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Finance Transformation – The Time is Right!

Written by Sukumar Narayanan, President, DecisivEdge™

Finance is the epicenter of a business whether the business is a manufacturer, distributor or a financial institution.  It is the function that enables a business to “keep score”, identify inefficiencies, and determine where investments are warranted. Modern CFOs are tasked with four key responsibilities –

  • Providing leadership in determining strategic business direction
  • Accurately reporting on operations and financial position to internal and external stakeholders
  • Ensuring disciplined execution of key strategic initiatives
  • Running an efficient finance organization

While the scale and complexity varies, the responsibilities are essentially the same for the CFO of a small, privately held company that operates in a single country or the CFO of a publicly traded multinational with multiple lines of business. CFOs continue to struggle to successfully meet the above responsibilities. Within most multinational accounting departments, statutory reporting processes are still overwhelmingly manual, with spreadsheets being the primary vehicle for data collection and report generation. Alarmingly, 77% of CFOs admit that major business decisions have been delayed due to stakeholders not having timely access to data and report significant delays with respect to tasks like reporting and ad hoc analysis. (CFO Indicator Report, May 2017).  Analysts estimate a 1% loss in revenue per strategic decision that is delayed by data. The CFO Indicator Q4 2016 report reveals that while 85% of CFOs say their teams have direct access to the financial and operational data needed to generate accurate reports, the non-value-added tasks—like data gathering, verifying accuracy, and formatting reports drive down efficiency. Multiple reports show that finance departments spend a disproportionate amount of time on activities doing what no longer needs to be done.

In a world where companies have spent millions of dollars on ERP and accounting software, why are we still seeing such inefficiencies?  

The reasons are myriad but can be summarized into the following categories –

  • Data and Systems: Whether it is due to not fully integrating acquisitions, or not having an enterprise view of data and systems, companies continue to be plagued by islands of data and a lack of seamless integration between sales, operations and finance. As the saying goes, every error or oversight in sales and operations comes to roost in finance. ERP systems were supposed to solve this issue.  However, many companies have multiple ERP solutions, some aging, some fully deployed, others partially deployed, throw in an acquisition and a reorganization and you have the nightmare that many CFOs are grappling with. Digital transformation and automation cannot be effective if addressed in a piecemeal fashion. Many companies appreciate the benefits of a modern, integrated application architecture that is aligned to their corporate strategy, but few have the stomach to take on a major transformation journey.  The arguments are that it is complex, costly, and that it takes focus and resources away from other strategic priorities. However, not addressing this issue means that every one of those strategic priorities will be rendered less effective and perhaps add to the complexity and inefficiency.
  • Organization and Process: Irrespective of the formal organizational structure of a company, culture often determines how different departments work together. Some organizations have a formal sales and operations planning/budgeting process that brings together sales, operations and finance to collaboratively develop forecasts, address variances and continually fine tune their business. Others keep sales, operations and finance operating in their respective silos. This is a recipe for massive inefficiency with Finance bearing the brunt, especially at period-end (month-end, quarter-end,…). In addition to the inefficiency, it is difficult in such organizations for Finance to identify inefficiencies, and determine where investments are warranted, a function that Finance is increasingly being asked to provide.
  • Regulatory: Evolving statutory reporting requirements and changes in the tax code and tax practices make the task of accurately reporting on operations and financial position to internal and external stakeholders more challenging. This is a challenge for CFOs of multinationals due to differing standards and practices in different regions around the world. CFOs and Directors of publicly traded companies can be held personally liable if there are material inaccuracies in the reporting. Even if that does not happen, regulatory scrutiny can result in reputational damage and the company’s valuation.

Given these challenges, it is no surprise that the finance team is spending over half (53%) of its time on reporting and data gathering alone (EY-DNA of CFO Study, 2016). While the above issues have plagued the finance function for a while and seem somewhat intractable, new technologies give us hope for improvement. Newer technologies and capabilities like embedded analytics, RPA, mobile and email integration, workflow, and APIs (among others) are being embedded in the latest ERP and best-of-breed finance applications making some of the more routine tasks easier and potentially freeing up time for activities like – bringing greater insight into internal operational opportunities and supporting strategic business initiatives, areas that CEOs are increasing looking for CFOs to lead. While some of these technologies can drive efficiencies, true transformation is only possible if process and organizational issues are addressed in concert. The findings of the EY study cited above are consistent with this assertion as is evident in the survey responses of CFOs:

  • 67% of CFOs cited partnering between finance and business to be a key area of focus
  • 57% of the respondents saw deploying state of the art technology jointly with process improvement as a major focus
  • 56% of respondents said that building skills in predictive and prescriptive analytics is critical to the future.

CFOs are constantly challenged with how to balance cost, risk and service level while ensuring accounting and reporting compliance and sufficient support of strategic priorities. Finance transformation will allow CFOs greater ability to meet this challenge by leveraging newer technologies, while concurrently addressing organizational and process inefficiencies. With the increasing demands on the CFO and the availability of new technologies, the time of right for companies to embark on Finance Transformation.

I look forward to learning how your company is grappling with these challenges and to share how we are addressing these issues for our clients.

See how Ramco, one of our solution partners, is developing technology to help CFO’s in this area – Ramco Next-gen Finance

About the Author:

Sukumar Narayanan

Sukumar Nanayanan specializes in leading corporations through IT enabled business transformation programs, consulting extensively with senior executives of companies seeking to improve business performance by leveraging technology. Advisor to PE firms on enterprise software and professional services companies.

A leader in the areas of enterprise governance; merger assessment and planning, post-merger integration planning and execution; business process reengineering/redesign and business-aligned IT strategy, Sukumar is the President of DecisivEdge, LLC.

Sukumar holds an MBA in Management Information Systems from the Temple University Fox School of Business and Management.