Why hyper growth E-Commerce businesses need to reimagine their Finance operations

Raghavendra Reddy
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Why hyper-growth E-Commerce businesses need to reimagine their Finance operations. Here is my take on how to get started!
November 21, 2022

The world has moved online, and so have our bazaars. Large online e-commerce platforms are replacing offline channels as the preferred mode of buying, where the experience is digital and connected. This changing buyer behavior has compelled large e-commerce and even hybrid businesses to put the data at the center stage of their growth strategies.

E-commerce sales are expected to reach $5 trillion in 2022 and $ 6 trillion by 2024. E-commerce sales in the US alone are expected to hit the 1 trillion mark in 2022, a target that was not expected to be achieved before 2024. Suffice it to say that data growth will continue along the lines of market growth – even surpass it.

  • The Competitive edge today is growingly correlated with data intelligence and how efficiently a business can use the data it generates.
  • Business-critical decisions need to be made faster (sometimes, almost daily), making the old 'monthly reports' too stale to use. Faster decisions require faster data to decision cycles leveraging new-age technologies.
  • Hypergrowth at these businesses often requires being supported by disparate bolt-on tools which only provide analytic capability in a piecemeal manner.

"Information is the oil of the 21st century, and analytics is the combustion engine." - Peter Sondergaard, Gartner Research.

The million-dollar question for CFOs of all e-commerce businesses today is how to start thinking about creating the agility needed to support business while ensuring total compliance with the law.

E-commerce challenges are different:

Reimagining the E-commerce Finance function:

From my frequent interactions with a bunch of hypergrowth e-commerce companies (across geographies), exceptional CFOs adopt a simple motto: "focus on value creation." This mindset requires generating departmental bandwidth and delivering higher-quality outcomes. A four-pronged approach could help with thinking along this mindset.  

1. Centralize: Shorter data to decision cycles is the need of the hour, and continuous planning is the new norm at growth stage. E-commerce companies can benefit significantly by consolidating their Finance operations in a hub and spoke model, ensuring greater economies of scale. Larger e-commerce companies such as Amazon and eBay have been at the forefront of the Offshore delivery center approach, enhancing their organizational capabilities and expertise with analytics-driven business decisions. Additionally, as organizations grow, there are a lot of legacy activities and systems that bloat finance operations. Disparate finance systems ought to be rationalized, and any wasteful expenditure of energy avoided.

Pro- tip: External benchmarking and simple time and motion studies can help you quickly identify areas of non-productivity and wastage.

2. StandardizeMaking the company process dependent rather than person dependent is very critical to power hyper-growth. Blitzgrowth often leads to startups relying on various systems and bolt-on tools, creating data disparity and non-fungibility across systems for analysis. The trick here is to standardize systems with well-defined SOPs. Consistent systems for transaction recording, reporting, and analytics ensure higher organization productivity. Standardized processes also create growth opportunities for employees, using them across verticals.

Pro-tip: A fast way to kickstart your data standardization could be by implementing a data standardisation layer, which provides easy integration with all other systems, standardizing and consolidating data seamlessly, creating a "single source of truth".

3. Automate – Rules-based decision making activities need to be automated. Workflows should be automated for all rule-based day to day activities. Automation enables your workforce to be deployed on higher value-creating activities and away from mundane tasks. Automation also enhances the First-time right%(FTR) metrics for finance operations, ensuring consistent accuracy even with increasing workload.

Pro TipA good rule of thumb to identify areas of automation in your organization would be – "If an activity can be written down as a step-by-step flowchart, it can be automated". Large e-commerce businesses like Amazon and hybrid stores like Walmart are increasingly adopting automation to perform transactional activities like Procure to Pay cycles, Management reporting, etc.

4. Outsource Focus only on what is core to the business growth and outsource the rest (strict 80:20 rule). In e-commerce businesses, it is as important to know what not to do as it is to identify what you want to do as a core activity. The role of a pioneer requires CFOs to focus energies on high-value activities and identify areas where they do not wish to spend organization energies. Getting a specialist third-party outsourcing partner can often yield unexpected productivity benefits and offer operational resilience(remember COVID?) while lowering the cost of ownership through reduced infrastructure needs.  

Pro Tip: Interestingly, We are increasingly seeing the outsourcing of non-core activities, say Payroll processing, and even new-age capabilities like Big data mining being outsourced to specialist third parties. Given your unique needs, cost-benefit analysis must drive this decision in your organization.

Reimagining the finance function for e-commerce is about focusing on value-adding activities and using cutting-edge technology to make data analysis and consolidation easier, standardizing systems across the organization, automating the routine, and outsourcing wherever possible. 

Using the latest technology will help businesses to harness the power of data by churning out vital information and reports in ready-to-use formats using a single source of truth to enable business leaders to make better and more informed decisions. A reimagined finance function could be the fuel that powers your business into a new orbit.

Source: Global Ecommerce: Stats and Trends to Watch (2022) (shopify.com)