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This intimate CFO Collaboration dinner in partnership with Workday and Deloitte will gather some of the Bay Area’s top finance leaders to examine the capital allocation future over the next five years, with a lens on how digital capabilities and multi-cloud platforms support new ways to model, measure and improve returns on invested capital. 

CFO Dinner: Generative AI and the Future of Finance

Leadership

Michael Schrage, Research fellow, MIT Sloan School of Management 
Interviewer: Michal Lev-Ram, Editor-at-Large, FORTUNE


Generative AI and the Future of Finance

Good evening. Welcome to Fortunes CFO collaborative. Uh I'm Geoff Colvin, senior editor at Large at Fortune. People ask me what that title means. No one actually knows. Okay. It's my pleasure to welcome you here. It is, it's great. Uh it's my pleasure to welcome you here tonight with my colleagues um uh editor at Large and Cheryl Estrada, who must be right in the middle someplace there. Yes, there. Uh senior writer of the very popular CFO daily newsletter. Uh Fortune CFO collaborative has been building a community of finance chiefs to help you navigate the changing landscape. We've covered lots of ground in the past couple of years, from the economic shock waves of the pandemic to digital transformation talent challenges, E S G. And many other major issues facing CFOs today, we're delighted to bring you tonight's dinner session with our founding partner, Workday and our sponsor Deloitte. Our theme tonight is another critical one for C E O s across every sector and that's the future of capital investment. We will explore how the impact of digitization and transformation across companies, financial markets and industries globally is changing both the meaning and measurement of capital allocation. Over the next couple hours, we'll hear from experts and finance leaders that would be you about how best to support new ways to model measure and improve returns on invested capital. Lastly, a brief reminder, before we begin this opening interview tonight is on the record for fortune purposes, but when we dig into the dinner conversation later, that is totally off the record. Nothing will be reported so cut loose. All right. Uh let's get right to it. It's my pleasure to hand things over now to Fortune's my hologram together with Michael Schrag research fellow with the M. I. T. Sloan schools initiative on the digital economy. Please welcome both of them. Thank you so much. All right, well if if Jeff doesn't know what senior editor at large actually means, I certainly don't know what editor at large means. But I will do my best here tonight. Um Michael. We are thrilled to have you here. Those of you who have heard Michael speak or lecture or know him know that my job is gonna be very easy. I just have to wind him up and he goes um but I'm of the manage expectations down. All right. But that's just a little bit of context. You know, it is interesting. We're all sitting here in san Francisco this week. There's been a lot in the news on chat. Gpt generative ai very exciting stuff. And so I'm gonna just open with that Michael. I know you've got a lot of thoughts but how should or could the cfos in the room be thinking about this technology and how it impacts their their role, their function. Their companies. What are your thoughts? Well I want to be really careful on the M. I. T. And stanford and of course open ai the whole notion of not just chat. GPT three and chat. Gpt four and so called large language models. Very, very interesting. But the fundamental issue is that of what's called generative ai generative machine learning and the fundamental aspect there is depending upon how you pre train things. You can instead of optimize something, you can generate a variety of choices, a variety of options. So with dolly and stable diffusion you can generate all manner you can use it, give me an image that does such and such. So basically what we're really moving to is the notion of how do we want to collaborate with generative intelligence? Do we want to coach it? Do we want to tutor it? Let me say that one of the things I always you know, part of my research things, I always listen to what people don't say. I think chad GPT is very interesting for chatbots are very very interesting for how do you write a paper? I just saw something in my my feed today about how warden M B. A professor you know has had has published a paper that he didn't write but the bot wrote it for him which says something about both the quality of generative ai and warden tenure but that's it separate issue, apology, cheap shot. But the notion of what does this kind of collaboration, what are people not talking about? They're talking about collaboration with language, They're talking about collaboration with imagery. I think increasingly we're going to be seeing these kinds of generative ai generative machine learning being used for financial forecasts, scenario generation etcetera. I'm going to be doing a workshop with a group of chief with apologies here strategy officers for these kinds of generative technologies because you know the famous um what was it called? The shell scenarios they used to be, they had Pierre, Pierre the scenario group, what's the best case, Worst case? Most likely case and they would gain things because people would always pick the middle one. Okay. I think what we're going to increasingly see our finance people, people doing financial planning, use these kinds of generative tools to challenge the fundamental assumptions of their numbers. And the last thing I'm going to say on this