Bringing Next-Gen Tech to Finance
Digital disruption is all around us. Fancy new refrigerators can automatically order more milk when we’re running low. Taxis have been obsoleted by Uber. Depositing a check at the bank no longer requires you to actually go to the bank. Amazon is in, Sears is out. In our day-to-day lives, digital transformation is king. But what about in the enterprise? And specifically, what about in the finance organization?
For most organizations, the finance function is lagging behind in terms of digital transformation. Many CFOs get involved in reviewing and approving business cases for digital transformation initiatives in other business functions, but don’t actually spend time exploring opportunities for transforming finance itself. In fact, research from McKinsey shows that 60% of CFOs still spend the bulk of their time on traditional finance/accounting activities as opposed to leaning into digital transformation opportunities. This is due in large part to the fact that there are few proven business cases for digital transformation in finance and few best practices to draw from. And less than 1/3 of CFOs believe their finance function has the tools and capabilities needed to go digital.
But that paradigm is starting to change. Digital transformation in the finance function is here to stay and finance leaders now have a choice to make: let technology turn you into a shared service measured only by efficiency or leverage technology to turn your function into a value hub within the organization.
In this blog post, we’ll highlight key opportunities to embrace next-gen technologies within four key areas of finance: recording, controlling, planning and analysis, and tax.
Automation in the Recording & Accounting Functions
Robotic process automation (RPA) means using software (or ‘bots’) to automate high-volume, rules-based repetitive tasks that would otherwise be handled by a human. Offloading these low-value activities to RPA technology enables finance team members to devote more time to serving customers and doing other higher-value work.
RPA is a great fit for transactional activities such as bank reconciliation, purchase order reviews and matching, billing and collections processes, accounts receivable, and accounts payable. In receivables management, for example, RPA capabilities can monitor receivables, provide reminders for past-due balances, calculate outstanding amounts, and even post journal entries. On the Payables side, consider the efficiencies gained by automating payment validations and monitoring of outstanding balances. The possibilities are endless.
One client leveraged RPA in its accounts payable function, implementing bots that extracted invoices from an inbox, placed them in a work queue, indexed them with their ERP, validated invoices according to business rules, and then approved or denied each invoice for payment. The RPA solution resulted in accuracy rates above 95%, cycle times more than three times faster, and cost savings of more than 70%.
If your business manages a significant volume of AR and AP activity – not to mention other highly repetitive tasks in the finance function – consider leveraging RPA technology like UiPath, Automation Anywhere, or Blue Prism to drive significant efficiencies.
Advanced Analytics for Controls, Compliance, and Risk Management
For many of the clients we work with, the Controlling function represents a huge opportunity to more effectively leverage technology to drive more value. Many organizations have automated much of their month-end close process, but still have days or weeks of manual reconciliation and other analysis to do each month. This limits the Controlling team’s ability to provide more insightful, strategic analysis for the business. But new digital capabilities are changing the game and enabling teams to move on from calculating the numbers to actually analyzing the numbers and make good business decisions.
Three key uses cases are popping up in many of the Controlling teams we work with:
Reconciliation: Advanced data algorithms, machine learning capabilities, and in some cases RPA bots are able to post data from a number of sources, consolidate the data based on certain business rules, and reconcile it. The last piece is critical. Imagine having a trusted, high-fidelity reconciliation (or “bridge) between management and GAAP reporting (as an example) automatically generated each month. This would reduce a lot of manual activity and enable your team to quickly move on to value-adding analysis.
Compliance & Controls: AI can drastically reduce the time it takes to identify noncompliance issues in finance data. Purchase orders, employee receipts, travel bookings, and credit card transactions can be scanned and reviewed based on certain business rules. Those that fit into acceptable parameters can be auto-approved, while those that are outside the acceptable bounds can be flagged for review.
Risk Management: Natural language processing (NLP) capabilities can review contracts or other key documents, extract key terms and information, and then synthesize that information into a comprehensive risk assessment. Again, this means automating analysis that historically was very manual and time-consuming.
In a nutshell, advanced data capabilities – along with next-generation cloud ERPs and reporting platforms – are making it more cost-effective and valuable to automate traditional controlling, compliance, and risk management tasks. And if you’re still a little hesitant to embrace these new digital capabilities as a Controller, just remember: your auditor is using them. :)
AI in Financial Planning & Analysis
Perhaps no team within the finance function is more well-positioned for advanced analytics capabilities than financial planning & analysis (FP&A). In today’s economy – with simple legacy business models giving way to complex, dynamic new models – many FP&A teams are rethinking their entire approach for creating timely financial forecasts and plans. Given the uncertainties, many teams are opting to build flexible, agile forecasting capabilities vs. stale, monolithic annual forecasting processes. Some FP&A organizations are identifying new drivers of performance and creating new models for forecasting financial outcomes. Others are creating complex driver-based plans. No matter which approach you take, you’ll need the right mix of finance and strategy experts to architect the conceptual model and technology/data experts to build the actual structures and algorithms. You’ll also need skilled analysts to assess your underlying forecast and add in other key contextual information to enhance the outputs.
