Unfortunately, if we had to point out one department that struggles with new technological adoption, it would be the finance department.
In fact, according to a recent McKinsey survey, only 13% of CFOs and other senior business executives polled said their finance organisations are using automation technologies like robotic process automation and artificial intelligence. The survey reveals as well that, 64% of CFOs have digitised less than a quarter of the finance function in the past 12 months.
That’s not to say that CFO’s don’t want to adopt these new trends, It’s actually the opposite. CFO’s are more and more inclined to spend time on digital initiatives and on the application of digital technologies to finance tasks.
So what is actually preventing this eagerness to evolve?
We can tackle this question from two angles:
I. From a structural point of view
II. From a cultural stance.
We will get to the structural point of view later so let’s focus on the former.
Most commonly, CFOs associate their limited progress in finance transformation with the lack of a clear understanding of all the different digital tools. This actually demonstrates a deeper deficiency:
“The lack of digital skillsets within finance departments and organisations.”
This is mostly true in large organisation where systems haven’t been changed for years and where employees rely too much on their actual system, even when it becomes counter-productive. So choosing an efficient automated system and again blindly relying on it won’t suffice to bridge the gap with other digitised organisations.
“The reason is that any transformation starts with a change in mind.”
This change in mind doesn’t appear from one day to another. As a CFO, you need to meet and hire people that are from different horizons and focus on some soft skills that are essential to digital transformation.
“People with knowledge of start-up environments, that are quick to adapt and think out-of-the-box are the one you should look for as they know how to work without clear structures.”
In other words, in order to change your own view, you need to accept to learn from others, and more certainly from someone who is younger than you. This way, you can instill this new approach to your entire team.
The real difficulty with Finance Transformation is its constant evolution. One progress is not enough and you constantly need to adapt to new technologies in order to remain competitive. Hence, curiosity, adaptation, and inventiveness are key to truly accomplish finance transformation.
That might be a bit philosophical but a business’s only limitation is the set of individuals that compose it.
Start by developing a change in structure:
The Agile Environment.
Most of us that have worked in finance organisations or departments can testify of the flagrant lack of communication within these structures. Teams are summarised with a mere title and we only have a vague understanding of each group’s day-to-day tasks.
So how can you automate an entire department of different group of individuals and skillsets under one and unique structure when groups are usually secluded?
The answer is: You can’t.
Hence, you need to re-think the entire communication structure underlying your department. That is where the Agile methodology comes in place. A people-focused, results-focus approach that respects our rapidly changing world.
The entire structure is centered around adaptive planning, self-organisation, and flexibility. It was first introduced and used for software development but this new project management method has since been adopted among other industries. At first, the approach was actually an answer to the insufficiency of the traditional waterfall method which is a static and sequential method in opposition to a more flexible and adaptive process.
Tools, such as the newly introduced monday.com, Jira, Zoho sprints or Clarizen are a good start to establish more communication around your different teams. This will allow your finance staff to step away from their unit-specific tasks and help shape financial strategy for the business overall.
The end goal is to create a change in culture structurally and generate instant, frictionless, incremental, risk-free value at scale and the financial rewards that come with it as exemplified by the 5 largest and fastest growing firms on the planet; Amazon, Apple, Facebook, Google, and Microsoft.
Although popular and already well established in the tech industry, we must acknowledge that the concept remains somewhat unclear, if not obscure. So here are a few features of an agile finance organisation:
- Projects should be done in small autonomous cross-functional teams, working in short cycles and receiving continuous feedback from the end-user.
2. As mentioned earlier, the Agile approach creates a collaborative framework around the different teams but more importantly, it establishes a flat network of groups, excluding the concept of hierarchy, to present the organisation as a fluid and transparent system of players.
3. Promote entrepreneurial spirit to each member.
4. Foster the exchange of knowledge among groups and promote innovative thinking, especially when it comes to the use of new digital tools.
The five trademarks of agile organizations, McKinsey & Company
Assess the new trends in technology
Obviously, no company needs to be a leader in the Agile project management structure prior to starting its finance transformation. As the Agile methodology is not an end, but a means, as soon as you start encouraging your teams by using the various actions mentioned above you should be able to collect the right information and grasp which team leaders are more inclined to change and adapt.
