Digital transformation and the role of finance


Digital transformation of finance teams

The finance function within organizations is rapidly changing. With the up rise of digital transformation, competition is fiercer than ever. Markets and business models change overnight, and disruptive technologies are quick to change the dynamics of the business environment. Therefore the number-one enterprise-based objective for finance in 2018 is to support enterprise information and analytics needs. Management and business leaders want to have fresh insights, so they can make effective decisions about how to survive in a fast-changing landscape. It’s no longer sufficient for finance to describe what happened last quarter. Organizations need to be able to predict the future and support decision-making at the highest levels with meaningful analysis. Meaningful analysis is analysis that is put in a business context and can help drive practical business decisions, which will enhance enterprise performance.

Currently we see that the finance function is hampered to reach this new objective: 

  • Complex financial systems are not easy to use and do not store enough data.
  • Complex financial processes that have many manual steps and are taking too long, putting strain on the finance team.
  • The use of different systems that are used to report (no single source of truth)
  • Not enough possibilities and capabilities to do analytics and provide predictive insights to the business.

An integral approach needs to be taken to make sure the new objectives can be met. Not only technical solutions like new analytics tools and systems should be taken into account, but there also needs to be an exercise to improve and set new goals for the current processes and the way the finance function is organized.

Make your Organization digital-savvy

The finance organization needs to be ready for a digital strategy and digital transformation. A recent SAP-Oxford Economics study of 3,100 organizations in a variety of industries across 17 countries, found that the companies that have taken the lead in digital transformation, earn higher profits and revenues and have more competitive differentiation than their peers. They also expect 23% more revenue growth from their digital initiatives over the next two years—an estimate 2.5 to 4 times larger than the average company’s.

Providing better analytics is the top improvement objective on finance’s agenda. We know that while that’s the top objective, it’s also the area where finance has the least mature capabilities. This gap needs to be closed. The gap can be closed by hiring Digital Finance Analysts, who have financial as well as technical capabilities. Finance not only needs the old fashioned bookkeeper, but also needs to acquire top analytics talent that is able to drill through vast amounts of data in an efficient way. Hiring such candidates is hard because this is a new area for finance teams. Also analytics related training of the finance team should be the top priority. Training efforts must be focused on effective business analytics capabilities.

Simplify your processes

Processes must be as lean as possible. Not only to make sure the TCO is low, but also because operational processes take a lot of time from the finance team members. Time they can’t spend on predictive analytics and new projects. Using standard and simplified processes makes sure staff members are not spending too much time on the operational processes like MEC, QEC and YEC but can focus on more added value activities needed by business partners. Artificial Intelligence (like Robotics) and finance automation can really help in this regard. By using Robotics, it will be possible to leave repetitive tasks to software robots.  Processes that can potentially be robotized are processes that are manual, based on structured data and are digitally stored.

What about technology – Should the CFO care?

It is clear that technology must be able to support the new requirements. To be able to do predictions and real-time analysis, the IT systems must be implemented in such a way that they are helping the finance team digging through a large set of data in a meaningful manner. CFOs need to ask themselves, whether their current systems enable them to expand or refocus the business or put constraints on those abilities. Cloud-based ERP systems can provide a number of advantages: constant updates that keep pace with regulatory changes automatically; localized solutions that address language, currency, and tax laws; and capabilities that enable you to quickly explore new business scenarios.

Mainstream or broad-based adoption of advanced analytics tools is forecast to increase in the next two to three years. Also data visualization tools will be very important for the finance function. New analytics solutions that work with Big Data and patterns, to come up with predictions about the future rely on interactive and advanced graphics for both discovery and display.

Master data management is key

Working with Big Data and new analytic tools must be accompanied by a jump in the adoption of master data management (MDM) technologies. Without agreement on common data definitions, how data is stored, and how it can be changed, there can be no data integrity. Without data integrity, the outcome of any analytics solution cannot be trusted, no matter how sophisticated. 

A new focus for the CFO

Looking at the above we can see that the CFO should not only focus on financial KPI’s (like Current Ratio, Working Capital, etc.) but must also cater for new more digital inspired KPI’s specifically aimed at process operations, Human Capital performance  and Transaction processing and reporting. Then it will be possible for the finance function to take up the new challenge of really helping the business, by giving insights and predictions based on financial data. Finance leaders who are unable or unwilling to critically assess their people, processes and technology will ultimately fail to become truly valued strategic business partners. In the next blog we will discuss which new KPI’s can be used and how to measure them. 

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