And beyond the people and process components, these new forecasting approaches also require next-gen technology capabilities. For many organizations, a cloud enterprise performance management (EPM) tool such as Hyperion or OneStream is a great place to start as these tools can handle many core forecasting needs (if you don’t have one, we’d encourage you to evaluate some of the leading platforms and start there before exploring custom solutions).
But if you have a more dynamic and complex business model – or want to integrate more external variables into your forecasts and scenario planning – you might need more advanced technology than what an EPM module can provide. As you think about standing up the right analytics capabilities for your FP&A team, work with your CIO and other IT leaders within your business to ask these key questions:
Are we sourcing the right internal and external data into a common data platform for consumption and analysis?
Are we able to acquire the data quickly and reliably enough to make good decisions with it?
Do we have the right tools and people to transform the underlying data into advanced models? In other words, do we have the right data engineers, data scientists, data stewards, etc., to turn our data into insights?
Do we have the right front-end reporting tool(s) and scenario planning capabilities to enable real-time iteration of our forecasts by FP&A professionals?
If the answer to all four questions is “yes,” then you’re in great shape. If not, consider taking a holistic approach by assessing the people, processes, and technology within your FP&A function and building a vision and roadmap for transforming your team and infrastructure to be a next-gen FP&A function.
Digital Capabilities in Tax
In the corporate tax arena, there are a number of emerging trends that are rapidly changing the processes, standards, and technology needs in the tax function. First, many government entities are going digital, not only by leveraging e-file capabilities, but also by automating much of the matching, validating, and audit process. It begs the question, “If the taxing entity is able to automate my audit, why can’t I just automate my own tax processes and calculations?” (bingo!). Secondly, the overarching wave of digital technologies is changing the way other businesses want to handle their tax work and will over time continue to affect the ways corporate entities interact with taxing authorities. Finally, an evolving legislative landscape is demanding more transparency and increased compliance – two key drivers for more automation in the tax world.
So, what can you do to transform your tax function? Here are a few key digital use cases to consider:
Consider using RPA for data-gathering, adjustments, reconciliations, processing, and e-filing. You can essentially automate the conversion of raw data into jurisdiction-specific adjustments and also generate exception reports and notifications for manual reviews as needed. This represents a massive opportunity to automate work that is currently very manual in many organizations.
Another key pain point in many tax departments is manually reviewing and classifying expenses for tax purposes. But what if you could automate that? Good news – you can! Many organizations are now using machine learning algorithms to automatically categorize expense data across thousands of categories to support partial exemption calculations. Again, this represents a significant opportunity to eliminate low-value, manual work.
Lastly, consider the opportunity to use optical character recognition (OCR) and machine learning to help with indirect tax overpayment recovery. Using these technologies, you can eliminate manual reconciliation work, accelerate cash recovery, and reduce the likelihood of future over/underpayments.
And while the technology opportunities are fascinating, none of this will work without the right people, with the right skills, in the right roles. This new tax technology paradigm shift will make it important for in-house tax employees to be proficient in the use of technology tools and platforms. Digital natives will be ahead of the game and those with specialist skills will be much in demand. Tax teams will likely include technology specialists, with programming skills, and specialists in data analytics. Team members will need to understand new tools, interface with reporting technologies, and interpret reports and analysis to be able to answer questions that arise from authorities. Thoughtfully integrating these requirements into your talent management approach now will set you up for future success (and, to be clear, this is true across the entire finance function, not just in tax).
In Conclusion
The transition of the finance function from “cost center” to “value creator” has accelerated rapidly in recent years and is now here to stay. This dramatic shift in scope and priorities for the finance function demands not only a new set of tools – such as RPA, AI, machine learning, and cloud ERP/EPM/business intelligence tools – but also a thoughtful organizational design and talent management approach. Those that invest in transforming the finance function today will be much more well-positioned in the future, while those that don’t risk becoming obsolete.
If you’re embarking on or in the middle of a transformation of your finance function and are looking for a trusted advisor who’s “been there and done that” – or if you want to hear more about our experience helping other finance functions transform for the future – reach out to us at info@flexpointconsulting.com for a free consultation. We’d love to chat.