In spite of finance departments’ late response to digital transformation, new trends and technology are pointing out the inevitable: 40% of finance activities such as cash disbursement, revenue management, and general accounting can be fully automated, and another 17% can be mostly automated.
Moreover, among all the different new technologies, two stand out and will certainly reshape the finance function, namely:
- Automation and Robotics
- Data Visualisation and Advanced Analytics
Automation and Robotics
Among these new trends, Robotic Process Automation (RPA) has already been explored by leaders in the industry. This technology, a category of automation software, helps companies to perform repetitive tasks without human interaction and streamline processes.
While the technology is no more in its infant stage it can be applied across different areas of a business, it generally requires a change in operating systems and in work methodology. However, once systems are changed and staff members trained to use RPA software, the reduction in manual data entry and the collateral benefits will outweigh the time spent on planning the entire new set up.
On average, the overall productivity of finance function increases by 20%, without considering the benefits of automation such as the reduction of human errors.
Data Visualisation and Advanced Analytics
Advanced Data Analytics is playing a major role in departments such as sales and marketing. Yet, this hasn’t been applied extensively to finance functions. Many companies are still relying on spreadsheets and people’s experience to process huge amounts of information while not re-assessing their methods hence, limiting innovation.
Most certainly, the most detrimental aspect of these outdated processes is the inability to discover new data or metadata, which is what provides advanced data analytics.
Technologies such as Artificial Intelligence (AI) or machine learning provide very interesting capabilities allowing companies to discover new patterns or rogue information about their activities. Instead of having 5 key figures, advanced data analytics could provide an entire ecosystem scan of a department and outline its pain points.
Generally, these new software provide a user-friendly framework that helps users grasp information more easily as well. Intuitive data formats are pushed towards the user with flexible and actionable business reports.
Coupled with RPA capabilities to process large amounts of information, advanced data analytics will not only provide real-time data but more importantly predictive data which can be applied to risk management, forecasting and compliance.
These two features are both commonly used simultaneously in the finance function and ERP departments to process invoices, trigger payments, assess vendor reliability and audit processes.
These two trends are the most investigated at the moment as they solve major issues within finance departments such as the reduction of time-consuming data entry or the collection of data via outdated processes. However, many other new technologies and methodologies are predicted to impact our industry:
- Automation and blockchain technology with tamper-proof data.
- Real-time financial reports, reducing the amount of periodic reporting.
- Increase of APIs which will require many companies to clean up their data and move towards standardisation .
- A change in workforce tasks and knowledge and workplace structure
Be prepared to take risks
That might be double-edged sword advice but you can’t expect to change and remain competitive without taking some risks. The problem is, many companies should have started to change years ago but did not and are now realising the urgency of finance transformation. Such changes require self-reassessment, a clear understanding, and bold actions. As a CFO, you might need to convince your entire team including your superiors of the benefits of a particularly disruptive technology or process.
Taking risks does not mean being riskier. Although there is a part of unknown, a lot can be done on your end to start with a comprehensive framework.
Again, the Agile methodology, thoroughly applied or not, is a good way to collect data from different teams and more importantly to detect teams and “leaders” that are open to new processes. Additional talents with experience in structural changes and finance transformation are also key to start your transformation journey on the right foot.
Choose Partners instead of third-parties
Here again, when the time comes to choose new solutions, you will have to trade the old habits for new ones.
Instead of establishing a business agreement between your company and a third-party solution, seek to engage with potential solution providers that could become partners and help you along with your transformation.
Nowadays, companies have to create an ecosystem of partners and vendors. Most solutions are either open-source software or cloud-based and can be customised to your organisation’s specific needs.
Moreover, such type of solution is constantly evolving and new updates are frequent so a good partnership will help you adapt to up-coming features.
You will need to be curious. Only 30% of finance transformations deliver on the forecasted benefits to the business because of shy initiatives, lack of understanding and difficulties of adopting new changes.
As you may know by now, finance transformation is possible thanks to new players that are digital savvy and hence provide disruptive technologies. That’s why, in order to fully leverage these new tools, you will need to update your current structure, processes and the way projects are conducted. But all in all, it starts with the right entrepreneurial mindset.