In this digital economy, many forward-looking CFOs opine that there is a wedge between the existing finance function and the demands the future will place on it. In order to bridge this gap, CFOs must re-evaluate their own competencies, recalibrate their function with tools and technologies, and set up the right team with digital talent that can future-proof the finance function.
The four major dimensions that CFOs must focus on are digital, data, risk and uncertainty, and compliance in this world of Volatility, Uncertainty, Complexity, and Ambiguity (VUCA). For instance, approximately 90% of the world’s digital data has been created in the last two years. As digital transformation takes hold across all industries, business leaders recognize they need to dramatically shift their thinking and leave a business world of constraints to enter an age of abundance — an age of digital data and technology tools that create innovations from data. At the same time, digital technologies cannot guarantee any competitive advantage. The ability to tap the potential of digital technologies to offer innovative services that improve customer satisfaction and loyalty is, therefore, key to achieving increased growth and profitability.
The success of the CFO in the digitally enabled world of finance depends on the ability to leverage digital transformation with cutting-edge technologies, such as blockchain, quantum computing, robotic process automation, machine learning, advanced analytics to optimize business processes and glean actionable data-driven insights. The success of the finance function will be determined by the degree of support for the finance team embracing the digital model. By constantly evaluating the potential of emerging technologies and fine-tuning business processes, CFOs can build a finance function of the future.
CFOs can leverage technology to transform and future-proof their businesses through the following “must-dos”:
- Embrace the as-a-service model: Financial Services-based organizations that traditionally have had their service delivery centers managed through a nearshore/offshore combination are likely to move away from an FTE-based delivery model to an As-a-Service (Finance-as-a-Service) commercial model.
- Establish digitized processes: With the advent of digital technologies such as automation, advanced analytics, blockchain and Artificial Intelligence (AI), one could observe that conventional finance-centric processes, such as Procure to Pay, Order to Cash, Record to Report, and more, are gradually being pushed behind the times. CFOs can expect such processes to function in real-time, be leaner, highly accurate, and completely digitized, which helps modernize the entire finance ecosystem of an organization.
- Stay agile by embracing innovative digital technologies: The winning combination of new-age digital technologies such as Intelligent Automation (IA), Machine Learning (ML), Artificial Intelligence (AI), Blockchain and Quantum Computing (QC) could be a game-changer in the finance function of an organization. When such technologies are clubbed together, blockchain can leverage AI’s ability to accelerate the analysis of an enormous amount of data and enhance data security. This further gives CFOs an opportunity to build better models by taking advantage of the decentralized set of tasks and activities prevalent today to turn around the finance function to enable real-time reporting and manage end-to-end processes seamlessly, thereby virtually eliminating any human-prone intervention or errors.
- Adopt quantum computing for an agile finance function: Albeit in its nascent stage, Quantum Computing has shown the potential to be a ‘change-changer’ in tomorrow’s business climate. CFOs can leverage quantum computing to solve a wide range of business problems and future-proof their business. For instance, they could adopt this technology to computationally analyze a wide variety of risk analysis calculations and scenarios (that are not only complex but also equally challenging), in a very short time. CFOs can find a use for the technology across multiple finance functions including insurance actuaries, trading optimization, risk profiling, asset management and treasury management. This gives CFOs an edge to tailor their strategies, configure service offerings, and accelerate their go-to-market initiatives.
- Adopt blockchain: Blockchain will strategically emerge as a key driver in the next generation of ERP systems through the expansion of a widespread financial ecosystem enabling the viewing of transactional data from a robust, transparent, common data platform. Traditionally, the three key focus areas for CFOs are enablement, development and execution. Blockchain has the potential to impact all three segments and redefine the traditional CFO role. CFOs could leverage the technology to stay compliant with all regulatory processes and improve customer engagement. With trusted public registries, the decision-makers can conduct transactions in real-time, with a high degree of security, compliance and traceability. This helps the CFOs eliminate redundancies in reconciliation and close the books with agility. At the same time, it should be noted that blockchains are generally considered tamper-proof, as it provides appreciable protection against fraud and hacking. CFOs can leverage blockchain to streamline their processes — for instance, a contract enforcement process in which enterprises collaborate closely on contracts across the globe. The blockchain ledger could be programmed with a pre-defined set of logic that could make payments upon the completion of a service. It should be noted that blockchain will help drive commercial insight into the business real-time by seamlessly linking its front-end reporting interface to the transactional data, eliminating the need for manual intervention. NTT DATA’s Blockchain Service has gained immense competitive advantage and is well recognized as a leader in blockchain services by leading analysts firms.
