Enable digital investment strategies with these six modernization methods
The finance function is currently going through a significant transformation towards becoming a digital-first, autonomous organization. This transformation will enable the finance function to provide value as the business adopts digital working methods and invests in digital business initiatives. However, this shift faces challenges such as low success rates due to digital conservatism, limited budgets, skill shortages, and change fatigue within the finance function. To address these challenges, CFOs can consider investing in digital leadership roles within finance.
To drive finance innovation through digitization, CFOs need to revamp the finance operating model. This involves integrating digital capabilities, providing finance teams with digital skills, fostering collaboration within the finance function, and effectively managing costs.
Check out the six-step road map we've outlined in this article to transform the finance operating model for a more autonomous future:
Step One: Define how you operate, who does what, and what each person is responsible for
The current designs and operating models of traditional finance organizations are lagging behind the advancements in technology and automation. Chief Financial Officers (CFOs) are faced with challenges stemming from finance department silos, complex roles, and traditional views on which specific subgroups should handle finance activities. These issues are hindering the effectiveness and unity of digital initiatives.
To tackle these challenges, we need a more flexible operating model to replace the outdated methods. The shared service models used by finance departments for many years will help with this change. However, the main goal of shared service organizations (SSOs) is changing. Instead of just concentrating on centralizing and automating routine tasks, SSOs will now focus on supporting the digital transformation of finance.
As machines take on more financial tasks and technology improves processes, finance teams will have more time to focus on other priorities, such as hyper-automation and digital transformation. In an ideal situation, finance teams will become centers that support digital transformation. To make this shift successful, a finance team's digital program can do the following:
Plan the use of technology
Find ways to work together more effectively
Help different parts of the company use digital tools
The updated, shared service operating model has implications for talent. In recent years, the finance staff's unique understanding of the specific business units they serve has decreased due to increased specialization and the widespread availability of business data. However, finance still has a special ability to recognize patterns across business units and provide insights at the portfolio level. Shared service organizations with more unified and cross-functional digital capabilities can enhance this value.
To achieve this, forward-thinking finance leaders must continue to move common activities to shared service centers (SSCs) and centers of excellence (COEs) to free up human capacity to assist business units in making informed decisions. This approach leverages finance's cross-functional visibility and impact on shared decisions across the organization.
Step Two: Spread digital skills across the team to eliminate digital barriers
Traditional finance organizations have been digitizing their operations separately, which creates isolated pockets of digital progress that don't benefit the entire finance function. To move towards a more integrated digital approach, finance teams need to have a structure that brings digital support staff and end users closer together. Here are two ways to do this:
1. Establish a finance IT team: This will reduce the need for enterprise IT support and allow for specialized knowledge in finance-related technology. It will also improve decision-making regarding digital investments for finance.
2. Establish a clear communication link between the finance IT and a digital champion: The digital champion, who reports to the CFO, will guide digital decision-making and lead a central team for digital transformation. This communication link between the CFO, digital champion, and IT will enhance transparency regarding digital investments and ensure that resources are directed to initiatives that meet the overall needs of the finance department.
Step Three: Competencies in digital finance should be clearly defined and aligned with how the function operates
To drive organizational outcomes, the finance teams of the future must emphasize five key digital competencies. These competencies are rooted in knowledge and skills related to digital technology, core finance, data analysis, and social/creative aspects. It's important to note that although these competencies are digital in nature, only one of them is purely technology-based.
The five digital competencies in finance encompass a range of skills and knowledge crucial for leveraging digital technology. Technological Literacy, at the core, enables finance professionals to harness the potential of digital tools such as robot process automation (RPA), machine learning (ML), and natural language processing (NLP) to enhance outcomes.
This involves understanding the various digital software solutions available and how they can be utilized to automate finance activities, as well as having a grasp of the fundamental programming languages that underpin these technologies. Moreover, individuals with technological literacy should be able to integrate new technologies into the existing finance processes, thereby optimizing efficiency and effectiveness. To cultivate technological literacy, finance professionals need to possess an intellectual curiosity to explore how digital technologies can improve finance outputs, as well as problem-solving skills and a willingness to experiment in order to overcome challenges.
Finance professionals need to explain digital concepts to stakeholders effectively. To develop these skills, finance teams should improve the quality and relevance of financial and non-financial data for decision-making, enhance the output of data analyses, and be able to tell a story with data-driven insights. By excelling at digital translation, finance teams can challenge assumptions and increase buy-in from stakeholders.
