TechnologyHow digital technologies are raising the bar for finance organizations

How digital technologies are raising the bar for finance organizations

Finance must rise to the challenge of today’s volatile global markets and become a more effective strategic partner to senior management, according to new research from The Hackett Group

The Hackett Group’s latest research found that finance is using digital transformation to help it excel in three key areas: running an efficient operation, delivering effective services and improving its customers’ experience.

Without a doubt, broader adoption of digital technologies is helping finance organizations achieve all three objectives. The report found that digital leaders’ finance cost are 43% lower and they employ 45% fewer FTEs. Their error rates are 37% lower and they spend 15% less time collecting and compiling data. These measures of efficiency and effectiveness lead to a better experience for customers, who are more than twice as likely than those of more typical companies, to consider finance as a valued and responsive business partner.

World-class finance organizations achieve top performance in efficiency, effectiveness and customer experience. These organizations also continue to operate at a much lower cost than peers. While their cost of operations recently has been flat, that disguises greater investment in people, the adoption of new technologies and process improvements. In fact, these organizations have consistently managed to keep cost low by employing significantly fewer FTEs, rationalizing expensive legacy systems (their technology spend is 54% lower), and investing wisely in their people, while shifting finance activities into global business services organizations (GBS), centers of excellence (COEs), outsourcing and offshoring.

Maximum efficiency

World-classs finance organizations become more effective by investing in their people, adopting best practices and leveraging technology. The expanding focus on acting as an advisor to the business requires finance to develop new skills, such as business acumen, analytical thinking and communication.

The research reveals that world-class finance organizations doubled their investment in training over the past year. They also spend over 60% more time on internal and external training than peers, and as a result, they see much higher levels of customer satisfaction.

World-class organizations are more than three times more likely to be perceived by stakeholders as anticipating and responding to their business needs. They also make six times fewer mistakes than peers in accounts payable and three times fewer errors in travel and expense reimbursement processing and customer billing. These improvements help reduce unnecessary disputes with external customers and enhance relationships with strategic partners. Errors in these and other internal processes can color the perception of internal stakeholders.

World-class finance organizations govern their processes ‘end to end’ in order to deliver better results. They employ 50% fewer staff per $1 billion in revenue and spend 1.4 times less on overall finance. Further, their cost to process invoices is 47% lower.

In addition, world-class finance organizations improve process effectiveness by standardizing and consolidating their data management platforms so they can draw information from the same repository, with better data integrity, and produce better and more informative reports. They are 57% more likely than companies that are not World Class, to pull information from data warehouses for performance reports.

Breaking through the cost barrier

World-class finance organizations have already squeezed-out many of their inefficiencies through process improvement, automation and service model optimization. To continue to improve, it is imperative that finance find a way to break through the cost barrier in coming years. According to the research, an important factor to disrupting the status quo is broad-based adoption of digital technology. Right now, adoption rates by finance are relatively low, although they are expected to rise in the next two to three years.

Greater adoption of technologies like artificial intelligence, cloud, smart automation, and mobile computing can make a big difference in finance’s cost base. Via analysis of benchmark data and empirical data of leading-edge finance organizations, it is estimated that that most finance organizations that are not already world-class, can cut their costs by 35%. This would bring them within range of current world-class cost levels. Even world-class finance organizations can shave a further 21% off their finance costs.

By harmonizing data platforms, standardizing and automating processes, world-class organizations have managed to reduce the amount of time their staff spend on low value work. As a result, finance professionals have more time to focus on more value-adding activities. They are also able to expand their view of the business by including operational information in their analyses. This lets them connect the dots to identify how business decisions affect financial performance.

How can finance organizations rise to this challenge?

Finance’s mandate from senior management and top business leaders is clear: support

strategic decision-making and execution, by delivering better insights; assist with the enterprise digital transformation strategy; and collaborate with business leaders.

They must reduce their cost of operations by redesigning processes to take out inefficiencies and reduce manual interventions by leveraging smart technologies. Emerging cloud-based ERP solutions offer best-in-class, built-in processes that can serve as templates for improvement and reduce the cost of maintaining and upgrading legacy, on-premises systems. Meanwhile, Smart Automation can overcome the lack of integration of disparate systems and limit the need for human intervention, reducing labor costs and speeding up cycle time while cutting error rates.

World-class organizations increase the effectiveness of their operations by freeing up staff time to focus on more valuable activities like analytics. This can be done by optimizing and automating processes and evolving the finance s organization, e.g., shifting workload and FTEs to GBS organizations or COEs, and relying more on outsourcing and offshoring.

World-class organizations work toward improving their stakeholders’ experience by thinking about their customers first when designing new services. Among the proven techniques and strategies for doing so, are building processes with design thinking and customer journey mapping; providing the right analyses at the right time to the right people; collaborating more closely with business leaders; and investing more in training and developing staff.

Digital transformation can play a major role in helping typical finance organizations catch up with their world-class competitors. Yet, the reality is that the definition of ‘world-class’ will continue to evolve as leading finance functions deploy smart technologies to transform themselves. Thus, the quest for achieving world-class status never ends. Its future will require continuous improvement of cost structure, effectiveness and stakeholders’ perceptions of how finance adds value to the performance of the enterprise.

A public version of the research discussed here is available on a complimentary basis, with registration, here.

About the author

Gilles Bonelli is associate principal at The Hackett Group.

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