Analyst Perspectives

A year of business uncertainty, lockdowns and operational disruptions forced finance and accounting organizations to adapt and change in many ways that are proving to be permanent. The need to operate virtually resulted in some organizations accelerating their adoption of technology, bringing them closer to achieving a transformation of the finance and accounting function: reshaping the department into an organization that is more forward-looking and strategic. Strategic in the sense of providing greater visibility into how the company and each of its business units is performing and insight into how to achieve better results going forward. Its focus is on what is happening next and not merely on what just happened. It does not only explain past results but uses that context to provide guidance about the choices executives and managers have, and the likely impact of those choices. To truly achieve this degree of transformation requires a different departmental structure, one that incorporates a Finance IT capability.

The traditional Office of Finance has five main components: accounting keeps the books; financial planning and analysis (FP&A) analyzes performance and manages the forward-looking activities of the company, such as planning, budgeting and forecasting; corporate finance raises outside money; treasury takes care of the cash and bank accounts; and tax. The modern Office of Finance requires a sixth: Finance IT.

Having a Finance IT group enables the finance department to provide a deeper perspective on the big picture, backed by details, rather than obsessing over the details — that is, counting beans. It becomes a department that spends almost all its time delivering action-oriented awareness and insight from the numbers because it does not have to spend time gathering and wrangling data.

Information technology is essential to achieving such a transformation, which is why more recently it is referred to as “digital transformation.” Technology is central to the smooth functioning of finance and accounting. It is therefore essential that the Office of Finance has a high degree of competence with technology. Unfortunately, those skilled in accounting and financial analysis are not necessarily technology experts. And without a fundamental understanding of how the available tools work, it can be difficult for a department to make smart technology purchasing decisions or design technology-driven processes that enhance effectiveness. It may not even be able to fully utilize the technology assets it owns.

For that reason, corporations must have a Finance IT group made up of individuals who are well grounded in core finance and accounting disciplines but also knowledgeable when it comes to software and information technology. The data shows that there are correlations between having a dedicated unit and having a high-performing finance organization. For example, 50% of the companies with Finance IT report that they perform financial analysis very well compared to 29% that lack one. There is a similar, significant difference in correlations for a range of functional areas: 48% of organizations with a Finance IT group perform cost accounting very well compared to 20% of those without. In budgeting and fiscal control, the comparison is 46% to 20%. Companies with Finance IT are better communicators: 60% of organizations with this capability provide timely information to the rest of the company, compared to only 32% of those without one.

A Finance IT group has become a must-have because competence in using technology is associated with better performance in the Office of Finance, even for the basics. The research shows that 88% of organizations at the highest, Innovative level perform accounting very well compared to 44% that are at the lowest, Tactical level. Similarly, 69% of Innovative companies perform budgeting and fiscal control very well versus just 18% of those in the Tactical category. Analytics work better, too: 64% of Innovative companies perform analytics very well compared to 28% of those that are at the Tactical level. Innovative companies are better at reporting: 63% provide timely information to the rest of the company, while only 36% of Tactical companies do so.

I assert that by 2025, the number of organizations with a Finance IT function will grow from six in 10 today to nine in 10, enabling them to operate more effectively. How the Finance IT group is organized is likely to vary from one organization to the next. Finance IT may be a specific group within the department, it may be a center of excellence that services an entire organization, or it may be individuals with specific competencies whose main role is in one of the traditional functions.

In the past, there might have been no penalty for a department having a wait-and-see attitude to technology adoption, reacting slowly to opportunities to exploit technology capabilities when they become practical rather than seeking them out. Increasingly, though, delaying the application of technology to finance department processes is having negative consequences. For example, companies that delayed applying automation to the new revenue-recognition standards paid for the delay with heavier-than-necessary workloads. Companies that already used IT to accelerate their financial close by limiting the scope of manual processes were able to easily adapt to the lockdowns of 2020.

In addition to the evolution of major enterprise applications, such as ERP and planning, a new generation of more sophisticated tools designed specifically for knowledge workers outside of IT has emerged, along with low-code and no-code software that extends the capabilities of applications without needing training as a coder. Even Excel is incorporating more powerful features, such as Lambda, which can be used to define a function that can execute a multistep process in a workbook without requiring any programming. Lambda makes users more productive and reduces errors. Training professionals to become proficient in using new tools must be a priority for finance department executives.

Having technology competence within the department will become even more essential as the pace of innovation in Finance accelerates. Innovations in areas such as artificial intelligence (AI), machine learning (ML), blockchain and robotic process automation (RPA) increasingly are incorporated into core software applications such as ERP. To be effective, finance departments must adopt a “fast-follower” approach to technology adoption. Fast followers do not operate at the bleeding edge of IT innovation, but they are poised to incorporate technology innovations as soon as they have proven to be practical. To make this a reality, it is necessary to have an influential group to guide the department, keeping it abreast of relevant technologies and helping it anticipate their introduction into departmental processes.

Finance executives must ensure that the skills and experience exist in the department to understand how to apply the expanding capabilities of enterprise software. They must adopt a fast-follower approach to buying technology. They must recruit a workforce with a more than surface understanding of technology. Finance professionals must recognize that competence in information technology increasingly will be a requirement. Those individuals who want to future-proof their careers must stay abreast of information technology and acquire the skills necessary to use a new generation of more powerful tools.

Regards,

Robert Kugel