CFOs, meet your new co-worker: AI
Leveraging AI, digitally advanced finance teams combat rising costs, improving efficiency, and providing significant advantages. Could AI be the CFO's answer to the OpEx challenge?
Leveraging AI, digitally advanced finance teams combat rising costs, improving efficiency, and providing significant advantages. Could AI be the CFO's answer to the OpEx challenge?
In a climate of rising operational costs, up by 7.5% in 2023 according to research by the Hackett Group, a subset of finance teams has turned the tide.
These teams, distinguished by their advanced use of digital technology, have not only weathered the storm but achieved a reduction in operational costs of 1.3%. Alongside this feat, they have concurrently increased efficiency, effectiveness, and customer satisfaction.
These digitally sophisticated teams function at 47% lower operational costs compared to their counterparts. They have effectively harnessed the power of automation and strategic technological deployment, surprisingly spending 10% less on technology in the process.
Operating with half the staffing resources compared to their peers, these lean teams translate into a significant $48 million annual cost advantage for a typical $10 billion enterprise.
The driving force behind this success, in large part, is artificial intelligence (AI). Through the deployment of AI, these teams have successfully navigated the complexities of escalating operational costs, marking a potential path forward for CFOs aiming to increase efficiency and manage rising expenses.
Though AI has become a buzzword, it has always existed in some form for quite some time. The origin of AI can be traced to classical philosophers’ times when they tried to equate human thinking to a symbolic system.
However, AI never received official recognition until the 1950s. In 1956, the term “artificial intelligence” was coined at the Dartmouth Summer Research Project on Artificial Intelligence (DSRPAI).
Perhaps surprisingly, banks were early adopters of artificial intelligence tools. In fact, it was way back in the 1980s when banks first started using AI; but in the last decade AI use cases have ballooned.
“Most of the early AI implementation successes have come from improvements to the forecasting process,” says Mark McDonald, senior direct analyst at Gartner.
“Initially, many teams used AI-driven forecasting to improve the quality or accuracy of their revenue forecasts. Once they achieved this, focus quickly shifted towards using a fast and accurate forecast to their advantage.”
While there are certainly several applications for AI within the finance function, there seems to be a misconception that AI is like every other technology finance teams have experienced in the past.
With more ‘traditional’ technologies, teams could get away with using a small team of people who understood that technology can be successful with its implementation. The skills required were often iterations of previous technologies and did not require additional training.
AI is different.
AI can emulate tasks that only people were thought to be able to do. But it cannot emulate a human exactly.
“AI becomes a new kind of co-worker that everybody needs to learn how to work with,” McDonald explains. “Everyone in the organisation will need to learn how to leverage this new capability to keep up with new productivity expectations.”
According to new research from Gartner, 70% of employees fear that AI will replace them, which drives scepticism and resistance from operational staff – one of the key barriers to AI adoption.
These barriers can be avoided by CFO’s positioning AI as a co-worker that helps people to do their jobs better. “Without each part of the organisation participating in AI’s evolution, the other parts won’t be effective. Everyone must participate for AI to deliver the transformative impact that finance leaders are expecting,” says McDonald.
To start, operational staff will help design solutions so that AI-driven machines are effective. They will also need to learn how to leverage that new level of support.
Meanwhile, managers and leaders will need to understand where AI is strategically best positioned in the organisation and how it can bring new business value or even introduce new business models.
Similarly, technical teams will need to build and maintain these solutions including managing the data that is so essential to building reliable AI solutions.
Approaching the integration of AI in this way will no doubt quash fears of job loss. But it will also help a business adopt a healthier cultural mindset towards technology versus seeing it as a another mere skill to learn.
“Instinctively, CFOs know that their organization needs new skills to succeed in the future, but they aren’t sure what those skills are,” McDonald explains.
“Traditionally, skills are things we learn in a classroom from a book. Although that is partially true for AI in finance, the real value comes from adapting your organization to take advantage of the completely new set of capabilities that AI offers.”
McDonald says that once CFOs recognise that AI should be viewed as a new type of co-worker, the need for strategic adjustment becomes far clearer.
“AI is human-like, but not human. It does some things as good and even better than people, but it can’t do everything that people can do, which highlights the need to evaluate the core capabilities of both humans and machines and then redesign processes and organizational structures to leverage the strengths of both,” he says.
Transitioning an organisation’s finance function to this way of working will take time and will look different for every organisation – there will not be a one size fits all approach.
There is no doubt the finance function is at the beginning of a decade-long transition to an AI-forward future. It would therefore be unfair to expect any organisation to be using AI today to the best of its ability, in any area of accounting and finance.
But one area where improvements can be made is recognising the importance of developing skills withing finance teams to prepare for the future.
“Without skills you won’t get far,” says McDonald. “Buying AI driven software will help, but that will only allow you to keep up with the general market.”
He says for CFOs to fully leverage AI, they will need an organisation of people that understand not just the technical aspects of implementing AI but also how to use it to transform their business.
“Just buying AI-driven software and hiring consultants will not achieve the value that AI promises. New skills are essential,” he says.