Strategy & Corporate Finance
Article
July 2018
Memo to the CFO: Get in
front of digital finance—or
get left back
By Kapil Chandra, Frank Plaschke, and Ishaan Seth
Companies are still in the early stages of applying
digital technologies to finance processes in ways
that will create more efficiencies, insights, and
value over the long term. Here is how the CFO can
lead the way.
T
he digital finance organization remains an emerging
concept in many organizations, and CFOs are still at one
remove from the center of digital-transformation efforts, even
though they own and manage much of the relevant business
information that feeds such initiatives. There is a clear mandate
for them to take the lead: today’s CEOs and boards say they want
CFOs and the finance function to provide real-time, data-enabled
decision support. And, in our most recent survey of finance
executives, CFOs themselves say they want to spend more time on
digital initiatives and the application of digital technologies to
finance tasks.
But our research also shows that CFOs still spend less time on
digital trends than they do on traditional finance activities. Why?
There are few proven business cases of digitization in finance and
few best practices to draw from, so CFOs are often content to let
colleagues in IT, marketing, or other functions press the issue.
Many CFOs tell us they are unsure where to start; the rapid arrival
of innovative technologies plus a general shortage of top
technology talent won’t make it any easier. CFOs must begin to
experiment, however, or risk falling behind other functional
groups in the organization and other companies in the industry
whose digital transformations are already under way. They might
lose a golden opportunity to help drive the business agenda.
A good start would be for CFOs to work with the CEO, the board,
and others on the senior-leadership team to proactively and
systematically identify tasks and processes within the finance
function that would most benefit from digitization. They can then
locate and invest in the technologies and capabilities required to
improve these areas.
The digital future: Emerging use
cases
Digitization is now a realistic goal for the finance function
because of a range of technological advances. These include the
widespread availability of business data; teams’ ability to process
large sets of data using now-accessible algorithms and analytic
methods; and improvements in connectivity tools and platforms,
such as sensors and cloud computing.
CFOs and their teams are the gatekeepers for the critical data
required to generate forecasts and support senior leaders’
strategic plans and decisions—among them, data relating to sales,
order fulfillment, supply chains, customer demand, and business
performance as well as real-time industry and market statistics.
There are four areas of technology that, right now, we believe
show the most promise for use in finance (Exhibit 1):
automation and robotics to improve processes in
finance
data visualization to give end users access to real-
time financial information and improve
organizational performance
advanced analytics for finance operations to
accelerate decision support
advanced analytics for overall business operations
to uncover hidden growth opportunities
Exhibit 1
CFOs may decide to champion and pursue investments in one or
all of these areas. Much will depend on the company’s starting
point—its current strategies, needs, and capabilities and its
existing technologies and skill sets. It is important to note that
digital transformation will not happen all at once, and companies
should not use their legacy enterprise resource planning and
other backbone systems as excuses not to start the change. By
working in small pilot projects and successfully digitizing the
most critical tasks within finance, the CFO can establish proof
points and ease the eventual rollout of digital technologies across
the entire function and across other parts of the company.
Simplifying processes through
automation and robotics
Research from the McKinsey Global Institute concludes that 40
percent of finance activities (for instance, cash disbursement,
revenue management, and general accounting and operations)
can be fully automated, and another 17 percent can be mostly
automated (Exhibit 2). Those figures demonstrate the degree to
which CFOs and other business leaders can simplify core internal
transactions through automation, establish standardized
reporting mechanisms, and work more efficiently.
Exhibit 2
A critical tool that leading-edge finance groups are already
exploring is robotic process automation (RPA), a category of
automation software that performs redundant tasks on a timed
basis and ensures that they are completed quickly, efficiently, and
without error. Task-automation tools such as RPA have advanced
to the point they are no longer applied only in discrete business
activities but across multiple areas of the business. The
companies successfully implementing RPA at scale have done so
by altering their operating models and redesigning their
processes. Finance staffers are receiving training on RPA
technology, so they no longer need to throw work flow requests to
an already overworked IT organization. That improvement has
made it easier for some companies to move beyond RPA pilot tests
and realize tangible outcomes.
