Digital Transformation » Digital transformation is the key to success for the future of finance

Digital transformation is the key to success for the future of finance

Digital transformation is at the top of the finance director’s agenda in 2022 – and failure is not an option.

Digital transformation is now at the top of the 2022 finance agenda. Most executives see it as the only way they can meet their organisation’s growing demands for transactional support and financial advice.

Between the drive for growth, five to 10 percent inflation, the need to optimise working capital, wage pressure, the end of cheap credit, and fragile supply chains, most finance executives expect finance’s workload to go up this year, even as the function faces reductions in budgets and head count, according to The Hackett Group’s annual Finance Key Issues survey.

On average, executives polled expect finance’s workload to increase by nearly five percent, while budgets and head count decline by 0.7 percent and 0.6 percent, respectively.

How will finance leaders cope?

Finance executives at a global set of mid-sized and large enterprises who responded to this survey say their companies plan to introduce a wide range of new digital tools. The most popular initiatives are improving analytical, modelling and reporting capabilities (86 percent); reducing operational costs through greater process automation (66 percent); and implementing new finance technologies such as cognitive computing (64 percent).

They also see plenty of clouds on the horizon – the digital kind, that is. Today, the average company has about one quarter of its apps in the cloud, but finance directors hope to raise that to 50 percent in the next two or three years, beginning with the transfer of core enterprise resource planning functions and the integration of robotic process automation. Cloud is also becoming the default platform for enterprise performance management solutions.

These rollouts are happening very quickly. By 2023, advanced analytics, data visualisation and business process management/workflow tools will be in either general use or small-scale pilots by over 86 percent of all respondents, according to the survey.

Next-generation finance

All these changes are essential for two reasons – they provide more tools to use for better forecasts, and they free up more time. In a Digital World Class finance organisation, automating transactional work is now increasing staff time available for planning, forecasting and analysis from 28 percent to 37 percent. These changes will in turn make it easier for finance executives to fulfil their number two priority – becoming strategic advisors to the entire organisation.

Executives believe that the kind of nonroutine analysis many of them had to do to help their company survive the pandemic will now become the norm. For many industries so many things deviated wildly from earlier projections – up by thousands of percentage points for a virtual video call supplier, or down to zero for an airline. In this volatile world, a company can no longer afford to have some of its sharpest analytic minds focused on processing invoices.

To make sure they are up to the job, finance directors are also looking to improve their team’s capabilities by making sure that they have the skills they need to handle the more sophisticated analyses they will be called upon to deliver – some in largely unfamiliar territory.

The growing focus on environmental, social and governance (ESG) issues, for example, is one area that 63 percent of finance executives see as highly or critically important, but only 32 percent say their company has a strong ESG initiative in place, according to the survey.

At the same time, executives say they will be learning more about how to manage their staff effectively whether they are working in the office or at home – an important consideration given that 55 percent of their staff currently work primarily from home and another 31 percent work from home at least some of the time.

Finance executives are also looking to reach out beyond their silo to the organisation in a much more deliberate way than ever before. Nearly 60 percent of finance organisations have a 2022 initiative designed to improve the interaction model between finance and business stakeholders, making it one of the most prevalent finance initiatives of any type. Between one-third and one-half of finance organisations also have initiatives that aim to bolster individual business partnering capabilities, and nearly one-third plan to dedicate full-time staff to the job.

Keys to a successful digital transformation

Reaching this new level of performance will be a major challenge. To drive all this change successfully, the finance function first needs to change itself. In our experience, five factors distinguish finance teams that can drive successful digital transformations:

  1. They have a clear strategy, vision and set of strategic objectives that are widely understood in the enterprise. Everyone knows what they are going to do and why they are going to do it.
  2. They have a multiyear road map of initiatives to achieve those objectives. How are we going to get there? Over what time frame and in what sequence? This level of understanding is always important, but it’s essential in an uncertain time. After all, GPS is most useful when you’re lost.
  3. They don’t use the T-word. The most successful finance teams don’t frame their transformational initiatives as technology changes; they aren’t even calling them technology changes. Their focus is on improving processes to drive value.
  4. They are investing in the right resources. Transformation can’t be treated as an evening hobby. You need to allocate enough staff time to make sure it’s done right.
  5. They have the right incentives in place to keep people focused on the successful delivery of their goals and objectives.

David Ketchin is managing director of Europe for The Hackett Group. Tom Willman is principal and global practice leader of Finance Advisory for The Hackett Group.

 

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