move forward. I think I already touched on a little bit end to end supply chain. I think the Amazons and those types of companies are really good at that end to end supply chain. I think we're going to see it build those same applications in chemical companies. Obviously it's big in retail, but I think you're going to start to see it in business to business, as it goes on. I'm no expert on Bitcoin and blockchain technology, I think we're going to start to see with blockchain technology, how companies transact with each other is going to start to change. And again, we'll see the disappearance of sending checks, receiving checks. Those transactions become much more real time, and I think it starts to change how you run your business. Liquidity planning changes when things become instantaneous, and it just changes the finance people, how they look at it and then how they measure their business.
This has been Count Me In, IMA's podcast providing you with the latest perspectives of thought leaders from the accounting and finance profession. If you like what you heard, and you'd like to be counted in for more relevant accounting and finance education, visit IMA's website at www.imanet.org.