Analyst Perspectives

Doing more with less is the defining characteristic of finance and accounting departments in midsize enterprises, which ISG research defines as organizations with between 100 and 999 workers. One frustrating truth confronting executives in these organizations is that, once their company stops being a small business, it has many of the same challenges that large enterprises face but with fewer resources to deal with them. Over the past two decades, advances in information technology have had the greatest incremental impact on midsize enterprises, approaching the ability of large organizations to harness practical, affordable and reliable technology to gain productivity and improve performance, especially in the office of finance. The introduction of artificial intelligence and generative AI will close the gap further. 

Our Office of Finance Benchmark Research captured the needs versus resources scenario of midsize and large organizations. For example, while 45% of larger enterprises report that financial analysis is performed very well, only 29% of midsize organizations achieve that level. This gap is also apparent in budgeting and fiscal control (40% versus 27%) and strategic and long-range planning (38% versus 28%). The skills gap is especially pronounced: While 26% of midsize enterprises said the analytical skills of the people in the finance department are excellent, 38% of those in larger companies think that’s the case. It may be that larger organizations find it easier to attract people with excellent analytical skills because of better career opportunities, higher compensation, greater scope for specialization in the workforce or some combination of all three. 

However, technology is increasingly helping midsize enterprises close that gap and achieve higher levels of management effectiveness. Steady improvements to the technology underpinnings of business software combined with AI and generative AI will greatly enhance the performance of finance and accounting departments in midsize enterprises through the end of this decade.  

Enterprise resource planning systems have been the central nervous system of enterprises for more than three decades, handling business-critical process management and recordkeeping. While their basic outlines are unchanged, today’s systems are far more capable in their functional depth, adaptability, usability and manageability. Cloud-based systems, in particular, are far easier to maintain. Decades of refinement and focused development to support specific industries—and even specialized categories within these industries—have increased their utility while decreasing the total cost of ownership, especially in implementation expense and maintenance. 

Artificial intelligence is the latest supporting technology to increase the business value of this software. So, when considering replacing existing ERP software, it’s most important to understand and evaluate how a new system can add to the capabilities of the incumbent software and how to manage the organizational change that becomes possible and necessary with that upgrade. Natural language processing and agents improve staff productivity, especially in handling routine as well as infrequently performed processes. Technology also reduces training requirements and provides greater flexibility in assigning work, which is especially important in shorthanded midsize accounting departments.  

The technology underpinnings of ERP systems have evolved considerably over the past decade, significantly increasing their business value relative to older versions. The ongoing shift from on-premises to cloud-based ERP is accelerating as more configurable and customizable systems become available, especially those designed for specific business verticals. While generally unseen, evolution of the underlying technology architecture will support major changes in how finance and accounting departments work. In particular, AI is changing the nature of accounting and finance staff work, reducing the number of low-value chores and enabling departments to be more analytical and forward-looking. Substantial gains in productivity provided by the software will enable finance executives to cut costs and do more. 

End-of-period accounting processes are undergoing significant change to boost productivity and provide operating managers and executives with more relevant information sooner. Closing the books is the process of finalizing and summarizing the financial activities of a business for a specific accounting period. It involves completing various tasks to ensure that all revenue, expenses and other financial transactions are properly recorded, accounts are balanced and financial statements are prepared. Finance executives have focused on using technology to enhance the productivity (not just the efficiency) of their staff to address the need for resiliency and to deal with a shortage of skilled accountants. This shortage is causing executives to take a fresh look at software that manages the full close-consolidate-report cycle end to end. 

Software also enables enhanced collaboration between staff working remotely and across multiple locations. One important objective is to manage this portion of the accounting calendar as a controlled, repeatable process, which allows enterprises to finish sooner. ISG Research asserts that by 2027, two-thirds of finance and accounting departments will improve the use of readily available technology to close quarterly books within six business days, up from one-half that can do it today. 