In a rapidly evolving digital landscape, it's crucial for employees to stay updated and acquire new digital knowledge and skills. Digital learning and development involve guided learning, hands-on experimentation, and applying technology to address real challenges. Successful digital learners have the mental flexibility to apply new digital knowledge and skills in practical scenarios actively.
Embracing digital bias management presents a new challenge for finance teams, demanding inquisitiveness and critical thinking to unravel the reasons behind an algorithm's predictions.
Understanding and managing digital bias is crucial in the context of machine learning. Financial professionals equipped with expertise in digital bias management possess the knowledge and skills required to comprehend the functioning of ML technology and mitigate biases effectively while ensuring the delivery of tangible business benefits. They are capable of identifying bias in data, validating algorithms before deployment, and selecting appropriate ML training data sources that accurately reflect the business context.
Finance staff with digital ambition possess the willingness to experiment with new technologies and approaches, even in the absence of a clear directive to do so. They proactively learn about emerging technologies before implementing them across the team. Additionally, they demonstrate adept stakeholder management and change management skills, allowing for the smooth adoption of new technologies and quicker buy-in from colleagues in finance and the broader business.
Step Four: Promote the sharing of knowledge, skills, and methods throughout the department to enhance collaboration and efficiency
The interconnected web of relationships and knowledge sharing within the finance organization is instrumental in fostering collaboration and ensuring the smooth operation of financial processes. This network plays a crucial role in integrating digitalization across different subfunctions, preventing it from becoming isolated within specific areas.
Furthermore, informal networks are a reflection of the connections and information exchange necessary for accomplishing tasks effectively. Many finance organizations are now acknowledging the significance of these networks.
These networks facilitate the transition by promoting coordination across different functions and dismantling silos. It's essential for finance leaders to endorse and nurture both existing and new networks that:
Ensure that all perspectives are acknowledged and appreciated
Create channels for sharing information
Encourage mutual learning among peers
Establish clear guidelines for usage
Evaluate ideas based on their value, not on the identity of the contributor
Leaders can do this by actively participating in and advocating for these networks as platforms for exchanging digital insights and experiences. Some networks may have formal recognition as centers of excellence or communities of practice, while others may function informally to facilitate prompt connections. For instance, an informal network could bring together users of a shared technology platform to troubleshoot common issues, or it could enable process owners to collaborate on strategies for digital integration.
Step Five: Gain insight into how your expenses stack up against those operating in similar industries
In today’s business landscape, finance organizations have shifted from a traditional cost-cutting approach to a more sophisticated cost-optimization strategy. This approach focuses on enhancing efficiency and productivity in a structured manner. As we look ahead, finance leaders are poised to transition towards value optimization, driven by analytics and reporting strategies that are closely aligned with business goals.
One of the key analytical tools for informing value optimization is spending benchmarks. These benchmarks play a crucial role in shaping financial strategies and decision-making. Let's delve deeper into some of these benchmarks to gain a comprehensive understanding of their significance:
Finance Spending as a Percentage of Revenue: This fundamental metric provides finance leaders with insights into their cost structures relative to industry peers. By benchmarking finance spending as a %age of revenue, organizations can establish a baseline for exploring opportunities to reduce expenses, reallocate resources, or invest in new capabilities.
Distribution of Finance Spending by Asset Category: Understanding how finance resources are allocated across personnel, technology, and external experts sheds light on the priorities of the finance function.
Distribution of Finance Spending by Process Category: This benchmark helps to gauge the allocation of the finance budget across key activities such as budgeting, forecasting, analytics, and reporting.
Spend on External Experts and Support: Many finance organizations engage in process outsourcing and seek advice from consultant advisors.
These benchmarks offer valuable insights into workforce management and compensation, emerging technology investments, and the distribution of technology spend towards running, growing, and transforming the business. Understanding and leveraging these benchmarks can position finance organizations for strategic growth and success.
Step Six: Assessing your advancement toward achieving an autonomous finance function
In order to successfully modernize, it is essential to invest in critical capabilities. CFOs need to have a deep understanding of their progress toward achieving autonomous finance in order to allocate funds to the most vital needs. Evaluating performance across the key objectives and management activities that constitute digital finance is crucial for CFOs and their teams.
This evaluation involves assessing activities based on their maturity, significance, and prioritization. By doing so, CFOs can gain a clear understanding of the current maturity level of the finance function for core management activities and obtain an overall maturity score, which helps in prioritizing digital investments.
Published by
✅ Strategic Finance Consultant ✅ ACS SYNERGY ✅ At ACS, we help growth seeking businesses with Finance Transformation, Accounting & Finance Operations, FP&A, Strategy, Valuation, & M&A 🌐 acssynergy.com
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