is as important and as significant and as pervasive as I believe, generative ai ml is going to become the issues of interpret a ble explainable and transparent algorithms become even more important because the notion that we're going to become particularly finance people are going to become dependent upon black box issues. I don't see that at all. So I think it's going to be a very, very interesting thing how you get your quote unquote bright young things to bring you scenarios, Bring you projections, yes. Bring you spreadsheets and bring you forecasts that that force you require you to engage in a way you didn't expect that you don't feel it's a waste of your time in any way, shape or form. How's that for a long winded filibuster answer. Um you didn't even look at your notes. So okay, I know you really wanted to talk about this cutesy acronym you came up with. Okay, today Raro Kpi. So so so what I'm holding in my hand are not really my notes, they're actually the notes from an executive class that I ran a fortnight ago. And one of the, you know, my quote unquote leading indicator for a successful executive session is do people do the pre work? And so one of the sessions I teaches on future of KPI machine learning KPI and I asked the attendees, the participants to answer, you know, very briefly, because you can't get people in executive to spend more than 20 minutes on homework. Um what's the most what KPI provokes the most insight, what KPI provokes the biggest argument what KPI should you stop using right now? Because it's counterproductive and what key performance indicator does your organization need to adopt in the next 12 to 18 months to reinforce and and to to affirm the strategic direction that you're on and this as you might imagine, leads to very interesting feedback and very interesting breakout groups in this regard. And you know, just to put my markers on the table, I think one of the political organizational and please don't hiss at the use of this word epistemological challenges that cfos faces? Are you going to be partners and collaborators around KPI s throughout the organization? Or are you just going to own the financial KPI. And this is why I like the way Jeff introduced this. It's not just about capital as financial capital digitalization forgive me is a universal solvent, it dissolves everything you you get to deconstruct things into all manner of data streams. So I am curious about and what I want to hear in the questions in the comments and the follow up is to what extent our chief financial officer is going to be concerned about not just financial capital. Human capital intellectual capital social capital. Okay. Those are the kinds of issues. Are you going to be peers and partners? Are you going to be senior partners? Are you just going to go along with how your chr oh defines return on human capital investments. Are you just going to go along with the lawyers on I. P. And licensing stuff or is there going to be are there going to be shared KPI S that you play a direct role in that regard? And so my joke about are a risk adjusted return on KPI s. Is that every organization I've worked with advisory or an executive has KPI some organizations manage those KPI s portfolios. Some of those organizations manage those KPI s. Silos. Two separate companies that didn't know each other. They were b two B companies. We were having a discussion of C. L. V. What is C. L. V. And they had done some in my opinion serious descriptive statistics, serious descriptive analytic research on Cl B, what did they observe? They observed that there were certain reference clients that if those clients were used to close the deal, the deal got closed. And here was the debate. How do you change the C. L. V. Of the reference clients that close the deal? How much more valuable are they to you? How is that reflected in your CLD calculations and you know what their answer was? They hadn't a clue. They had no clue. I'm hoping to be invited back to at least one of those companies. But I will say this that was very very constructive conversation and I was grateful to be a part of it. I was also grateful to play a role in provoking that conversation. The CFOs and both of those organizations took that issue very seriously. And my last point is one of them said you know what there's probably a difference between cl v customer lifetime value and CLM customer lifetime monetization. Is that semantics or is that actually something really interesting? Again, I don't know. But I'm very interested to your reaction on that. So, Michael is a little bit of an instigator on top of his other credentials. Um Talk a little bit more about KPI key performance instigator and that's right. We'll talk a little bit more about KPI you we talked before about KPI is that not only data rich but that are are learning learning from each other. What does that look like? So if you were. So the research that I'm doing in collaboration with others at M. I. T. And you'll forgive me for saying this. I think this is pretty bloody obvious. And there is a multi billion dollar industry, multi $100 billion dollar industry based on this. And for the people who disagree with what I'm about to say, I would encourage you to speak up on this. So the view is KPI s are seen as metrics a way of measuring. But let's look at what KPI s also KPI s and and the beauty of this. I looked at the attendees here. You all this is a I'll be sycophantic and suck up for a moment. This is a pretty sophisticated crowd on this. Everybody in this room understands software agents. So the Duncan experiment, the thought experiment I'd like you to consider