Digital transformation is radically changing the nature of business and transforming industries beyond recognition. This is largely because today, digital technology is playing a key role in innovation in products, services and business models.
The 2018 edition of The Hackett Group’s annual Key Issues Study found that 74% of companies expect digital transformation to disrupt their industry and change the competitive landscape, while an even higher percentage, 82%, expect it to fundamentally change the operating model of their business.
The report ‘CFO Agenda: Finance’s Four Imperatives to Accelerate Business Value’ is based on results gathered from more than 160 executives globally, most at large companies with annual revenue of $1bn or greater.
Finance firms are acutely aware of digital transformation – 96% expect it to bring step-change improvement to performance and 97% expect it to alter the function’s operating model. Over half, or 56%, claim to have a digital transformation strategy, compared to 44% last year. However, only 35% say they have the capabilities to actually execute on this strategy.
Despite this capability gap, finance organisations are set to rapidly increase their adoption of both mainstream and emerging digital technologies over the next two to three years, with the fastest growth expected in areas such as robotics process automation, cloud-based applications, advanced analytics, and master data management technologies.
If finance functions are to accomplish their broader goals of lowering costs and headcount while improving insights that inform decision making, they must embrace smart automation and other digital transformation. However, they can only do so if they are able move from theory to practice, by upping their ability to execute.
In order to close this gap, The Hackett Group’s research identified four “must dos” for finance:
- Balancing investments to improve performance
According to our research, finance is again going to have to work with smaller budgets – a combination of a 1.3% projected reduction in operating budget and revenue growth of 3.6% was cited by our respondents. While this budget cut is the smallest in the past three years, it is significantly larger than those expected for other business services functions, including procurement and HR.
One reason that finance costs will drop by less than in recent years is that automation initiatives and organisational changes have already driven out significant process inefficiencies, making additional cost cutting more challenging.
- Support the enterprise with improved analytics and insight
Supporting the enterprise’s analytics needs is finance’s top objective in 2018, with 84% citing it as being of ‘critical’ or ‘high’ importance. The goal of the analytics focus is to enable finance to more effectively provide insight, so management can make smarter decisions about operations, investments and capital allocation.
Most finance organisations are undertaking technology, process and people-related initiatives to improve this capability. However, the combination of analytics, modelling, and reporting is one of several areas where a dramatic capability gap exists in finance. While it is of the highest importance, it is also ranked as among the most challenging to address.
An important part of this challenge is finding the right talent. While finance can access new technologies, it has a very hard time finding the right people to implement and use them. Talent is another area where finance sees high importance but low ability to address.
- Leverage digital strategy
Senior finance management is now aware of the importance of digital transformation and is beginning to allocate additional resources to drive fuller adoption. The research examined current and projected adoption rates for more than a dozen digital technologies and identified several interesting trends. Cloud-based tools are already gaining momentum for applications such as enterprise performance management, expense reporting, and account reconciliation. A ‘cloud-first’ policy is also emerging for applications that extend the functionality of core transactional finance systems.
The research found that the percentage of finance organisations that have broadly adopted advanced analytics is expected to grow by more than eight times over the next two to three years. A similar trend is expected in several other areas, including master data management technologies and data visualisation tools.
Robotic process automation was projected to be the fastest-growing of all the digital technologies considered in the study, and for good reason. It can help finance the automation of transactional processes, replacing staff with automated solutions that can provide the link between disparate systems, enter data from one system to the other, and substantially reduce cost and error in processes like accounting. Robots are best suited for rule-based processes. However, with the addition of cognitive computing, another strong growth area, they can do even more.
- Reshape the service delivery model
Virtually all research respondents also agreed that digital transformation is expected to significantly alter finance’s service delivery models. The research found that this is already taking place, with reallocation of finance headcount and workload from business units to global business services and centres of excellence expected to occur over the next few years.
The pace of growth for digital technologies in finance is rapidly increasing. It is no longer enough to simply understand the potential impact of digital technologies. Finance must move beyond readiness and exploration, to fuller adoption in those areas with the greatest impact. To this end, finance must have a strategy in place, a robust business case, a roadmap, and the people and resources to support it, or risk being left behind.
Gilles Bonelli is associate principal and David Ketchin managing director of the Hackett Group Europe.