The days of finance as an accounting function are gone. Digital is disrupting the work of finance and elevating the scope, influence and role of its leaders. Corporate finance always played a critical role as guardian of the company’s health.
In keeping with a mandate to vigilantly manage costs, ensure adequate financial controls and protect shareholder value, the CFO served as financial steward overseeing a team that spent much of its time capturing, organizing and analyzing data for routine operations. Those days are fast fading. Digital is changing financial roles, including the CFO’s, and how the team serves its clients. The impact on the Finance and Accounting (F&A) group has been immediate, blurring the boundaries between front, middle and back office. Finance is becoming more integrated into the company’s core business and having greater influence on the customer experience. Today’s CFO is both operating officer and chief customer officer. Like the CMO, the CFO must ensure that the customer’s last, best finance experience becomes the expectation and reality for each future transaction. The CFO is also playing a more strategic role in driving overall company performance. As automation and artificial intelligence technologies move from academia to practice and solution providers are exploding with new analytic tools, the CFO 2.0 is becoming a catalyst, technological innovator and the “headlights for the business.” The CEO relies increasingly on their rigor and results orientation to drive long-term profitable growth.
As digital moves to the top of the agenda, the CFO and finance team will lead the company’s transformation to a more customer-centric, insight-driven and agile organization. That journey requires focusing on five areas:
- Investing in automation to relieve the team of simple tasks and allowing managers to handle more advanced problems that accelerate growth
- Making finance a business owner by managing data assets. The finance function will use descriptive, predictive and prescriptive analytics to drive better organization decision making.
- Managing transformation with new collaboration models and pilots based on trial and error, testing and learning, and scaling and deploying
- Building a new talent model of financial professionals who have the analytic skills to support a performance-driven finance function
- Redefining the role of service providers from vendor to business partner
Few would have predicted that finance would be driving the digital transformation of today’s corporation. But as CFOs adopt and quickly scale new solutions with demonstrable ROI, they, more than any other C-suite peer, are best positioned to deploy new digital delivery models
How finance sees its role in an era of digitization
While CFOs are aware of the need to improve the professional skills and technologies within their teams, their broader objectives involve redesigning operating models and digital systems to improve data management and improve business decision making. The digitization of finance enables functional leaders to focus on speed, agility and performance.
Key among strategies to accomplish these are:
Increasing finance efficiency. Bundling and automation of mass processes (such as closings, procurement and sales) allows the finance team to free up capacity and enable broader efficiency gains. Over time, they’ll be able to do more with less.
Creating greater agility and flexibility. The new digital business model challenges traditional approaches to planning, reporting and performance measurement. Finance teams can now produce agile financial plans. For a media CFO, the value lies in access to real-time data that make their team faster and more agile in how they work.
Making it easy for the customer to do business with the firm. In manufacturing, CFOs need to be more concerned about value. That value carries over to the customer experience. They are examining how easy it is for customers to deal with their company. For many manufacturing CFOs, digital alignment begins there.
Transforming skills to make finance relevant to the performance-driven enterprise. Finance managers will require business judgment, critical thinking and the ability to formulate the right questions as the team manages ever-growing amounts of new information. While the pace of change will vary by company, the adoption of digital technologies is on the rise. Approximately $1.2 trillion will be spent globally on digital transformation by 2019. Many CFOs hope that transformation will create progress in crucial areas that improve forecast accuracy and help them better manage risk. Digital is providing CFOs with the opportunity to build new business models, but they’ll need to determine the scope of change as technologies quickly evolve.
Roadmap for digital finance
CFOs must have a clear digital strategy. Not every organization needs every new platform and tool; they will need to choose each investment based on their specific needs. They’ll also want to gradually integrate those technologies into the fabric of work, building them into their operating model and the work style of their people
Integrate Automation and AI
Many CFOs begin the digital journey by accelerating processes that will quickly and efficiently operationalize routine tasks and reporting. These may include robotic process automation to help with tasks like backlog elimination; user-centric design to simplify processes such as mobile expense approvals; and automated reporting.
Companies are using this in many ways. A consumer products company implemented an automated order and distribution system that produced vast amounts of data. They created a data sciences group to better drive efficiencies in managing spend.
Using analytics and AI, CFOs can accelerate the move from reporting to monitoring.
Tools for smart planning and liquidity management have helped manufacturers analyze market, political and macro data to improve sales forecasts. Predictive analytic pilots employing a combination of machine learning and human analysis have likewise helped financial institutions detect early signs of project risk and identity fraud. Data visualization tools are providing real-time data in formats that can be customized to track specific elements of business performance, such as sales or expense management. A global products company used dynamic data processing to capture real-time sales data. To facilitate sales, they created an application that put data at the tip of their employee’s fingers on the device of their choice. Tools such as these are helping drive better decision making.
Get the most out of data
The prevalence of data is changing finance. The Economist, in its May 6 cover story, declared that data is the new oil—it’s the largest, most desirable asset in the world. The key to success for any company is how to manage and use it. Finance no longer has the data monopoly within companies, but it controls key parts of that ecosystem, including the ability to analyze whole systems of transactions rather than just part of them. CFOs are integral to data management, but they must get used to dealing with outputs as well as inputs, which requires understanding what is being produced and the organization as a whole. The benefits can be significant. Analytics and the strategic use of data to influence business performance can make the CFO a business partner to the CEO. It also gives the CFO experience in delivering major transformations and an understanding of good program management and delivery.