After analyzing automation opportunities as a follow-up to a two-
year lean-transformation process, a large European utility
deployed RPA technology in several pilot areas, including “master
data management.” Its process for creating system profiles for
new vendors (or updating information on existing vendors), for
instance, involved a series of manual tasks that could often take
employees several hours a day to complete. But the end-to-end
process steps were mainly rule-based, and all the data were in
digital form, which made the “vendor creation task” a key
candidate for RPA. Ultimately, the utility increased overall
productivity within the finance function in its shared service
group by about 20 percent, given time- and cost-savings
associated with the deployment of RPA in this pilot area as well as
several others.
The use of RPA at one European bank has created other
advantages. The bank has combined RPA with natural-language-
generation software to create monthly spending reports. A back-
office system collects and analyzes the data and automatically
builds the “spending story”—for instance, listing key performance
indicators and adding red flags in those instances with
statistically meaningful changes in countries or product groups.
Rather than having to take the time to generate such reports by
hand, financial controllers can use the automated information to
engage in higher-level tasks, such as considering how to address
red flags.
Improving organizational
performance through data
visualization
If finance functions’ experiments with automation are largely
about optimizing processes, their experiments with data
visualization are about improving broader organizational
performance. Indeed, to make good resource-allocation
decisions, teams need real-time financial information. They often
lack access to such data because stores of data are in different
parts of a company, data formats are not comparable, or data are
not available at all.
Some finance groups are pairing automation capabilities with
data-visualization technologies, however, to create clear, timely,
actionable business reports. These reports quickly push data to
end users and present data in intuitive formats that encourage
focused business discussions.
The finance organization at a large consumer-goods company, for
instance, has deployed a self-service approach. Rather than wait
for reports, sales staff can use visual dashboards (accessible from
a laptop or mobile device) to get the data they need when they
need it—by region, business unit, function, or other parameters as
required. Sales managers and other executives pull the data from
a central repository that is continually refreshed, so they can
quickly get an accurate read on how demand is changing. This
self-serve approach has decreased the need for the finance group
to generate reports by more than 50 percent and has cut the cost
of reporting by 40 percent.
Similarly, the executive board at a European technology company
no longer uses PowerPoint. Business leaders instead use large
touch screens to access real-time data about finances and
operations. The information is presented in easy-to-read graphs
that highlight deviations from plan. The graphs are dynamic,
redrawing themselves as users swap variables in and out.
The CFO and other business leaders will need to collaborate with
the CEO, chief information officer, and IT organization to
integrate data-visualization tools with a company’s established
systems. They will need to draw on expertise from data scientists
and data analysts who might work in IT or directly with the
finance function. Such experts can help the CFO rethink end-to-
end finance processes (such as data-to-report, purchase-to-pay,
and order-to-cash processes) and rebuild them using a visual,
user-focused approach.
The CFO will also need to learn how to manage processes and
communication within a “data democracy”—where business
information is available anytime, anywhere, for everybody. It is
inevitable in such an environment that the business units will
request more and more data, not less. The CFO will need to work
with the CEO and other business leaders to establish rules around
data usage that reflect the specific information requirements of
decision makers across the organization. They will also need to
ensure that they are using the highest-quality data. Otherwise
there will be analytical anarchy.
Finding value through advanced
analytics
Companies in all industries are now experimenting with
advanced analytics—mining troves of business data (on people,
profits, processes, and so on) to find relevant insights that can
improve business leaders’ tactical decision making. Similarly, the
CFO and the finance function can use advanced analytics to
manage standard financial transactions and core processes more
efficiently and shape (and accelerate) tactical discussions.