is what if the KPI it's a software agent clb data flow. How do reinforcement learning, how does the C. L. V. Optimize things? Oh wait we'll go back to what I said a few moments ago about portfolios. Let's take these as your KPI customer lifetime value employee experience. Ebitda or free cash flow sales growth. What what does it mean to optimize individually collectively that portfolio of KPI s. What kind of role should the CFO the ceo the chr oh the board play in how those KPI s learn to optimize themselves, learn gee I'm prepared to trade off this gee there seems to be a positive correlation indeed, causal inference between include improved employee experience and customer lifetime value and you you define Nps as one of your sub components in this regard. So again, what aspects of human capital, financial capital, social capital, intellectual capital are the P. C. A. You know, principal component analysis attributes that contribute to maximizing slash optimizing those KPI s. I'll go right back to the way I set this up. Is that going to be you something that CFOs are leaders in partners in or enablers in the good meaning of enablers? Not in the codependent meaning of that is the researchers point that what was that multi $100 billion business that's already doing that kind of software agent around KPI ad tech customer supplier, customer bidding for conversion rates etcetera? What do we want to optimize around this? So Martek, I would argue programmatic advertising, I would argue is a canary in the mine for learning KPI KPI that learn? I believe quite strongly because I do advisory work in this area, we will see those kinds of KPI S that learn in supply chain. What's the great obvious medium for doing this in doing this with digital twins. You test your hypotheses. Are you focusing on, optimizing or testing innovation hypotheses, that's what digitalization enables, that's the conversation we literally couldn't have had a decade ago. Um I want to ask you to drill down into one of the areas you talked about which is the talent side and again very topical and in the news, you know, we've seen many waves of, of layoffs on the tech sector side especially um talk a little bit about, I know you're, you're affiliated with the M. I. T. Sports analytics conference for years, lots of transformation and evolution there on how analytics is used to inform talent. So what, what can we learn from that? W A. R. Stands for wins above replacement. And I have a friend, I'll name drop Daryl Morey who's the general manager of the philadelphia 76 ers he was with with Houston Rockets. He was a co founder with Jessica gelman of the M. I. T. Sports analytics conference which began in the Sloan school classroom and now takes over the hinds arena in in in in boston pretty interesting. And by the way, you know, beauty of this is don't take my word for it is a wonderful chapter by Michael Lewis in the undoing project on Darrell's efforts at Houston, which is well worth reading. So what does win above replacement. Why did it emerge because you have all of these talented athletes that get paid literally millions or if you're really good tens of millions or if you're Lebron James hundreds of millions of dollars. So what is win above replacement when above replacement is a statistical analysis that gives it an indication of if if this player wasn't there and somebody else was. You know you guys can explain it to your your your your end of the table here that basically this is the added value shapely values. This is the added value that this player provides in this regard. I am increasingly seeing in talent oriented organizations performance analytics incorporating win above replacement sensibilities. If this software development manager, if this project manager, if this process manager is involved, how much more value do they add than our typical than our average? So I think you're going to increasingly see a mash up in integration between human capital management people analytics and contribution to economic value added to the firm. Is that under the rubric and under the aegis of the CFO or is that under the CHr oh I think the answer to those sorts of questions are up to the people sitting at this table. You like C. H. R. O. S. Right? You're not. I do you know in the in the spirit of full disclosure Cfos are not my natural my background is more innovation. Um I am not a CFOs are not my natural constituency here as my tax accountant would would would tell you. Um But whenever I work with organizations it's very very interesting that Cfos almost as much as corporate counsel are the ones who either veto or enable interesting new ways of analyzing how value is created, shared and understood throughout the enterprise I. E. To what extent do you want CFOs to become C. C. O. S. Or C. C. A. O. S. Chief capital allocation officers. The go to team. You don't want data. Yes, you need data analytics. But to what extent do the CFO does the CFO's office is in a position to analyze. Are the different parts of the organization using the right kind of KPI s to assure on a risk adjusted basis a good return on financial capital, human capital etcetera. Okay, well hopefully this has given you plenty of food for thought. Michael has lots of other acronyms if you would like. My meantime the acronym is the KPI for me but we'll let you eat your actual food now please enjoy your dinner. We're going to continue the conversation at the dinner table and again this portion will be off record. Um So thank you so much Michael for setting setting the stage here and I look forward to your off the record responses. Thank you very much.

