Memorandum to the CFO: Get ahead of digital finance-or get left behind

Memorandum to the CFO: Get ahead of digital finance-or get left behind

Companies are still in the early phases of adopting digital technology to financial activities in ways that will result in increased efficiency, insights, and value over time. Here’s how the CFO can take the lead.

The digital finance organization is still a new idea in many organizations, and CFOs are still far from the core of digital-transformation efforts, while owning and managing much of the critical business data that feeds such projects. There is a clear mandate for them to take the lead: today’s CEOs and boards say they want CFOs and the finance function to provide real-time, data-enabled decision assistance. In addition, according to our most recent poll of finance professionals, CFOs desire to spend more time on digital initiatives and the application of digital technology to financial tasks.

However, data reveals that CFOs continue to devote less time to digital trends than to traditional financial operations. Why? Because there are few proven business cases of digitization in finance and few best practises to draw on, CFOs are frequently willing to let colleagues in IT, marketing, or other functions push the issue.

Many CFOs tell us they are clueless about where to begin; the quick emergence of novel technologies, combined with a general shortage of top technological personnel, won’t make it any simpler. CFOs, on the other hand, must begin to experiment or risk falling behind other functional groups within the business and companies in the industry that are already undergoing digital changes. They may miss out on a fantastic opportunity to help shape the corporate agenda.

A perfect place to start would be for CFOs to collaborate with the CEO, the board, and other members of the senior leadership team to identify jobs and procedures within the finance function that would benefit the most from digitization. They can then identify and invest in the necessary technology and capabilities to improve these areas.

The Digital Future of Finance

Because of technology advancements, digitalization is now a feasible goal for the financial department. These include the broad availability of business data, teams’ ability to handle massive volumes of data using newly available algorithms and analytic approaches, and advancements in connectivity tools and platforms such as sensors and cloud computing.

CFOs and their staff are the gatekeepers for crucial data needed to develop predictions and support senior leaders’ strategic goals and choices, including sales, order fulfillment, supply chains, consumer demand, and company performance data, as well as real-time industry and market statistics.

There are four areas of technology that show the most promise for usage in finance right now:

  • Finance procedures will benefit from automation and robotics.
  • Data visualization may provide end users with real-time financial information while also improving organizational performance.
  • Advanced analytics for finance operations to speed decision-making
  • Advanced analytics for overall business operations to find hidden development prospects

CFOs may choose to advocate for and pursue investments in one or more of these areas. Much will be determined by the company’s starting point, which includes its current strategies, needs, and capabilities, as well as its existing technology and skill sets. It is vital to emphasize that digital transformation will not occur overnight, and businesses should not cite their outdated enterprise resource planning and other backbone systems as justifications for delaying the move. The CFO can establish proof points and facilitate the ultimate rollout of digital technology across the entire function and across other parts of the organization by working in small pilot projects and effectively digitising the most crucial jobs inside finance.

Simplifying with Automation and Robotics

According to research, 40 percent of financial activities (such as cash disbursement, revenue management, and general accounting and operations) can be entirely automated, while the remaining 17 percent can be mostly automated. These numbers highlight how CFOs and other corporate leaders may use automation to streamline basic internal activities, develop consistent reporting methods, and work more efficiently.

Robotic process automation (RPA)(link: https://dxsherpa.com/going-beyond-automation-with-hyperautomation/), a category of automation software that performs redundant operations on a regular basis and ensures that they are finished swiftly, efficiently, and without error, is a vital instrument that cutting-edge finance departments are already investigating. RPA and other task-automation tools have matured to the point where they are used not only in discrete business operations but across numerous areas of the organization. Companies that have effectively implemented RPA on a large scale have done so by changing their operational models and revamping their processes. Finance personnel are being trained on RPA technology so that they will no longer need to send work flow requests to an already overburdened IT company. This advancement has made it easier for businesses to move beyond RPA pilots and achieve actual results.

A significant European utility used RPA technology in numerous trial areas, including “master data management,” after examining automation prospects as part of a two-year lean-transformation effort. Its process for building system profiles for new suppliers (or updating information on current vendors), for example, included a series of manual tasks that may take personnel several hours per day. However, the end-to-end process stages were primarily rule-based, and all data was in digital form, making the “vendor creation task” a prime candidate for RPA. Given the time and cost reductions connected with the deployment of RPA in this pilot area and several others, the utility enhanced overall productivity within the finance function in its shared service group by nearly 20%.

Other benefits have resulted from the adoption of RPA at one European bank. To generate monthly spending reports, the bank has integrated RPA with natural-language generating software. A back-office system collects and analyzes the data and creates the “spending story” automatically, for example, by displaying key performance indicators and adding red lights in cases where there are statistically significant changes in nations or product categories. Rather of spending time manually generating such reports, financial controllers can use the automated data to focus on higher-level duties, such as determining how to address red flags.

Data visualization and Improved Performance

If financial function’s efforts with automation are mostly focused on process optimization, their trials with data visualization are focused on increasing overall organizational performance. To make sound resource-allocation decisions, teams require real-time financial data. They frequently lack access to such data because data repositories are spread across an organization, data formats are incompatible, or data is not available at all.

However, some finance departments are combining automation and data visualization technology to provide clear, fast, and actionable business reports. These reports deliver data to end users promptly and in user-friendly formats, encouraging focused business dialogues.

