Five Steps and Eight Factors for Agile Finance Transformation (Part 2)

2022-07-29 13:34:16
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Summary : As the business environment is changing at an unprecedented rate and to an unprecedented degree, companies are demanding more from finance than just the ability to be a business partner. Finance has to become more agile to help businesses respond quickly and efficiently with deep, relevant, and timely insight of requirements. No company is immune to the volatility and disruption that is characterized by today's global business and economic landscape. In order to survive and thrive in this "new normal", companies have to think and act differently in all aspects of their business. As the business environment is changing at an unprecedented rate and to an unprecedented degree, companies are demanding more from finance than just the ability to be a business partner. Finance has to become more agile to help businesses respond quickly and efficiently with deep, relevant, and timely insight of requirements. This is something that requires new ideas and approaches, as well as more powerful technology. In other words, a radical transformation of the finance function as it is known today.

Five Steps and Eight Factors for Agile Finance Transformation in the Digital Age (Part 2)

Source: FreePik

Eight key factors

In fact, to keep pace with business, finance has no choice but to become more agile. The study finds that there are eight key factors that can help financial development to enhance its relevance (as shown in the picture below). Importantly, these drivers are a mix of technology and talent. And according to Ernst & Young, both are key to what CFOs believe will reshape the function of finance.

Source:  CFO Convergence Media

1. Talent management and organizational design

Financial leaders and their successors have to maintain the skills and abilities to excel in an agile, digital future. This is especially important, as companies generally have difficulties in attracting and retaining talent. A formal system of leadership development, including continuous assessment, motivational culture and personalized development plans, can enhance the strength of the finance leadership reserve.


Finance has to be able to organize resources more efficiently to meet the needs of the business. One way is to use the GBS (Global Shared Service Center) model. The GBS model is a multi-functional organization that can provide multiple service products or solutions and is managed through a global governance structure. Using a range of delivery options -- including centers of excellence, shared service centers, and business process outsourcing -- and supported by the latest advanced technology, GBS organizations can make Finance a trusted partner for the business and thus increase the value that finance creates for the business.


CFOs indicated that technology and talent are critical to financial transformation.


Ernst & Young surveyed 769 global financial leaders to find out what they regarded as their top priorities for building future financial functions. It turns out that technology is as important as human resources: 65% of respondents answered that the standardization and automation of processes, as well as the integration of agility and quality of processes, are priorities for future financial functions.


In addition, more than half (58 percent) believed that they would focus on improving processes with the most advanced technology. CFOs are more focused on the human resources, with 67% reporting that improving financial partnerships with the business will be a top priority. Moreover, with the advent of new technology, finance requires new skills -- especially in analysis. 57% of CFOs believe that building skills in predictive and normative analysis is critical to the effectiveness of financial futures.

2. Intelligent automation

RPA is one of a variety of new technologies emerging to improve automate financial activities and processes to save time and money, as well as artificial intelligence and machine learning. Other complementary technologies, tools and architectures, including sensors, conversational agents (i.e., chatbots) and drones, can be combined with RPA and AI to further automate business processes or human experiences.

3. Digital processing

Finance can digitize processes and documents by leveraging new technologies such as TrustPortal and OCR. This makes it easier for finance to standardize these processes through centralization, while implementing automation and network security controls. The combination of standardization and automation in digital processes will greatly improve accuracy and reduce costs, while enabling more talented people to tackle difficult tasks.

4. A new generation of ERP

Although traditional ERP is very powerful, it is not flexible or functional enough to support agile finance. The next generation of ERP is changing all that.


Based on new memory technology, the next generation ERP can store and process large amounts of data in new ways. Support advanced analysis by providing standard data sources and standardized data, and reduce IT costs by reducing the number of systems and interfaces. In addition, they simplify closing procedures and improve financial reporting capabilities through in-depth analysis and financial application integration.

Source: FreePik

5. The Internet of things

The Internet of Things (IoT) has experienced large growth over the past few years and has permeated many industries and processes, and is expected to make a profound impact on the world over the next two decades.


For finance, the IoT will deliver a massive, real-time stream of data from the business to finance systems, giving the finance function a clearer picture of how the business is changing on a day-to-day, financial and operational level. With this data, finance can make business decisions faster, build source parts in advance, automatically generate invoices, update forecasts in real-time, spot risks more effectively, as well as detect fraud among other things.