Posture specialist Fathima Mohamed shares this quick one-minute exercise to strengthen your core and improve your sitting posture during your workday.

Strengthen your core with this one minute exercise

Health

Follow these simple four steps to strengthen your core and improve your sitting posture.

today I'm gonna take you guys through a seated exercise to activate your deep core muscles. This exercise is great for when you find yourself slouching in your chair first, you're gonna find a seated position forward, not touching the back, breath with your feet planted on the floor or cores naturally activate on our exhale. So we'll pair this exercise with our breath. You'll take one hand put your hands below your belly button on your lower abdomen. On the inhale, you'll feel your belly expanding. On the exhale. You'll feel your belly pulling in and up towards your spine. You'll do this for three breath cycles. You can take your other hand and place it on your lower back. This will help you to find if you're flattening your back. We want an arch. You'll feel the muscles of your lumbar spine activating and hardening. That's a good sign. This exercise will help you sit up straighter in front of the computer and prevent slouching, making you feel more relaxed while you work.

EMERGING CFO: RETHINKING KPIs IN THE DIGITAL ERA
The corporate lifecycle has been dramatically compressed by digital disruptors and subscription-based business models, with profound implications on how corporate finance can drive growth and deliver value. In response, smart CFOs are rethinking the KPIs they measure, shifting from only focusing on traditional ones such as cash flow, revenues and customer acquisition costs, to implementing KPIs that track the employee experience, the customer experience, and customer lifetime value. In this virtual Emerging CFO discussion in partnership with Workday, we’ll discuss strategies to measure how value gets created today, and the importance of agile systems that enable cross-functional collaboration and broader integration of your people and finance data.
In partnership with Workday
Moderators: 
Sheryl Estrada, Senior Reporter, CFO Daily, FORTUNE
Matt Heimer, Executive Editor, Features, FORTUNE

Subject Matter Expert:
Michael Schrage, Research Fellow, MIT Sloan School Initiative on the Digital Economy

Discussion Leaders:
Harmit Singh, EVP and Chief Financial Officer, Levi Strauss & Co.
Alka Tandan, Chief Financial Officer, Gainsight


The Emerging CFO: Rethinking KPIs In the Digital Era 

Conferences

Discussing strategies to measure how value gets created today, and the importance of agile systems that enable cross-functional collaboration 

EMERGING CFO: RETHINKING KPIs IN THE DIGITAL ERA

Marissa Andrada, Chief Diversity, Inclusion, and People Officer, Chipotle Mexican Grill
Roberta Cordano, President, Gallaudet University
Michelle Gethers-Clark, Chief Diversity Officer and Head of Corporate Responsibility, Visa 
Carin Taylor, Chief Diversity Officer, Workday

Most Powerful Women 2021 - Allyship, Mentorship, And Leveling The Playing Field

Marissa Andrada, Chipotle Mexican Grill
Roberta Cordano, Gallaudet University
Michelle Gethers-Clark, Visa 
Carin Taylor, Workday

Year	Revenues ($M)	Profits ($M)
2019	$3,245	$-495
2018	$2,428	$-335
2017	$1,853	$-369

Workday

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