February 13, 2020
February 13, 2020
Contributor: Rob van der Meulen
For CFOs to champion functional change that will drive business goals, they can't ignore key trends molding finance of the future.
To future-proof the finance organization and drive enterprise growth, CFOs plan plenty of change in finance analytics, technology and processes, but emerging trends are likely to shape their priorities.
Here we highlight 10 trends that will mold finance of the future. There is no rank order for the finance organization as a whole, but each could have a profound effect on organizational structure, talent, technology and process.
“Dealing with these trends will help to focus strategic planning efforts for 2020 and beyond — and help CFOs develop the skills, capabilities and characteristics required for finance of the future,” says Craig Wilton, Senior Director, Advisory, Gartner.
Read more: Add Data Science Skills to Corporate Finance Decisions
Talent strategies must meet emerging requirements for digital competencies. Finance transformation means that finance will face skill and competency gaps in areas ranging from data interpretation and data manipulation to IT fulfillment and vendor management.
“Finance leaders must look at how they recruit and develop staff, as well as how they retain them and provide career growth for them,” says Wilton. “A lack of digital competencies in finance will quickly affect an organization’s ability to make good decisions.”
Better able to make and drive decisions that help the organization respond to digital shifts, including the increased reliance on data, the expanding role of automation, more collaborative decision-making models and accelerated pace of change in operating conditions (from business models to regulation).
Learn more: Leading the Next-Generation Finance Workforce
As opposed to a one-size-fits-all centralized data governance model, allow governance to be distributed to data owners where appropriate. This helps the finance function optimize data for decision-readiness as opposed to accuracy and precision.
In practice this means adapting financial governance principles for non-financial performance data, creating trust in internal reports by incorporating more intuitive data alongside highly-governed data, and defining the relationship between financial and operational data. Moreover, it should provide opportunities to focus data quality improvements on areas that have the most economic benefit.
“Finance must balance the need for accuracy with the need to make a huge volume of data available for decision-making, which is a new muscle for many finance teams,” says Wilton.
Provides greater contribution to decision readiness of performance data. Per 2019 Gartner research, switch to “sufficient sources” of truth from a single source generated 40% greater contribution to decision readiness, and improved decision making and business outcomes by more than two times.
Read more: Make Financial Data Decision-Ready
As finance seeks to reduce costs while improving analytical insight, many organizations are relocating finance analytics in scalable centralized models, governed by a finance center of excellence (COE).
Hub-and-spoke models, for example, place the finance COE at the center, where data scientists handle data mining and collection, as well as synthesis and modelling.
“Beyond that sit activities more related to specific business lines,” says Wilton. “Those ‘spokes’ handle tasks such as project scoping, building analysis problems, translating analysis into business terms and delivering presentations based on the analytics.”
Read more: How to Organize Your Finance Function
Finance must determine which types of analysis should be owned by the center or the line, and develop a scalable partnership model to sustain high quality customer service. This will provide better decision support once the organizational model is properly aligned to specific activities. For example, decision experts can specialize in supporting a particular type of operational decision type, mitigating the type of financially unsound decisions that erode margins.
Learn more: Redesign Finance Structure and Roles
Finance transformations and technological advances are increasingly enabling internal stakeholders to gain real-time access to self-service data, complemented by advanced analytics.
“CFOs must ask what technologies will enable finance to deliver on-demand reporting, how should data be governed as reporting expands to integrate financial and nonfinancial data, and what skills finance will need to deliver insight in an on-demand reporting environment,” says Wilton.
Reporting is faster and more accessible. Finance uses AI and machine learning (ML) functionalities to enable enhanced support and leverages more advanced analytics and data visualization tools to improve data modelling capabilities and deliver relevant insights through future-state reports.
Read more: Realize the Value of RPA in Financial Reporting
Software vendors are increasingly offering more core finance applications on the cloud where intelligence systems like artificial intelligence (AI) and machine learning (ML) are not an add-on but embedded in the ERP.
“The questions for finance are what capabilities are enabled by intelligent platforms like AI, ML and blockchain, and how can ERP be leveraged to improve data insights and enable organizational outcomes,” says Wilton.
