At a time when businesses need to make better, more timely decisions, finance executives need to lead a technology-driven transformation within the finance function and across the enterprise.
Their sense of urgency permeates a recent study, “The Finance Function’s Readiness for Change,” conducted by CFO Research in collaboration with WNS. In a survey of 156 senior finance executives at U.S. companies with annual revenue of more than $1 billion, respondents revealed how far their companies have to go before they can consider key aspects of their finance function worthy of being labeled as “advanced.”
The study asked respondents to rate the current and future states of their finance function along four crucial dimensions: the finance operating model; automation of finance processes and activities; governance, risk, and control (GRC) structures and processes; and adoption of sophisticated analytics and digitization.
For each of those areas, respondents were asked to choose among three levels of proficiency: basic, intermediate, and advanced capabilities. They were required to not only assess the current state of their organizations but also the level they thought their companies would need to achieve in two years’ time. Among the areas included in the study, the one which drew the lowest number of respondents who ranked their finance function as “advanced” was also the most dramatic: adoption of sophisticated analytics and digitization.
Analytics and digitization, in fact, are key in broadening the role of CFOs, who are best-positioned to leverage big data. The fact that only about one quarter of respondents (26%) claim to have reached the highest level in that realm isn’t necessarily an indication of where it ranks among finance chiefs’ many competing priorities. More likely, it reveals that finance executives are still busy laying the groundwork for that transformation, which first requires directing investments into, and gaining mastery over, the other changes outlined in the survey.
Nearly half of respondents (48%) ranked their finance function as “advanced” in terms of the status of the operating model underlying finance—the highest number, by far, in any of the four categories (see Figure 1, above). By the study’s own definition, that translates into centralized control and standardized processes.
Those who chose “intermediate” weren’t much fewer in number, comprising 40% of respondents. (In the survey, “intermediate” encompasses global process owners combined with regional operations and external providers.) That number suggests that nearly 90% of companies represented in the survey have made significant progress toward increasing flexibility on an organizational and functional level.
Still, respondents are cognizant of the obstacles ahead of them, including structural complexity, lack of change management capability, and acquisition-driven growth, which can result in an assortment of non-standardized processes, controls, and systems.
Finance executives view automation—replacing manual data entry with technology tools—as an important enabler for finance processes and activities. Advanced automation would allow most data to be generated by digital tools, requiring minimal manual intervention. By leveraging automation, companies can reduce costs through streamlined processes and a decrease in errors.
A majority of survey respondents clearly recognize the value of implementing automation to optimize financial processes. Nearly 6 in 10 respondents (57%) believe that, in order for their companies to succeed, they will have to achieve an advanced level of automation for managing financial, process, and performance data within the next two years (see Figure 2). But as committed to that objective as finance executives may be, survey results suggest that a majority of them have been slow to rise to the challenge. Only a third of respondents (34%) say that their companies have already reached an “advanced” level in terms of automation.
As for the perceived benefits of automation, nearly half of respondents (48%) cite the same two benefits on their lists of the top three: realizing efficiency gains in transactional processes such as order-to-cash, purchase-to-pay, record-to-report, and cash management; and the ability to adopt digital performance management tools. In combination with big data, such tools would equip finance executives with valuable insights into the business.
GRC Structures and Processes
It’s understandable for finance leaders to act hesitantly when it comes to centralizing GRC activities. Mistaken moves, after all, could expose the company to a variety of costly risks, including compliance failures and reputational damage.
The reluctance to tackle such a daunting task may explain why two-thirds of survey respondents classify their own processes for ensuring compliance as either “intermediate” (61%) or “basic” (5%), meaning that their GRC practices either rely on non-standard processes and individual judgment-based metrics or include a mix of both standardized and non-standardized processes.
But a majority of respondents, 58%, believe that their GRC processes will need to progress to an advanced level within the next two years. Advanced GRC processes depend on a high degree of standardization, as well as sophisticated use of technology to provide risk-based metrics and dashboards that define global and functional standards, allowing management to identify exceptions quickly and respond appropriately.
The primary benefit to making such a transition, according to nearly half (48%) of respondents, is in ensuring compliance and avoiding personal liability. (The Sarbanes-Oxley Act of 2002 decreed that corporate officers can be held personally liable for misstatements and errors in regulatory reporting.) Other benefits of advanced GRC structures and processes, as chosen by a substantial proportion of respondents, include enhanced process efficiency and effectiveness (42%), a more agile and scalable control environment (36%), and ultimately, increased operating margins (32%).
Analytics and Digitization
By successfully leveraging data analytics technology, finance executives can broaden their corporate roles to become big-picture strategists. Armed with data-derived insights, finance chiefs can identify future opportunities to hasten growth and fatten profits.
But among survey respondents, the vast majority have yet to acquire or master the technological tools that will elevate their duties and their companies to new heights. In the survey, only about one quarter of respondents (26%) say their use of technology is “advanced,” a classification characterized by a focus on advanced data mining and predictive analytics as well as an integration of financial and operational information. And 80% of respondents say that the use of spreadsheets is still ubiquitous at their companies. Regardless, more than half of respondents (53%) recognize the need to progress to an advanced state of using technology within two years.
Digitization is a crucial link to developing data-analysis capabilities. Indeed, about a third of respondents say that digitization will allow their companies to build agile business processes in line with market shifts. Clearly, finance executives are aware of the technology’s role in enabling them to weave raw data into patterns that form the basis of valuable insights.