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What does digital transformation in finance really mean?

Digital technology can transform finance processes and create better data to drive revenue and customer satisfaction. So what's holding back digital transformation?

Although it may sound counterintuitive, digital transformation in finance shouldn't be for the sake of a finance transformation. Rather, it should be part of an overall enterprise-wide digital transformation.

Enterprise digital transformation is about transforming the customer experience and meeting the customer's redefined expectations, according to Ash Noah, managing director of Chartered Global Management Accountant (CGMA) learning, education and development at the Association of International Certified Professional Accountants.

"[That means] changes in the way we invoice the customer, in the way a customer consumes our product, in the way a customer is able to return the product or service and then re-consume and repurchase," Noah said. "It has to be customer-centric."

Within that, finance needs to transform to harness those technologies and give the business a better understanding of the customer and profitability, he said.

"This is not about automation. This is about having better data within finance," Noah said.

For example, imagine a point-of-sale (POS) system linked to a finance system. The POS system is driving invoicing and giving finance a better understanding of pricing, the time when a customer buys and the products the customer is buying.

That data can become available to finance if there's a seamless interchange of data from a POS system to a finance system, according to Noah.

"What that finance transformation does is enable finance to transform from being a scorekeeper in the back office to becoming a partner and really driving revenue and customer experience," he said. "So unless digital transformation enables finance to move from the back office to [being] an architect of value, I wouldn't really call it transformation."

Digital transformation a challenge for finance leaders

One of the things holding digital transformation in finance back is the fact that people in finance traditionally view things in black and white; they want to touch, feel and count.

"And this age of digital transformation is requiring them to go into uncharted territories of intangible value," Noah said. "And that's a major impediment -- that finance is unable to support business cases and articulate the value proposition to invest in digital access."

What that finance transformation does is enable finance to transform from being a scorekeeper in the back office to becoming a partner and really driving revenue and customer experience.
Ash NoahManaging director, CGMA

Another impediment is many finance leaders don't have the necessary skills to use technology or don't understand how technology can be deployed and the power of AI and machine learning.

"Where there's a lack of this understanding, these enterprises are unable to look at the value that this transformation brings," he said.

In fact, only 10% of companies surveyed by CGMA in the report "Agile Finance Unleashed: The Key Traits of Digital Finance Leaders" said their finance teams have the skills to support their organizations' digital ambitions.

"That's a major reason why this transformation is not taking place," according to Noah.

Indeed, the education level of most accountants and finance planners is based on accounting, which is rooted in very simple math, said Tom Riley, vice president of finance at Seattle Sounders FC, a professional soccer team based in Seattle.

"When you start talking about AI, talking regression analysis [and] statistical tools to validate models, you're stepping into areas that require you to either develop these skills internally or hire people that are really smart to help with these tools, whether it's blockchain or robotics or whatever," Riley said. "Or [do what we did] and partner with companies like Adaptive Insights that have these skills."

CFOs get that the world is changing, and although they're under a lot of pressure to understand which technologies are important, they're also thinking about the people side of this -- for example, how to ensure that they have the right skills and training and hire the right people, said Tony Klimas, principal and global finance practice leader at EY.

"That's kind of the problem we're trying to solve today," he said.

As for the digital technologies, Klimas said robotics and AI are beginning to play roles in many back-office reporting functions, including the transactional areas like payables, receivables and cash management. He added that cloud technologies such as SaaS are "enablers of the enablers."

According to Klimas, one of the most exciting technologies to hit the finance department is predictive analytics.

"We have a solution we call Lighthouse, which is essentially predictive analytics, which is what traditionally have been the more theoretical areas of finance and accounting -- the analysis, the forecasting, the predictive part, the insight part of finance," he said.

The technology that's still in the early stages is blockchain, which will have fundamental and significant impacts on the way finance secures its ledgers. Implementing blockchain will allow finance leaders to focus on other parts of the business, rather than the accuracy of the ledger, according to Klimas.

"When you have consortium-type models, where you have your supplier network, customers or even for intercompany use, you're going to start to see blockchain take the problem of accuracy off the table," he said. "That is going to allow us to focus on other things and spend less time auditing and reconciling."

However, finance leaders won't recognize the benefits no matter what digital technologies they implement if their data is a mess, said Steven Ehrenhalt, partner and U.S. and global leader of Deloitte's finance transformation practice.

"A lot of people's data is not really in great shape because of the lack of discipline, acquisitions or systems that were never really rationalized or integrated," he said. "They've recognized that data is the fuel, and if you don't have your data house in order, it's going to be tough to get benefit out of the other technologies."

Riley agreed with this assessment, saying that the Seattle Sounders aren't quite seeing the benefit of having all of the organization's data accessible to all the finance functions.

"We are in the infancy [phase] of what we're trying to accomplish, but we are getting close," he said. "So our CRM data, which is how we mainly relate to our revenue stuff, is now accessible in the Adaptive [Insights] system. But bringing the finance and the sales side together, we're still in the infancy." 

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