At nearly every conference and webinar aimed at finance professionals, the subject of Finance Transformation (or Digital Transformation) is at the top of the agenda. Here we set out in simple terms what it is, why is it such a hot topic and gives some practical examples of transformations.
In simple terms, what is Finance Transformation?
Let’s start with the dictionary definition of transformation “…a complete change in the character of something, resulting in an improvement“. The two words “change” and “improvement” are important as both need to apply. Therefore, our simple definition of Finance Transformation derives from this and is “changing and improving the performance of your Finance Team”. When technology is used as an enabler for this improvement, then digital may be added, extending this to Digital Finance Transformation.
Why is it such a hot topic?
A good starting point to understanding this is to look at how transformation projects have been delivered in the past. The People, Process and Technology (PPT) framework was a key guiding principle – these three components working in balance to drive transformation. However, recent thinking now adds Data to this framework. Without Data you are unable to form actions and deliver insight and there is no purpose or objective for transformation.
There are two major factors that are influencing the current interest in Finance Transformation. First is massive proliferation of Data and the drive to mine and use it for competitive advantage. The second is rapid technology advances in recent years, driven by the Cloud, Artificial Intelligence (AI) and Machine Learning (ML). These advances have resulted in benefits such as:
- Speed of platform availability
- Ease of connectivity to disparate data sources
- Ease of connectivity for users in all locations – allowing a higher level of access and collaboration
- Unlimited storage and processing capacity
- Capability for more sophisticated automation of processes using Artificial Intelligence (AI) and Machine Learning (ML)
We now view the transformation framework we discussed earlier slightly differently. Technology is now the platform that; connects People; automates and links Processes; connects to, stores and enables access to Data. Technology is the enabler for transformation.
In addition, Cloud platforms generally have lower upfront costs and are faster to set-up. All these factors, along with the on-going uncertainty and financial pressures that we all know about, has created a perfect storm that is driving Finance Transformation.
Finance Transformation in practice
In or experience the foundations for a successful Finance Transformation are centred on the five core finance processes. These are;
- Entity Close – the ERP related period end close activities
- Group Close – or financial consolidation
- Budget, Plan and Forecast – as performed throughout the year
- Report and Analyse – reviewing results, variances and providing explanantions
- Disclose – putting together reports and documents for internal and external stakeholders
Making these processes as efficient as possible is nearly always the starting point. The most common examples are improving the financial consolidation and budgeting & planning processes – normally taking Excel based models and moving them to a more sophisticated technology. Another example is the automation of the manually intensive final mile of finance – the production and distribution of report books to internal and external stakeholders. A less common area, although one that is rapidly developing, is automation of ERP close processes such as period end reconciliations – examples of this are intercompany matching at a transaction level, bank or fixed assets reconciliations. All of these process improvements can also be described as Robotic Process Automation (RPA) or ‘Software Robotics’ to use the latest buzzwords.
For many organisations this can be where the story ends with a leaner and efficient finance team. This risks leaving the perception of the Finance Team being unchanged or, worse still, being seen even more as a back-office process function. Referring back to our original definition, we also need to effect change to deliver true Finance Transformation.
There are a number of examples of effecting change, the most common example being making use of data and turning it into information by adding insight and value. One of the biggest benefits can be achieved through developing your budgeting and planning process. Creating a connected planning process, working from driver based calculations and collaboration from multiple users, adding predictive analytics taking away user bias, to goal seeking optimisation to make the best use of scarce resources. This then delivers what I term “intelligent budgeting and planning” – a real value add to your organisation.
As you will note, we have not specifically mentioned artificial intelligence or machine learning at all. Where we are seeing this being used is in the ERP for “anomaly detection”. No doubt this is an area for future development.
This shows that a large part of Finance Transformation can be achieved by simply getting the basics right without the need for advanced technology. This will elevate the perception of the Finance Team within the business and enable them to become an influential business partner.
The rewards of a successful Finance Transformation?
Every organisation will have a different objective and a different journey. However, for us, your Finance Transformation journey is about developing “..a key strategic role for the CFO and the Finance Team at the heart of the business as trusted advisers and thought leaders”.
For us, this is the very definition of Finance Utopia, “an ideal or place in which all aspects of the Finance Team are perfect or have reached their full potential”.
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