Once CFOs understand the role advanced analytics can play in
improving financial processes, they can work with the CEO, the
board, and other senior leaders to identify broader ways of
applying advanced analytics to uncover new sources of business
value. Indeed, every CFO should explicitly define the leadership
role he or she wants to play in translating burning business
questions into use cases for advanced analytics—whether to
optimize pricing, identify customer churn, prevent fraud, manage
talent, or explore a host of other applications.
Standard transactions
A truck manufacturer uses advanced analytics to monitor general
sales of forklifts because it views this metric as an early indicator
of its own sales. Finance teams at other companies are using
advanced analytics to identify duplicate expenses and invoices or
to connect the terms of procurement and payment schedules for a
good or service with actual invoices so they can spot early or
missed payments or opportunities to apply discounts.
Core finance processes
A chemicals company uses advanced analytics to improve its
demand forecasting. Traditionally, its forecasting models relied
on basic, internal customer data and used historic trends to
predict future demand. Furthermore, the forecasts were at an
aggregate level—that is, for entire classes of chemicals rather than
individual ones. The company cross-referenced internal
customer data with external data sets, such as stock prices,
revenues, weather, exchange rates, and business-cycle indices, to
generate forecasts for specific regions and SKUs. In this way, the
company could examine whether existing forecasts were accurate
or not and react accordingly.
Tactical discussions
A US consumer-goods company is exploring the use of advanced
analytics in better predicting sales-volume changes associated
with pricing moves for certain SKUs. The company is building a
forecasting tool that will gather and analyze data on the SKUs in
pilot testing; the data include macroeconomic factors, geographic
factors, demographics, and other variables. Armed with this
information, business leaders hope to be able to alter pricing
decisions on the fly, as needed.
The digital agenda: Getting started
CFOs and their teams can kick-start the digitization process by
taking inventory of core use cases and determining where they
stand with each of the digital technologies cited here. They should
ask themselves questions regarding the potential value gained
from digitization of a finance process as well as the level of
feasibility of doing so—a process that we call performing a value
scan. They should engage business-unit leaders in discussions
about the pain points in various financial processes, such as slow
reporting and incomplete data. They should undergo a systematic
review of technology capabilities with members of the IT function
to define system requirements and investments.
But to truly succeed in building a digital finance function, CFOs
will need to address critical organizational and talent-related
issues (Exhibit 3). It is important, for instance, to develop a clear
vision of the desired target state for a digital finance function and
how that links to the company’s overall business and digital
strategy. The CFO and other senior leaders will need to promote
the digital agenda openly—for instance, by sharing success stories
at town halls and team meetings and advocating for cross-
functional collaboration between technology and business-
operations teams.
Exhibit 3
The CFO should engage with other senior leaders to refine
competency models, particularly those associated with the
finance function, to recruit and retain the employees needed to
carry out a digital agenda. Requirements might include a
willingness to learn about new technologies or process-design
expertise—skills that go above and beyond traditional finance
tasks. CFOs and senior leaders might need to significantly redo
incentives and compensation schemes to combat resistance to
change and reward those who support the creation of a digital
finance function. Such incentives can also help the company
attract top digital talent.
Perhaps most important, CFOs will need to collaborate with other
business leaders to ensure that any digitization and
transformation efforts adhere to the company’s cybersecurity
standards. They might even invite members of the cybersecurity
team to sit with members of the IT and finance functions to share
objectives and discuss mutual concerns. The CFOs who lead the
charge toward digitization will not only help the finance function
work more efficiently—potentially bolstering their candidacies
for leadership positions inside or outside their organizations—but
also become stronger partners of CEOs and business units.
For all the benefits of digitizing the finance function we have
outlined, there are many issues a bot or an algorithm still cannot
address, such as when you have collected scant data or when you
are assessing strategies over a longer time horizon and more
human judgement is necessary. But the possibilities far outweigh
the obstacles at this point, and the mandate is clear: CFOs must
develop and share with other senior leaders a vision for a digital
finance function. They have a clear opportunity to shape the
evolution of their companies and gain valuable insights and
experiences along the way. But those insights and experiences will
not come at all if CFOs don’t take the first steps.