A huge consumer-goods company’s finance department, for example, has implemented a self-service strategy. Instead of waiting for reports, sales employees can use visual dashboards (available through a laptop or mobile device) to acquire the data they need when they need it -by area, business unit, function, or other characteristics as needed. Sales managers and other executives pull data from a central repository that is constantly refreshed, allowing them to receive an accurate view on how demand is changing swiftly. This self-service strategy has reduced the need for the finance group to prepare reports by more than 50% while also lowering the cost of reporting by 40%.

Similarly, a European technology company’s executive board no longer utilizes PowerPoint. Instead, business leaders use huge touch screens to obtain real-time financial and operational data. The data is displayed in simple graphs that indicate departures from the plan. The graphs are dynamic, redrawing themselves as users add and remove variables.

To integrate data-visualization tools with a company’s existing systems, the CFO and other business leaders will need to work with the CEO, chief information officer, and IT group. They will need to rely on data scientists and data analysts who may work in IT or directly with the financial division. Such expertise may assist the CFO in rethinking and rebuilding end-to-end finance processes (such as data-to-report, purchase-to-pay, and order-to-cash processes) using a visual, user-focused approach.

The CFO will also need to understand how to manage procedures and communication in a “data democracy” -where corporate information is accessible at any time, from any location, to anyone. It is unavoidable in such an atmosphere for business units to want more and more data, rather than less. The CFO will need to collaborate with the CEO and other business leaders to develop data usage policies that reflect the specific information needs of decision makers across the firm. They will also need to make certain that they are employing high-quality data. Otherwise, there will be anarchy in the analysis.

Advanced Analytics and Value generated through it

Companies across all industries are now experimenting with advanced analytics, which involves mining vast amounts of corporate data (on people, profitability, processes, and so on) for relevant insights that can help business executives make better tactical decisions. Similarly, the CFO and finance division can employ advanced analytics to better successfully handle basic financial transactions and fundamental operations, as well as shape (and speed up) tactical talks.

Once CFOs understand the role advanced analytics can play in enhancing financial processes, they can collaborate with the CEO, board of directors, and other senior leaders to discover broader applications of advanced analytics to uncover new sources of company value. Indeed, every CFO should expressly specify the leadership role he or she intends to play in turning pressing business concerns into advanced analytics use cases -whether to optimize pricing, identify customer churn, prevent fraud, manage personnel, or explore a variety of other applications.

A Standardized Transaction

A truck manufacturer utilizes sophisticated analytics to track generic forklift sales because it considers this statistic to be an early indicator of its own sales. Other firms’ finance teams are utilizing sophisticated analytics to discover duplicate spending and invoices, or to correlate the terms of procurement and payment schedules for a good or service with actual invoices in order to spot early or missing payments, or possibilities to offer discounts.

Core Finance

Advanced analytics are being used by a chemical company to improve demand forecasts. Historically, its forecasting techniques were based on basic internal customer data and evaluated historical trends to anticipate future demand. Furthermore, the forecasts were at the aggregate level, i.e. for entire classes of chemicals rather than individual chemicals. To develop estimates for specific locations and SKUs, the organization cross-referenced internal customer data with external data sets such as stock prices, sales, weather, currency rates, and business-cycle indices. In this manner, the corporation could determine whether or not existing estimates were correct and respond accordingly.

Getting Started with Digital Transformation in Finance

CFOs and their teams can begin the digitization process by inventorying core use cases and identifying where they stand with each of the digital technologies mentioned above. They should ask themselves questions about the potential value gained from digitizing finance process, as well as the level of feasibility -a process known as doing a value scan. They should hold discussions with business-unit leaders about the pain areas in various finance processes, such as sluggish reporting and incomplete data. They should conduct a systematic review of technological capabilities with IT function members in order to establish system requirements and investments.

The CFO should collaborate with other senior leaders to enhance competency models, particularly those related to the finance department, in order to attract and retain the workers required to carry out a digital agenda. A desire to learn about new technology or process-design expertise may be required -skills that go above and beyond standard financial jobs. To counteract resistance to change and reward individuals who support the formation of a digital finance division, CFOs and senior leaders may need to dramatically redesign incentives and compensation structures. Incentives of this type might also assist the organization in attracting top digital talent.

Perhaps most importantly, CFOs will need to work with key business leaders to verify that any digitization and transformation initiatives adhere to the company’s cyber security standards. They may even invite members of the cyber security team to meet with members of the IT and finance units to share goals and concerns. CFOs who lead the drive toward digitization will not only make the finance function more efficient, perhaps boosting their candidacy for senior roles within or outside their organizations, but they will also become greater partners of CEOs and business units.

Summarizing CFOs role towards Digital Finance

Despite all of the advantages of digitizing the finance function that we have discussed, there are numerous challenges that a bot or an algorithm cannot address, such as when there is insufficient data or when evaluating strategies over a longer time horizon and more human judgment is required. However, the opportunities clearly exceed the challenges at this stage, and the mission is clear: CFOs must build and share a vision for a digital finance role with other senior leaders. They have a clear potential to shape the evolution of their companies while also gaining useful insights and experiences. However, those ideas and experiences will not arrive unless CFOs take the first moves.

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Author : Animish Raje