Embraces real-time planning, budgeting and closing, leveraging standard global processes across the organization. The function is equipped to work with real-time operational data and intelligent platforms, and treats ERP as a business, not an IT, asset — responding faster to continuous updates of cloud ERP as the disruption cycle shortens and playing a bigger role in managing ERP.
In the coming decade, AI will optimize or transform nearly every activity in finance. Finance leaders should be aware of how this will affect their function, prepare their team with new skill sets and explore the investments necessary for AI.
“Ask how you will develop or acquire the necessary skills, what data infrastructure you will need to support AI and how you will create it,” says Wilton. “And first think about low-hanging fruit where you can deploy AI.”
AI strategy and planning will install foundational components needed to deploy enterprise use of AI and ML for delivering insights and reducing friction and cost in finance activities. “One company told us they’ve been able to deploy an ML algorithm to automate budgeting and forecasting for 85% of business managers," says Wilton. “It has saved over €60 million so far and countless hours while driving forecast accuracy above 99.5%.”
Read more: Fact vs Fiction: Finance Use of AI
As robotic process automation (RPA) and other digital technologies become commonplace, finance needs to establish the right internal controls, assuring against financial reporting risk without overly reducing the speed of implementation.
“Seek to strike a balance between efficiency and governance of RPA, and identify the right internal controls to put around your bots,” says Wilton.
RPA use cases tracked for their impact on internal controls and better triages monitoring and RPA error handling. For example, checking a robot’s configuration in the case of failure is a significant investment in technical staff resources that could potentially be omitted in certain cases without increasing financial reporting risks.
Read more: Why and How Finance Must Build Robotics Capabilities
One frequently missed lever of growth is derived from supplier ideas and resources. As organizations become increasingly reliant on their suppliers for key capabilities and continue to work with even more suppliers in varied capacities, they will need to leverage key relationships to strategic and competitive advantage, as well as to contain risk.
“Understanding whether suppliers prioritize your organization over other customers is key,” says Wilton. “Encouraging procurement teams to have a mindset of innovation when dealing with suppliers can lead to important new growth opportunities.”
Mitigates supplier risks more proactively and helps the organization maintain a competitive advantage through closer supplier relationships. For example, closer partnerships with suppliers can help finance identify potential acquisition targets for vertical integration or to acquire additional strategic capabilities, driving growth and innovation.
Read more: Get Started on Robotics in Procurement
Shared services has moved far beyond finance transaction processing and now includes value-added services in finance and beyond. The focus of mature global business services (GBS) will shift away from cost reduction toward value delivery.
“CFOs must ask themselves which services are best suited to a GBS model in their organization,” says Wilton. “Moreover, how can they balance captive and outsourcing models to maximize value-added services, and how will they develop the necessary skills?”
Digital solutions such as analytics drive business value through improved efficiencies and exploiting of data to meet enterprise demands. For example, big data and cloud computing leverage new and larger datasets to drive operational efficiencies, and RPA will automate manual repetitive processes. New digital experts will help identify the biggest opportunities.
Read more: 5 Shared Services Pricing Approaches
Corporate cost growth has outpaced revenue growth by 1.8 times since 2014, in part because neither finance nor business leaders have great visibility into the breakdown of those costs. But while companies face difficult choices, especially in uncertain conditions, winners are acting to optimize costs now.
“CFOs need to know how their costs compare to peers, identify how to adapt their cost structure to outperform peers and drive change across the organization to pursue targeted growth bets while eliminating value-destroying projects,” says Wilton.
Read more: 3 Cost-Cutting Mistakes to Avoid
Finance leaders restrain cost scope and instead cost-scale. To emulate proven efficient-growth winners, pursue more focused growth bets, concentrate fixed costs in fewer lines of business, and drive higher leverage from denser operating and customer footprints.
Learn more: Finance of the Future
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Recommended resources for Gartner clients*:
Finance of the Future: 10 Trends to Watch Right Now.
*Note that some documents may not be available to all Gartner clients.