One of the key questions finance leaders in Insurance are grappling with is - what does digital transformation mean for finance? Applied broadly, digital for finance could potentially encompass every technology, application, data, analytics, and cloud solution that impacts the finance organization. At EXL, we take an integrated approach to digital transformation, using the application of digital technologies, data management tools, and analytics solutions to improve the performance and efficiency of end-to-end finance processes. This is enabled and underpinned by foundational pre-requisites including clearly defined strategies, digital talent, mature processes, change management and hybrid operating models.
In many ways, the success of any digital initiative is dependant on the finance organization’s understanding and execution of its digital transformation strategy. Yet each digital transformation journey is unique. Each business is dealing with a different reality in terms of the complexity, geography and constraints and opportunities introduced by the variables associated with different service and operating models.
For some, digital finance may go hand in hand with achieving a more globally integrated finance function. For others, digital finance may drive cost savings first and foremost. Others yet may look to see better results in terms of moving from existing as transactional finance organizations, to becoming digitally-driven, real-time businesses.
With readily available data, the finance function is well positioned to take the lead in any enterprise digital transformation journey to produce demonstrable positive results. Once the vision is established, it’s time to move on to determining the best, most efficient way to meet individual digital finance needs, including looking at data, and using the right set of technologies.
"We see digital finance as a key enabler on our cost agenda and cost story, and also an enabler to more real time reporting. COVID has certainly brought this to the forefront. It is also the greater use of technology, end-to-end across finance, and the recognition of the value of automating as many finance transactions and processes as possible and make them ‘touchless.’ At its core is our ability to get our hands on data, and to make it meaningful. Technology is only as good as the data it consumes, and as such, we are focusing on data, our operating model, our people and the skills we actually need to be able to engage with digital finance."
- Group Financial Controller, UK Insurer
Applying Digital Transformation in Finance
It comes as no surprise that many CFOs consider digital transformation their top priority. Digital transformation can introduce significant gains in the quality of business decision-making, as well as gains in reporting, planning and financial close efficiency. There is extensive evidence surrounding how and where digitally mature finance functions are differentiating themselves with key performance metrics, whether it’s time taken to close the books, or proficiency at responding to change or talent retention.
However, it’s essential to understand the components that are required to ensure that finance organizations get the intended benefits out of their digital transformation efforts. The pre-requisites of digital transformation are important: strategy, talent, processes, maturity, change management and operating models – these are all integral components of setting up a successful digital transformation program.
What is apparent is that for most finance organizations, digital transformation journeys are incremental and open-ended. Some may still be in embryonic stages of the digital transformation journey, whereas others have been on the journey for years. To accrue meaningful benefits, digital transformation journeys must continue, gathering momentum and achieving scale more demonstrably as business evolves and time goes on.
"Our digital transformation program has been going on a number of years, as we support the business in gathering key insights. We’re now at a stage where we’re shifting to BAU capabilities as an established global finance operation within the organization. Today, part of our transformation journey is establishing tools and dashboard to enable self-service reporting. We feel very good about that and we’ve had a lot of success in this space. Part of any successful digital transformation program is shifting to the right change, at the right time – if you can do this, the improvements will continue."
- Global Head of Finance Shared Services, UK Insurer
Key Challenges to Digital Transformation in Finance
Several digital transformation challenges are common across the industry and have been difficult to overcome.
Data is a universal challenge, whether it is the availability of data, or the ability to use it. From global finance functions with diverse requirements, to single country CFO functions with more limited focus, the challenge of supplying data from multiple sources and consolidating and consuming that data is a common problem amongst finance organizations. In many cases, data may not meet the required level of detail, or is simply not of acceptable quality. On top of this, growing data volume and the expanding CFO role are creating demands for complex analysis and insights that most finance functions simply cannot meet.
"Many finance organizations are trying t o embark upon a data democratization approach, but many accountants and finance people may not have an understanding of how important data is to their day-to-day jobs, and may struggle to get their hands on that data. Data democratization is much easier said than done, especially in large legacy companies that have older administration systems."
- Managing Director and Controller, US Insurer
Digital talent is also hard to find and even harder to retain. Newer skills such as working with large datasets, building automated desktop routines, and troubleshooting digital solutions are required to realize the full potential of digital capabilities. Without such skillsets, finance becomes dependent on external CoEs for such services, resulting in an inefficient operating model with multiple hand-offs and unclear ownership. Attempts are being made to upskill existing talent and improve their digital fluency. However, the outcome of such efforts remains to be seen.
"Digital finance is a technical skill set in many ways. Many companies may expect the concepts of data integrity and golden source of data to really resonate with anyone who has an accounting background, but often that is not true. Many companies need more hand holding that they originally think when it comes to digital finance, and digital transformation."