- Incorporate process mining for faster data-driven decision-making: Decision-makers now leverage process mining as their chosen technique to detect or diagnose challenges, as the methodology is based on facts and not on conjectures or intuitions. Market trends indicate that a convergence of Business Process Management (BPM) Tools that are currently used for designing processes are likely to emerge as a key development and a necessity through seamless integration of and with cutting-edge process mining tools. With new modes of automation, such as RPA, and knowledge of underlying processes/interactions vital to digital transformation, technology innovation and enterprise architect leaders will continue to assess operations and performance through Process Mining. When combined with new-age digital technologies such as RPA, and the Internet of Things, the finance function stands to achieve operational excellence and to build up a solid basis for making fact-based decisions to transform the business operations. CFOs can continue to further leverage and explore their organization’s behavioral aspects from the data they fetch from multiple physical devices. At the same time, RPA helps CFOs identify processes that could be automated — not in pockets, but within the entire end-to-end process-chain, thereby achieving optimized performance.
- Stay agile by leveraging analytics: Forward-looking CFOs can incorporate data sets as they emerge into statistical and analytical models to derive actionable insights. For instance, decision-makers could leverage big data platforms to help connect data sets using Machine Learning techniques and bypass human intervention, (and eliminating any human-induced error), to accurately predict and glean insight into how an asset on a balance sheet will behave. We could expect investments in obtaining real-time data to generate actionable insights so that organizations can quickly make appropriate business decisions without waiting for accountants to refer to historical data sets.
- Leverage statistical models to empower the receivables management function: Statistical models can empower the receivables management function within an organization and help effectively automate processes and gain actionable insights. For instance, statistical methods, such as Artificial Neural Networks (ANN) and Logistic Regression (LR), could be used to identify early indicators of an impending default or delay in payment. Based on the results derived from the models, organizations can assess their risk and suitably adopt strategies to approach their customers; minimizing losses and improving collections. These models can be used to accurately classify customers into segments that are most and least likely to pay on time, or default on payments based on historical observations. This classification process could help organizations reduce future debt.
- Enhance customer management solutions: The millennial customer doesn’t see technology as a added benefit, but rather as an expectation. Organizations need to change their strategy to stay relevant to their millennial customers and drive business growth. For example, Barclays implemented software that enabled event-triggered, multi-channel marketing campaigns. With a constantly updated data warehouse with current information on customer transactions, the bank was able to identify changes in consumer behavior. This view helped the bank periodically assess how effective its products and services were at meeting customer needs. The software also aided Barclays in expanding its marketing campaigns to communicate with customers across various touchpoints — telephone, email, ATM etc. With a broader historical context of their clients, Barclays could better understand how customer management solutions can be improved and accordingly adapted. In this digital age, where CFOs have to be more aligned with CEOs for an organization to thrive and stay ahead of the curve, they need to take cue from such examples, reinforce their strategic plans and continuously re-calibrate their business objectives, all while modeling and predicting different scenarios to align with customers’ Big Ys and goals.
- Combat money laundering leveraging real-time transaction screening: To prevent money laundering, CFOs of financial institutions need to detect it in real-time. CFOs and their team can use customer profiling and risk assessment techniques to do so, and screening and monitoring can then help mitigate risk. Real-time payment monitoring requires screening or filtering of payment instructions before a payment request can be honored. A process needs to be designed by mapping the filters to each customer — or to a specific group of customers — at all touchpoints during the bank/customer relationship. However, care should be taken to see that this doesn’t affect its regular Straight Through Processing (STP). This activity may necessitate a timely response from regional regulatory authorities so that CFOs can conduct their operations in clearing and settling the payments smoothly. At the same time, CFOs can leverage the power of AI, such as machine learning, to strengthen or act as an alternative to traditional rule-based transaction monitoring. Such practices could help reduce the number of false alerts for suspicious activity investigations while increasing the identification of reportable activity.
- Make the best use of new players in the ecosystem: The strategic finance function of tomorrow is more likely to become more deft, vital, diverse and tiny. Tomorrow’s workforce will be a combination of regular employees with niche finance skills, freelancers, and gig employees, alongside a high degree of involvement by robots and algorithms. As a result, the organization needs to alter its game plan so that it can better access millennials that are not only tech-savvy but also have a higher degree of technical expertise, and niche skillsets hitherto unavailable. Such strategies help CFOs propel their organizations and stay agile in the face of digital transformation.
- Encourage futuristic skillsets: For CFOs to effectively manage and deliver the finance function of 2025, they need to embrace and adopt critical skills, including advanced analytics, behavioral science, predictive analytics, data science, and data management, (alongside core business skills that include strategic thinking), to help build business partnerships that exhibit resoluteness and manage the technology-led disruption.
As finance transitions from process-centric to data-driven, knowledge-based processes, organizations need to collaborate actively with multiple players to share data and ideate, develop new products and services, develop customer-centricity, and improve innovation capabilities. Ethical standards are not an ask anymore, but a fundamental need. The finance functions of organizations will add business value and deliver the desired business results to their stakeholders.
An organization and its CFOs must be superior at collecting, processing, analyzing and acting on data to outperform their competitors, stay relevant to their customers, mitigate risk, protect data from unauthorized access, and future-proof their businesses.
The game has just begun. It’s only a question on who takes the lead. Will you be the first?