Finance departments, including treasury, are facing a major battle of wills as the next big issue gathers pace. Is there a middle ground between managing shrinking budgets and facilitating growth?
Finance departments should be helping companies drive growth and, at the same time, manage their own significant budget constraints. This is the conundrum presented in new research from The Hackett Group, and according to the consultancy firm’s ‘Finance’s Four Imperatives to Accelerate Business Value’, the answer in part lies in digital transformation.
The research is based on results gathered from more than 160 executives, most from large international companies with annual revenues of US$1bn or greater. The results suggest that digital transformation is emerging as the “strategic imperative” for the enterprise in 2018. As such, it believes firms should pay heed to its Four Imperatives.
Balance investments with costs
The finance function faces a productivity gap, driven by a combination of a 1.3% projected reduction in department operating budgets and expected corporate revenue growth of 3.6%. The cut to finance budgets in 2018 is significantly larger than those expected for other business services functions, such as IT and procurement.
Finance running costs are set to drop by less than in recent years, largely because ongoing automation initiatives and organisational changes have already driven out most process inefficiencies. This makes additional cost cutting more challenging.
Support the enterprise with improved analytics and insight
This is finance’s top enterprise objective in 2018. It is therefore also the area where finance intends to focus more of its improvement efforts in 2018. The focus on analytics will enable finance to give more effective insight to management, so it can make smarter decisions about investments and capital allocations.
Most finance functions are already engaged in technology, process, and people-related initiatives to improve this capability, says the survey. But this area also exhibits one of the most dramatic capability gaps. Whilst finance can access new technologies if it has the budget, it has “a very hard time finding the right people to implement and use them”.
Leverage digital strategy
Nearly all respondents expect a digital transformation to bring major improvements to performance and to alter the function’s operating model. Some 56% have a digital strategy in place, up from 44% last year. But only 35% believe they have the resources and competencies in place to execute their digital transformation strategy, and this number has not increased in the past year.
Senior finance management is beginning to reallocate additional resources to drive fuller adoption, says the research. Cloud-based tools are already gaining momentum for applications such as enterprise performance management (EPM), expense reporting, and account reconciliation. A cloud-first policy is also emerging for applications that extend the functionality of core transactional finance systems.
Advanced analytics adoption is expected to grow by more than eight times over the next two to three years. Other areas of growth include master data management technologies (5.4 times growth), data visualisation tools (4.5 times) are expected. Emerging digital technologies are high on the agenda too; Hackett predicts 12.7 times growth for robotic process automation (RPA) adoption and 6.8 times growth for cognitive computing (such as artificial intelligence).
Reshape the service delivery model
Digital transformation is seen by most respondents as a means of changing finance’s service delivery models. The reallocation of finance headcount and workload from business units to global business services and centres of excellence is expected to occur in increasing numbers over the next few years.
According to Tom Willman, Associate Principal and Finance Executive Advisory Program Leader, The Hackett Group, “finance must move beyond readiness, move beyond exploration, to fuller adoption in those areas with the greatest impact”. This, he advises, means having a strategy in place, a robust business case, a roadmap, and the people and resources to support it. “If you’re still just preparing to move forward, you’re likely to be left behind.”