In addition, today’s consolidate and close software automates the once very manual intercompany reconciliations process, enabling enterprises to automate the matching of sales and purchases. Automation makes the staff more productive, enhances governance, control and auditability of this process and can contribute to shortening the accounting close.  

Purchasing is a function overlooked for digital transformation because it’s often viewed as a low priority. In most enterprises, this department continues to operate much as it did in the late 1990s. Updated technology—especially as software providers add AI and GenAI capabilities—can improve procurement’s effectiveness, streamline processes and automate repetitive work. For the procure-to-pay cycle, software can streamline processes, shorten process times, reduce unnecessary costs, provide greater visibility into cash flows, increase control and improve results. Digitizing operations helps attract and retain the best talent because professionals spend less time on mechanical, repetitive tasks. For all these reasons ISG Research asserts that by 2027, only one-fourth of larger organizations will consistently manage procure-to-pay end to end, but those that do will outperform competitors. 

In P2P, outlays for individual purchases of indirect goods and services typically involve trivial amounts, but in many enterprises, they represent a significant share of controllable spend. Using software to manage this type of spending management, especially in conjunction with payment cards, makes it easier to manage the high volume of indirect purchases. Software that automates the sourcing process makes it easier—and more enjoyable—for the business, stakeholders and vendors to comply with policies while making it easier for finance organizations to benefit from volume discounts and avert duplicative or unnecessary spending. Using technology to aggregate spend data that otherwise may be scattered and inconsistent and automating data capture ensures that spend data and analytics are not only accurate but immediately available to budget owners. Where available, midsize enterprises can use the spend management functionality of ERP systems but may also find that a dedicated application for this purpose offers better functionality (including analytics, reporting and planning). 

Enterprises are discovering the value of rapid planning and budgeting cycles to support critical decision-making in an uncertain environment. These days, expectations for the future can change significantly on a daily or weekly basis, so companies can benefit from making planning and budgeting processes faster, easier, more relevant, more strategic, more agile and more accurate. Executives and managers must be able to explore different scenarios and outcomes to adapt quickly when opportunities and challenges arise.  

Decades ago, I coined the term “integrated business planning” to describe a high-participation, collaborative, decision-making approach to planning and budgeting that allows each business unit to plan operations and finances in a way that best suits business needs while giving executives an immediate unified view of the entire enterprise. IBP software enables executives to manage ahead of any future event, connecting the tactical trees to the strategic forest. Planning and budgeting software designed for midsize companies offers a valuable alternative to spreadsheet systems. AI is making time-consuming and complex efficiencies like predictive analytics and guided forecasting available to almost anyone, improving forecast accuracy and shortening planning cycles. This technology also makes rapid, multiple-scenario planning possible while providing quantified guidance on the potential impact of management actions. 

In evaluating finance and accounting software platforms, buyers must ensure that the software has a dedicated data store that automatically collects data from all systems and sources needed to support planning, budgeting, consolidation, close management and reporting. In addition to all of an organization’s ERP systems, data might be collected from CRM, sales and operations software. This does away with the need for analysts to repeatedly perform data extraction, enrichment or transformation motions from the required source systems, and all but eliminates the substantial amount of time they currently spend on data preparation. Our Analytics and Data Benchmark Research finds that individuals devote a considerable portion of their time preparing data for analysis and reviewing it for quality and consistency issues, activities that are no longer necessary when a platform data store is available. Such a repository also supports the machine learning necessary for training AI models, especially those used for forecasting and predictive analytics. The need to support ML will increase significantly over the next three years as providers of software designed for finance organizations will incorporate some AI capabilities to reduce workloads and improve performance. 

I recommend that chief financial officers, controllers and heads of financial planning and analysis in midsize companies assess their current operations to identify opportunities to improve the productivity and working environment for their staff. Both are necessary for attracting and retaining the best talent, especially in a tight market for accountants and analysts. Our research has consistently shown that software is essential to achieving better performance in the department. 

Regards,

Robert Kugel