Break down organizational silos
Digital technology has the ability to transform how executives and their teams work across functions. As finance moves from back office to the middle and front office, the CFO becomes integral to drive new collaboration models. In fact, success relies on their ability to work across the organization and change the culture of the business. CFOs will have to become more relationship-focused, which means engaging with internal clients early on to understand their business needs and co-creating solutions. They’ll also need to educate stakeholders on new technologies, tools and analytic solutions so they understand the CFO’s vision of the future state and work together to achieve it. Finally, CFOs will need to regularly communicate to the CEO and functional leaders to demonstrate how digital is driving operational efficiency, better analytics and overall ROI.
Build new talent models
Perhaps the most critical step change to digital evolution involves people and skills. As tasks shift from human beings to centralized platforms and bots, there will be a dramatic shift in the roles and talent profiles required by finance to do the job. Finance will no longer have to rely on sourcing intelligent, educated offshore talent for data collection and reporting.
Instead, it will hire analytical managers who bring a broad business perspective and be socially adept at communicating with stakeholders across functions. The new F&A model requires a flexible skill set. Companies need to look beyond systems to how people and process will drive more end-to-end, customer-focused solutions. Financial managers must develop an analytical mind-set. New roles will also require a new organizational structure to help the finance team provide expert advice to drive business performance. CFOs should consider creating three role clusters to reinforce newer competencies, including:
- A finance competency center for accounting, treasury, risk/compliance and tax specialists to deliver expert advice
- An automation and AI group consisting of analytics, data scientists, a chief data officer and information designers to make finance smart
- A performance-analysis group of performance consultants, integrated finance experts, governance experts and project managers to drive business performance
Make vendors your partners
In planning and executing the digital journey, CFOs don’t need vendors as much as they require business partners. The growing supply of providers is changing demand for the services of larger firms. In 2006 there were 30 F&A service providers of a significant size. In 2016, there were 52 and cannibalizing market share from the top ten. Enterprises are often choosing agile providers offering individual solutions over larger established service providers. As a result, successful vendors will be those with flexible, customizable, and in some cases, industry-focused delivery models that incorporate automation and add value beyond staff augmentation.
Digital finance is becoming the big “from” and “to” story. The “from” is the old finance factory that focused on transactional tasks. The “to” is the future finance operating model built for efficiency, faster and better insights and decisions. Given the magnitude of change and transformation, how can CFOs build the right vision, source the optimal technologies and lay the digital foundation for long-term change?
EXL Service recommends that firms evaluate digital finance by three stages—foundational, process-specific and big bets. Foundational change introduces light automation, such as workforce and imaging tools, and baseline workforce realignment.
Process-specific finance incorporates advanced robotics, point automation and Lean Six Sigma to automate calculation engines and statutory filings. And big-bet strategies target enterprise-level change that impacts the future of finance. Most
CFOs focus on short-term technology and process solutions that have a high probability of success and a visible impact. These are still the early days of digital finance. Case studies are just emerging with best practices to determine how to start up a program, which technologies to use for each task and whom to partner with. The key is to identify a few technologies and process solutions and develop a clear understanding of how to operationalize them over time.
With all the opportunity that digital creates, execution will fall short if the CFO tries to do too much, too soon. Risks abound in any transformation, but introducing new technology and processes adds complexity, particularly if the CFO jumps in early with a new technology. Given the pace of technological change, CFOs should carefully evaluate their point of entry and roll out multiple pilots or proofs of concept (PoC) to test and secure validation before deploying. PoCs are critical to help bring the business along with the CFO’s vision CFOs should take note of other risks, not all related to implementation:
- The risk of inactivity. If the CFO is not getting ahead, they are falling behind.
- Change efforts need to stay best-in-class.
- The risk of being silent during testing. Regardless of the rollout stage, CFOs need to communicate to stakeholders, particularly during testing. It’s important to continually connect the promise with what the team is delivering.
- The risk of staying internally focused. CFOs need to be aware of the outside world, including a knowledge of the competition, and to communicate a holistic vision.
- The risk of not having the right talent to execute new tasks. The digital operating model requires different skills and new approaches. Finance managers will need to think in questions rather than execute reports.
Managing risk is integral to the CFO role. The real opportunity in building sustainable change is to look beyond foundational improvements and focus on true business model transformation.
Navigating the way forward
As finance shifts from stewardship to business performance, its leaders need to be forward-thinking, focus externally instead of only internally and adapt to new roles as HR managers. CFOs need to become change agents and help create a culture of collaboration and cross functional planning, as well as one of operational excellence. To accelerate that transformation, the CFO and finance team should:
Increase finance efficiency through process standardization. Standardization, bundling and automation of mass processes will free up capacity, enabling greater efficiency gains.
Move from back office to front and middle office to drive performance and internal collaboration. The CFO is no longer a silo, but integral to how companies prepare for the future.
Create a differentiated finance delivery model to respond to digital disruption.
New business models need new approaches for planning, reporting and measurement.
Make service providers partners, not just vendors. No finance group has all the talent and resources to effectively deliver change. Service providers are needed, but they should prepare to deliver individual solutions.
The path forward is gradual. Change will always compete with short-term priorities.
CFOs will need to develop an incremental approach based on use cases. They’ll also need a series of pilots using large data and algorithmic processes and a communications program to share key learnings and results achieved. The key is for CFOs to go as fast as they can and bring the business along with them.