Ventana Research recently announced its 2022 Market Agenda for the Office of Finance, continuing the guidance we have offered since 2003 on the practical use of technology for the finance and accounting department. Our insights and best practices aim to enable organizations to operate with agility and resiliency, improving performance and delivering greater value as a strategic partner.
The long-awaited, accelerated adoption of digital technology by the Office of Finance began in 2020 as organizations were forced to adapt to remote working environments. “Virtual” is now the adjective of choice describing almost all core finance and accounting processes. Yet, despite recent encouraging signs of faster technology adoption, transforming department processes and practices is likely to evolve slowly because the key impediment remains the difficulty of changing organizational behavior, commonly referred to as “change management.” For that reason, although nine in 10 executives say they want their finance and accounting department to be a strategic partner to their organization, but by 2025 fewer than one-third will evolve into this role, limiting their company’s performance.
Ventana Research coined the term “integrated business planning” (IBP) almost 15 years ago to describe a process that supports enterprise-wide, high-participation, rapid-planning cycles. These cycles provide detailed answers to “what-if” questions in seconds or minutes, not hours or days. Budgeting and planning are simplified for business unit managers, and finance departments gain a detailed, forward-looking view of the income statement, balance sheet and cash flows. IBP employs technology such as in-memory computing, advanced analytics and interactive planning to make planning and budgeting processes more agile and easier. Our 2022 Business Planning Value Index and Benchmark Research focuses on how financial planning and analysis (FP&A) groups can finally make planning and budgeting more of a business tool, one that is easier for budget owners to use, significantly enhancing the business value of these processes.
Financial performance management applies technology to the full cycle of departmental functions — corporate and strategic finance, planning, forecasting, analysis, closing and reporting. Close automation, especially, has become a priority to accelerate the accounting cycle, reduce workloads and relieve staff stress. Our research in 2022 will spotlight the evolving role and mission of the FP&A group and the importance of technology to support that evolution. We also will investigate the extent to which organizations are employing advanced analytics. Our research finds that one-half of finance organizations fail to utilize technologies that would enable a faster accounting close, providing executives and managers with important information sooner. We assert that, as a result of accelerated adoption of technology, by 2025, two-thirds of finance and accounting departments will be able to close their quarterly books within six business days, up from one-half today. We will pursue additional research on this issue in 2022. In 2021 we introduced the term Intercompany Financial Management (IFM), a discipline for structuring and handling transactions within a corporation and between its legal entities, designed to maximize staff efficiency and accounting accuracy while optimizing tax exposure, minimizing tax leakage and ensuring consistent tax and regulatory compliance. IFM addresses a significant (if often unrecognized) problem for many companies because performing IFM well requires the ability to execute the minutiae of statutory and tax accounting details effectively to support the achievement of high-level corporate objectives.
Our research on this topic in 2022 will explore how digital finance can shift the balance of the department’s work from transaction processing and reporting to forward-looking operational and financial analyses. Digital finance utilizes technology to eliminate rote, repetitive work and while improving the quality of financial processes and financial statements. For example, global organizations that have complex intercompany transaction structures can use digital finance technology to reduce costs, increase control and enhance compliance. Through 2025, almost all multinational organizations that do not adopt IFM will struggle with profit leakage caused by lapses in handling VAT, income tax and transfer pricing decisions. These technologies, including AI/ML, RPA and blockchain distributed ledgers, will effect a profound change in the Office of Finance’s role, fueling a more substantial challenge to “we’ve always done it this way” inertia.
Managing taxes challenges CFOs because statutory accounting and tax authority reporting requirements have become more demanding, increasing workloads. Rising tax rates and more rigorous enforcement makes more focused tax management necessary. Using dedicated tax applications enables tax and accounting departments to operate more efficiently, giving them more time for tax analysis and planning to minimize tax expense as well as providing executives and boards greater transparency in tax provision and tax positions. For this reason, we assert that by 2025, two-thirds of product companies with multinational operations will use software to manage transfer pricing to manage compliance consistently and reduce risk.
Organizations have already made significant investments in software to reduce the burden of recent revenue and lease accounting standards, but some have found that they made the wrong choice. Moreover, those that have adopted a subscription or recurring revenue model are finding their existing ERP system inadequate for that business model. The new standards are more principles-based, requiring effective process control and comprehensive disclosures. The largest multinationals are discovering the need for Intercompany Financial Management. We assert that by 2025, two-thirds of product companies with multinational operations will use software to manage transfer pricing to manage compliance consistently and reduce risk.
Finance and accounting organizations turned a corner in 2021 and continue to accelerate their adoption of technology in 2022, increasingly embracing digitization. Subscribe to our Ventana Research community to stay up to date on our 2022 research efforts. Visit the Office of Finance page and focus areas for more research facts and best practices.
Regards,
Robert Kugel