Why CFOs must look to digitisation in today’s economic climate

Despite today’s inflationary climate, CFOs are looking to embrace digital technologies to help them drive down costs and maximise profits. According to a report by Gartner, 78% of CFOs plan to maintain or increase enterprise-wide digital investments in the next two years – even though they will cut costs?in other business areas if inflation persists.

Moreover, CFOs plan to spend even more aggressively on technology in their own finance functions, with 52% of CFOs scaling up digital investments and 38% saying they intend to protect their current investment levels.

Gartner believes that inflation is the new catalyst driving CFOs to ramp up digital investments with the aim of lowering the cost of doing business and identifying new sources of profitability.

“CFOs know to never waste a crisis or downturn. It’s a time to reinvent, make better investments, and reduce inefficiencies,” writes Alexander Bant, chief of research in Gartner’s finance practice, in the report.

“Winners on the other side of this cycle will have continued to accelerate the right digital initiatives across their organisations even as there are mounting pressures on profitability.”

Meanwhile, Gartner’s Finance Technology Innovations Survey, which polled finance leaders on investment in specific finance technologies over the next two years, found CFOs will increase investment in robotic process automation (RPA), reporting automation and process mining and technologies that can streamline routine processes and free up staff.

Tony Tiscornia, CFO of Coupa Software, believes that the current economic uncertainty has had an impact similar to the onset of the COVID-19 pandemic.

Tiscornia said it had “opened the eyes of businesses to the need for greater visibility and control over their finances and wider supply chains.”

“At a time when most businesses are trying to conserve their runway and reduce cash burn, digital investments may initially seem hard to justify, but without full, real-time visibility, how can companies make informed, data-driven decisions?”

He said modern companies had already started acting.

“They are digitising their processes and getting to grips with their data, enabling them to have better control over spending decisions and payments. This will help build the agility they need to move quickly once conditions stabilise,” says Tiscornia.

He adds that increased visibility across all spending helps business leaders make informed decisions that ensure their companies remain competitive. For example, it can help them identify minor surgical spending cuts that will do the job instead of broad cuts that may impact growth.

Supply chain benefits

According to Tiscornia, digitisation can also help a CFO in fully understand his or her company’s supplier network, including where suppliers are located and what they provide to the business.

“This may help CFOs discover an opportunity to consolidate supplies with fewer suppliers and use the resulting leverage to negotiate a better price,” he says.

“Similarly, technology can give CFOs insight into the health of their supply chains. If any partners start to show signs of distress or are failing to deliver on time, the business can more quickly pivot to new suppliers and avoid future disruption,” says Tiscornia.

He adds that in today’s difficult economic climate, investors in companies are also placing more focus on profitability.

“A company’s ability to generate profit is incredibly important because the market is punitive to companies that fail to show consistent profitability.

“Demonstrating profitability requires CFOs and finance teams to get their company’s spending under control, and ensure every spending decision is as wise and efficient as possible,” he says.

Tiscornia also urges CFOs to recognise the importance of digital investments to drive growth and profitability, whether there’s a downturn or not.

“There’s almost always a smarter, better, faster way to run the back office, and the lessons learned here can be shared with other teams and departments. Back offices are often plagued with legacy technologies and manual processes that contribute to burnout, provide limited control, and are unable to scale as companies grow,” says Tiscornia.

Choosing the right digital path

However, according to a recent survey by McKinsey & Co, most organisations are achieving less than one third of the results they expected from recent digital investments in terms of higher revenues (31%) and lower costs (25%).

Moreover, about 70% of respondents generally (not including top economic performers) said their companies had not sustained the financial and operational benefits of digitisation projects over time. This is regardless of whether they were building new digital businesses, strategically transforming the core business with digital technology, or updating the core business’s technology to ensure future competitiveness.  Tiscornia points out that CFOs embarking on digitisation must ensure that they are adopting the right digital tools and strategies for their investment to succeed.

“The question CFOs must ask themselves is: does their chosen tool or strategy increase their visibility into spend and give them the control needed to optimise resource allocation across the entire company?” he says.

“If your tools do not provide that level of control and visibility, or if the strategy simply replaces one manual process with another rather than eliminating it, it is likely you have adopted the wrong approach.”

He explains that digital projects can and do fail for a variety of reasons, including low employee adoption, high labour costs associated with time-consuming, manual processes involving multiple or redundant systems, and/or poorly integrated systems that result in costly duplication of workflows.

“The most important risk for any business process is siloed data sets residing within point solutions, which yield multiple versions of the truth. In finance, failing to have a single source of truth for a company’s data will cause reconciliation headaches and an inability to successfully achieve targeted KPIs,” he says.

“In these circumstances, one of the first steps to take is breaking down data silos. Connecting data from across the organisation will lead to greater visibility into its operations and ensure that decisions and forecasts are not being made with outdated, incomplete information,” says Tiscornia

He adds that in digital transformation projects, CFOs must set out a roadmap of ‘use cases’ for the business and focus on where the solution will provide the greatest benefits or efficiencies.

“Once this use case is applied successfully, it can be used to demonstrate the value of the solution to win over colleagues and encourage greater adoption by employees,” he adds.

Tiscornia concludes that CFOs should also reach out to peers within their professional network whose organisations have successfully completed digitisation projects for advice and guidance.

“They should also speak to technology partners who have the knowledge and experience to identify and address the issues the CFO wants to overcome – whether that is to scale efficiently for growth, reduce processing costs and improve accuracy, or automate manual tasks,” he says.

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