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Financial analytics are on the cusp of spurring a reimagining of how financial decision-making unfolds in the business world. CFOs and the IT staff that support them can no longer rely on the same tried-and-true ways of doing things, nor can they rely on the same skill sets that got them to where they are.
A brave new world of digital finance is dawning, bringing a need for fresh approaches to business processes and the data that drives them, as well as a push for data-intensive skills. That means thinking about corporate finance and the corporate performance management (CPM) systems that have traditionally monitored financial indicators in completely new ways.
"Digital finance is not just a tweak, and it's not just automation," said Steve Player, senior research fellow for financial management at the American Productivity and Quality Center (APQC), which provides benchmarking and best practices insights to the industry. "The biggest mistake CFOs make is incrementalism. They need to radically change the process altogether."
To stress this point, Player said that "there's a bunch of dumb stuff" CFOs should stop doing, including annual budgeting, reliance on wrong assumptions, monthly reconciliations instead of daily, and paper-intensive expense reports.
This is not to say that many CFOs haven't already begun the transition to digital finance, driven by the advanced financial analytics now being embedded in many CPM systems and other corporate finance tools. In fact, recent research from APQC indicates that 51% of organizations are using predictive analytics in finance, and many of them are doing much more than that. More than one-third (37%) said they're using predictive analytics to project probability outcomes; more than one-fourth (28%) said decisions are being informed by real-time analysis of performance metrics; and 23% said they're utilizing closed-loop, self-adjusting algorithms to do real-time data analysis.
IT staff play a key factor in digital finance for CFOs
Still, many have basic decisions to make, such as the use of data warehouses, which have traditionally resided inside of corporate firewalls but are now being asked to crunch data from multiple cloud-based systems. While many CFOs have taken on significant IT oversight in recent years, they still need to work with IT before acquiring new technologies.
Sanjay Vyas, chief product officer at CPM vendor Host Analytics, said that data warehouses residing within corporate firewalls are being replaced by cloud-based alternatives that offer unlimited storage. As a result, he recommended that IT teams that support finance organizations carefully vet any new solutions CFOs are considering purchasing -- not only to ensure that they are security-compliant, available and easy to integrate, but also to verify that the vendor is viable and easy to work with.
"What you don't want is a CFO going to buy something and then coming back and telling the IT guy to integrate this," Vyas said.
Digital finance impacts staffing and the skills required
Once CFOs and their IT support have settled on the technologies that will position them to take advantage of analytics and have taken stock of and cleaned up their various sources of financial data, their attention needs to turn to staffing, as this new analytics-intensive world is also spurring changes on that front. The transition from a reliance on historical data to a real-time model is being paralleled by a change in the orientation of modern workers.
"What you're seeing is almost a generational change," said Mark Bauer, senior vice president of product management at Host Analytics. "Younger people are saying we need to make our decisions based on facts, and older people are inclined to make decisions based on intuition."
The growing emphasis finance leaders are placing on facts is clear. APQC's research found that 87% of respondents said their CFOs and finance directors place a high priority on providing in-depth training in predictive analytics to finance employees they consider to have high potential.
One of the ways this is happening, Bauer said, is that more companies are rotating their analytical talent among a variety of roles, resulting in well-rounded employees who are equipped to use data to solve many different types of problems.
But Chandana Gopal, analytics and information management research director at technology research firm IDC, cautioned CFOs from focusing too much on data skills when hiring new staff. Gopal said that, while it's clearly wise to look for people who are comfortable working with database languages, such as SQL, people with heavy data backgrounds are hard to find, and most companies don't need in-house data scientists.
Instead, Gopal recommended that CFOs leading a move into digital finance should emphasize advanced financial skills, such as accounting, when hiring and then teach them the data skills they'll need.
"Typically, the programming and data structure understanding can be learned, so pairing accounting staff with data training is easier than teaching a programmer accounting," Gopal said.
With the right tools and staff in place, there's no limit as to what an organization can get out of a digital finance model fueled by advanced analytics. When you get right down to it, it's not as if CFOs have a choice. It's either embrace analytics or get out of the way.
"Advanced analytics and big data tools are increasing in prevalence in finance," Player said. "CFOs need to stay abreast of this trend or fall behind."