- Senior Vice President, US Insurer
In addition, to a certain extent, current culture and working habits can be hard to change. It can be difficult to generate enthusiasm for digital transformation initiatives as many people will look upon them as another technology trend that may not survive the next implementation. Most organizations underestimate the effort required, often over long periods, to create newer ways of working with digital tools and technologies. Unless organizations can clearly explain to their employees why they need to embrace digital technologies and make the effort to learn new skills, it is often be extremely difficult to sustain any initial momentum that the first few high-profile pilot implementations might create.
While data and talent are a very powerful starting point, it’s also important to look at the impact of robotics and cloud in terms of the value and benefits they have generated. A significant proportion of CFOs are deploying robotics, and are experimenting with automation applications to reduce manual processes and create capacity.
In fact, this has actually accelerated over the past year as part of the ‘work from anywhere’ model. Yet few automation initiatives have met initial expectations in terms of business benefits. In most cases, such programs focus on cost-savings exclusively, limiting the business case to transactional processes. By not including data and analytics capabilities into an automation business case, finance functions are missing out on the full potential of such advanced technologies.
Cloud technologies are certainly on the radar of the finance executives. In fact, almost everyone we talk to is considering the adoption of cloud-based technology in some form or another. Cost efficiencies are a leading driver, along with access to information, scalability, efficiency and ease of integration across platforms. While cyber security remains a concern, there are solutions worth investigating, such as private cloud. It may be that it takes some time to develop adequate comfort for the finance function in the adoption of cloud based solutions. In the meantime, companies have been slow in establishing adequate response and monitoring mechanisms to secure security breaches.
Companies that have adopted the cloud in a significant way have had to acquire talent in a significant way as well. This is not just engineering talent, but functional talent that is comfortable working with tools and technologies based in the cloud. Such talent is scarce and in high demand, and usually not easy to attract and retain for insurance carriers..
"When considering cloud ERP, companies need to think about the solution side of things all the way across to the cultural side as well. These are separate strands that must be considered as finance groups prioritize alignment with group strategic goals. Finance needs to be careful in not just jumping into cloud technology solutions despite the allure of real-time reporting or new efficiencies. A planned our roadmap will ensure that finance can define, track and achieve cloud-based digital transformation goals."
- Head of Finance Change, UK Insurer
A Holistic Approach to Digitally Transformation Finance
From a digital perspective, finance needs a strong, complex technology enabler to move along the digital finance journey in order to see transformative results and benefits. With that enabler, the application of digital technologies and thinking digitally can drive a number of benefits.
What many companies are realizing is that, more often than not, technologies must work together to orchestrate success. Beyond challenges in adopting technologies for a successful digital transformation journey in finance, what many companies are also seeing is that using these technologies in isolation only takes the finance function so far. As processes become more complex and begin to include more and more human judgment, it usually takes more than one technology to have a demonstrable impact.
"I think sometimes we look to technology like a panacea, as though it will magically solve all problems. Technology is a huge enabler, but the process redesign surrounding it is equally as critical. Without that process work, companies are at risk of taking bad processes and putting them in new technologies. For global organizations in particular, it’s a challenge that needs to be met head on in order to consider disparate operations, and different processes."
- VP Finance Enablement Leader, US Insurer
However, in using various technologies to streamline processes, finance is also realizing a further common challenge in digital transformation: integration amongst a technical architecture and ecosystem is critical. Many finance operations quite naturally take on one digital transformation challenge at a time, using one tool at a time. These tools may solve weaknesses in, for example, the monthly book close, or re-forecasting. Yet they may also introduce conflict or highlight shortcomings. A planning tool may introduce a host of new efficiencies, only for groups to find that it’s not up to the task of reporting.
It’s a learning curve, and one where finance is gaining experience in looking at the link and dependencies amongst tools. The ability to think more holistically about a given technical ecosystem is one of the hallmarks of successful digital transformation, and when successful, the building blocks begin to fit together more fluidly, with benefits emerging more quickly.
It’s encouraging to see that far from hampering digital transformation, the pandemic has encouraged finance to think differently about it, and to become more resourceful as a result. Interacting with dashboards has become a natural way to work, and using mobile devices in the flow of day-to-day work has become an accepted norm. Despite any learning curve, what many finance leaders are finding is that the move to more virtual and cloud-based operations due to remote working necessity has actually empowered people to think differently about finance, core technology and analytics.
As companies look to widen their talent searches outside of previous geographical confines, they also open themselves up to a whole new world of talent. With new input from new and expanded roles, finance may just find that digital transformation becomes more strategic, more mutually beneficial for company and customer alike, and more future-focused and aligned with new opportunities for business growth in 2021 and beyond.
Vice President, Finance Transformation Leader
Vice President, Insurance F&A Practice Leader