Blog 1 of 2 from the CFO of ZALORA, and part of the Digital CFO Series.
Everyone loves to hear the stories of great innovators whose unique approach revolutionised their industry or made them a hero in their own company. But these happy endings are not painless. Instead, they usually involve significant change that can unnerve company stakeholders.
CFOs are well-suited to manage this change. Their financial acumen, broad experience, and willingness to take an active leadership role can help steady the ride on even the bumpiest of roads. In a recent Oxford Economics survey, of finance professionals report that their CFOs are increasingly involved in strategic decisions outside of finance, and say that the finance function is increasingly visible and influential across the company.
At ZALORA Group, our transformation is a response to both business growth and maturing expectations. We were founded in 2012 as the first fashion e-commerce destination focused on Southeast Asia. As a well-funded startup, ZALORA created local operations across the region, in Singapore, Malaysia, Hong Kong, the Philippines, Taiwan, and Indonesia. Each country ran its own shop independently of the others—developing its own third-party logistics, establishing the brand in the marketplace, and communicating with a nascent market.
This early startup period was characterised by high levels of investment that that established ZALORA in the marketplace in record time. After four years of this startup activity, our board moved to the next phase of managing for scale. ZALORA, as part of the Global Fashion Group, established its regional headquarters in Singapore, and in 2016 appointed new members to the leadership team—including me. Our task: to focus on the path to profitability by building a sustainable, scalable organisation.
Maturing the finance organisation
At this time, ZALORA’s finance organisation was focused mostly on basic transactions. We lacked the time and personnel to develop a financial strategy. But even then, we could see where we needed to be.
Through town hall meetings and other internal communications, we began to state our goals and map out a journey for the finance organisation. We let everyone know that we expected to transform finance by making basic tasks more efficient and improving the quality of our deliverables. We also wanted to add value by providing better insights and increasing financial flexibility. Our final goal was to support innovation and play a role in shaping ZALORA’s future.
Often, similar finance transformations occur sequentially—improving efficiency, adding value, and then exploring innovation. However, executing our finance transformation sequentially would have created excessively long throughput time. And in our environment, sequential execution would have depleted the patience of stakeholders. As a CFO in a fast-paced company and industry, I believe that it is important to make progress on all three pillars simultaneously, even when the company fundamentals are still a bit shaky. Success boils down to clear communication with all stakeholders and gaining trust with early, quick wins.
Success boils down to clear communication with all stakeholders and gaining trust with early, quick wins.
It didn’t take long to see progress. The first year into our transformation, we set up a new finance organisation with clear domains and accountability. We also launched a finance shared service center in Malaysia and transferred the transactional activities there from Singapore.
We began hiring people with deep financial and transformation expertise, including financial planning and analysis personnel; a director of the new business shared services center in Kuala Lumpur, Malaysia; and a new regional finance director. Some of the employees from our startup phase, who enjoyed being finance generalists, left the organisation as we began positioning people to focus on specific areas. These losses were a painful but natural part of our transformation.
Gaining trust by delivering value
One year on, we are obviously still on our transformation journey. From budgeting to analytics, we are centralising more processes. We’re also bringing a few new experts into the finance organisation, more than a year after our overhaul began. We’re also making sure we do the basics right. Our monthly close is faster, we’ve cleaned up our balance sheets, and overdue financial audits are now resolved.
New digital technology has helped us standardise on metrics and build clarity about ZALORA’s finances. We’ve launched an analytics dashboard for business and management, allowing decision makers to generate monthly, weekly, and ad hoc analyses on activities by merchandise category, country, department, or business model. Currently we are in the process of implementing an enterprise resource planning solution that will help us streamline operations and reduce costs, providing us with much-needed instant visibility into working capital and a better “one source of truth” foundation.
Because the technology helps us generate reliable data and analysis, we’ve gained the trust of our corporate leadership. Today, finance has a seat at the table of ZALORA’s board of directors because we are helping to add value to the business. The bottom-line results have been significant:
- 24 year-over-year increase in average selling price
- >300 basis point increase in product margin
- >900 basis point increase in variable margin
- -40 decrease in EBITDA loss
Only CFOs who are willing to take an active role in transformation—and who possess the skills and temperament to help steady a bumpy ride—can lead a change of this magnitude. Digital transformation is likely to be in your company’s future. Is your finance organisation ready to lead the way?
My next blog will be about ZALORA’s business transformation. For more information on how ZALORA works with SAP, read about finance solutions at www.sap.com/cfo.
This blog post originally appeared in the Digitalist.