When PepsiCo announced1 that its Chief Financial Officer (CFO)
would take the responsibility of
the Chief Information Officer (CIO),
it was not an isolated instance.
It is a sign of changing times in
which the finance function is
transforming to a value generation
unit, driving key decisions.
According to a survey conducted by McKinsey,2 a majority of CFOs
are now responsible for risk,
regulatory compliance, mergers
and acquisitions, and even IT,
cybersecurity and digitization.
A sharing economy, the emergence
of a 'digital' culture, and new and disruptive technologies such as
Robotic Process Automation (RPA)
and Artificial Intelligence (AI) are
compelling CFOs to look at what's
in store for the finance function as
organizations evolve and business
models change.
Complexities arising from the
regulatory environment in the form
of controllership challenges,
repatriation of funds from new
geographies invested into and
environmental regulations are
further changing the status quo of finance. A Thomson Reuters3 study found that companies
expect the compliance cost to increase even as the finance
function is spending significant
amount of time tracking and
analyzing regulatory changes.
The sharing economy has
brought its own set of challenges
for the finance function, not
limited to just taxation. Global
operating models, sourcing
structures, economies of co-creation and co-deliver
with different go-to-market alternatives coupled with the
information overload from
multiple sources is making
finance functions re-think their
operations and strategies.
Evolution & Expectations
In his New York Times best seller,
The Zero Marginal Cost Society, Jeremy Rifkin argues4 that in the
technology-driven sharing economy
the marginal cost of producing
goods will fall to nothing, making
everything free. But whether
Rifkin’s prediction comes true or
not, the real challenge at hand for
businesses is in maintaining
profitability in the new economy.
In such an ecosystem, organizations
will bank more on the finance
function to play a pivotal role.
Hence, CFOs will need a helping
hand from technology to manage
processes and expectations.
CFOs will experience a shift in
the role of their workforce as
finance teams evolve through
three levels of technology
enablement and move away from
transactional activities to offer
strategic support.
Level 1 is the adoption of
Enterprise Resource Planning
(ERP) systems and tools in which
finance teams focus on
transaction-based activities such
as data entry, manual reporting,
audits and controls.
Level 2 is where RPA and digital
technologies play a bigger role in transactional activities, and
enhance controls and compliance.
Finance teams will deal only
with exceptions and cases with
high complexity that technology
cannot handle.
Level 3 will see the prevalence
of AI technologies such as
speech recognition and
language naturalization.
Technology will take over all
transactional activities.
Finance resources will move
toward decision-making, and
support strategic planning and
risk management activities.
Technology & Transformation
Finance will not only need to
transform its own function using
technology, but play a strategic
role in the digital transformation
of the entire organization as well.
This will require significant
investments in specific areas
such as IT. The finance function
will need to partner with other
business functions to enable
the transformation.
Future finance leaders will have to
move away from rigid processes, and take on a more dynamic role
in which they will engage with
multiple stakeholders to create
a flexible, interactive and adaptive environment.5
Key stakeholders’ expectations from
CFOs will also create a shift in
which the finance function will:
-
Drive business insights and risk
mitigation by leveraging
technology, data and analytics
-
Adapt to new business
models and dynamic
workforce composition
-
Drive strategic planning
by allocating more time
to partnering with other
business functions
-
Improve performance by
remaining ahead of the
innovation curve through
continuous digital enablement
and higher levels of automation
Effective & Efficient
The outcomes of these aspects will
transform next generation finance
into a value generating function along four lines — effectiveness,
customer experience, visibility
and efficiency. Effectiveness will
reflect in the way of a more agile
workforce with all stakeholders
having access to the right
information at the right time.
Customer experience will be
enhanced due to shorter process
cycles, while improved
controllership will enable better decision-making to deliver improved performance.
Efficiency will be driven by superior automation, lower costs
and higher accuracy.
A transformed finance function
will also impact the four
components of a shared services
organization — operating model,
technology, process and talent.
Operating models will be influenced
as a result of consolidation and
global sourcing.
Technology will rely on integrated
digital ecosystems — the result of
scalable and flexible platforms with
end-to-end coverage. This will
enable companies to not only
extract the right data to glean powerful analytical insights, but
generate real-time, predictive
reports as well.
Robotics and AI-driven solutions
will ensure error-free processes.
The scope of services will move to
higher-end, complex operations.
This will create the opportunity for
upskilling talent with a larger
requirement for data interpretation.
Overall, next generation finance will
no longer be just a function which
exerts control. It will be a function
that creates value, and strengthens
organizations from within to make
them more resilient.
References:
1. https://blogs.wsj.com/cfo/2015/07/08/pepsi-cfo-takes-on-it-role/
2. https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/are-todays-cfos-ready-for-tomorrows-demands-on-finance
3. https://blogs.thomsonreuters.com/financial-risk/risk-management-compliance/cost-of-compliance-report-2017-is-there-a-new-risk-approach/
4. https://www.ft.com/content/7713c7fc-b07a-11e3-8efc-00144feab7de
5. https://www.pwc.in/assets/pdfs/consulting/finance_effectiveness/finance-function-of-the-future-pwc-publication-june-13-v2.pdf