The Internet of Things also enables inventory tracking and monitoring via smart sensors and radio frequency identification (RFID), greatly reducing workload and cost. And it can create new revenue streams, pricing, and discount models that future finance functions have to plan for and design.

6. The cloud and SaaS

Cloud and SaaS applications are redefining the business processes and functionality of the enterprise. Recently, the cloud has been dominated by numerous customer-facing and HR-enabled solutions such as Salesforce, Successfactors, and Workday. Now it's the turn of the finance department. New cloud-based billing, reconciliation and reporting platforms can further enhance financial capabilities, and new ERP solutions including SAP S/4, Oracle ERP and Microsoft Dynamics are available in cloud form.


The cloud and SaaS enable finance departments to pay for IT architectures only when people needed, reducing finance costs while providing greater flexibility as well. This allows the finance department to expand or contract its functions to meet the needs of services, respond to changing IT capabilities, and make internal IT resources to focus on other important needs of the enterprise.


Another important advantage of the cloud is that the cloud and SasS provide more powerful security tools and technologies that enable enterprises to better protect against network risks.

7. Blockchain

One of the hottest buzzwords today is blockchain. As a distributed infrastructure technology, blockchain facilitates the decentralized exchange of trusted data. Through cryptography, it allows each participant to operate the ledger in a secure manner over the network without the need for a central authority. And it has the potential to improve many areas of finance.


For example, a company could change its financial situation by implementing a blockchain-based clearing and settlement function in its financial network. The immutable nature of this network provides considerable credibility for financial risk management while effectively managing cash flows based on the latest financial data.


Inter-enterprise billing and reconciliation processes can also benefit from this technology. With blockchain's built-in smart contract capabilities, finance applications can execute inter-enterprise transactions in real-time, avoiding lengthy and error processes, thereby increasing efficiency and reducing costs across the finance department.

8. Predictive analysis

Analysis is no longer a new technology. Enterprises are using business analysis to know business operations and improve decision-making.


Most organizations use descriptive analysis, which entails using past data to present, visualize, and interpret what has happened. Of course, many companies have moved on to predictive analysis, using past data to uncover potential relationships between data inputs and outputs, make out why something happened, or predict what will happen in the future. Relatively few organizations are using the most declarative analysis to determine which decisions or actions will yield the most effective results for specific goals.


Finance can benefit from analysis in many ways. For example, analysis can help companies identify high-growth and profitable products and customers, which in turn can stimulate revenue growth, improve visibility of the drivers of the business, and ensure the effectiveness of sales and marketing plans. Similarly, you can increase profits by exploring the profitability of customers and products, demonstrate the impact of specific expenses (for example, marketing or IT) on financial results, and take a cause analysis (for example, fixed and variable costs).


Analysis can improve forecasting, increase automation and thus drive operations by providing predictive models. And it can also identify risky transactions, customers or suppliers through machine learning, and improve management and control of risks by performing risk sensitivity analysis and risk events.

Financial Transformation roadmap

The pace of change in the world is accelerating each year, and the financial requirements of the business are constantly improving as well. Therefore, the financial sector is facing the urgent need for transformation. The eight factors discussed above will be key to the transformation. How does financial transformation begin? Figure 3 illustrates the five main steps.

Source:  CFO Convergence Media

First, finance needs to get the business and development vision of the enterprise, and define the core functions that finance needs in the future. Finance leaders have to identify the advanced capabilities needed to support and create value for the organization as it develops new businesses and new operating models.


Second, assess the current capabilities of the finance department against agile finance's standards of responsiveness, insight, and effectiveness. This is done to identify differences between current capabilities and standards that need to be met. In some areas, you may find yourself making more progress than others, so it's important to distinguish what skills that need attention and what can be developed later. The key is to focus on capability, not technology.


Third, Find out the key factors that can bridge the competence gap. For example, recognizing that RPA is ripe for automation, or that current ERP applications need to be upgraded, which can greatly improve the efficiency of financial work.


Last but not least, develop a detailed roadmap. The roadmap covers all financial capabilities, including financial planning and analysis (FP&A), tax, risk and control, business development, accounting and transaction processing. It can also help companies align and simplify projects that are designed to improve their financial operations according to their business values and priorities.


This framework can help us to understand future financial work better. Note that as the market and business (and financial expectations) change and new developments emerge each year, the Finance department needs to regularly assess demands and refine original plans as necessary to ensure synergy with the business and become a trusted and valued partner for the business.

Read more: Five Steps and Eight Factors for Agile Finance Transformation (Part 1)

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