Four Themes Shaping the 2022 Finance Agenda
The past two years have brought unprecedented instability. Yet, when we conducted our latest annual Key Issues Study – during the fourth quarter of 2021 – some finance executives were already seeing and expecting smoother sailing when planning their top finance priorities for 2022. About one-third of companies reported stabilized business conditions. Over one-half predicted stabilization in 2022, and only 11% expected instability to continue into 2023 or beyond. That was before news of the COVID-19 Omicron variant, before the reality of emerging inflation and talent risks set in, and before the conflict in Ukraine.
In this article, we highlight results from the 2022 Key Issues Study and implications for finance transformation priorities in planning through uncertainty – during 2022 and beyond.
Aligning finance priorities with enterprise ones
Finance executives must first consider enterprise priorities so that they can align their strategies accordingly.
Enterprise digital transformation remains the No. 1 priority, with 61% of companies having a major initiative on the 2022 agenda – up from 53% the previous year. In the face of talent challenges, companies have also stepped up their focus on diversity and inclusion initiatives. More than one-half – 58% – now have such initiatives, compared to just 35% two years ago. On the other hand, sales, general, and administrative (SG&A) cost optimization dropped further down the ranking – from third place in 2021 to fifth place in 2022. This is consistent with an observed shift in focus from margin preservation to growth.
Finance transformation priorities
The backdrop of disruption and rapidly evolving business conditions clearly influenced finance executives’ top priorities – illustrated in the image below – as they looked ahead to 2022. Notably, executives expressed concerns about their ability to meet business expectations around digital finance transformation, talent and agility.
Collectively, these 10 top priorities reflect four key themes.
- Digital finance transformation remains front and center, with many of the function’s top priorities dependent on it.
Digital finance transformation initiatives are among the most prevalent on the 2022 finance priorities list. A large majority of organizations have 2022 initiatives aimed at improving analytical, modeling and reporting capabilities. About two-thirds of finance organizations are expanding process automation to reduce operational costs and implementing new finance technologies, while just over one-half have an initiative to expand the use of self-service tools.
The study results reflect an intent not just to improve analytics, but also to empower both finance and nonfinance workers by providing greater access to self-service data discovery tools (e.g., data visualization) and delivering analytics beyond the function and through centers of excellence (COEs). To maximize the return, however, finance must also be ready to develop talent and new competencies.
It is not a surprise that advanced analytics and data visualization tools are among the technologies with the highest current adoption levels – and the highest projected growth rates for 2022. But while adoption is nearly universal, few companies have deployed these technologies on a large scale.
Digital operating models require a modern digital architecture, and the research shows that cloud-based service management applications are replacing on-premise legacy service management applications at a rapid pace. These will be among the fastest-growing technologies in 2022.
AI/cognitive computing and virtual assistants/chatbots remain emerging technologies in the finance environment. Broad adoption is very low, pilot/small-scale deployment rates lag most other technologies and projected growth rates in 2022 will also be on the low end of the range among all finance technologies measured.
Collectively, these findings point to a continuing high degree of change. As finance organizations accelerate technology adoption, they must be very clear about the alignment between the future technical landscape and finance’s transformation vision. In other words, the vision should drive decisions around investments in specific tools and capabilities – whether best-of-breed platforms, planning capabilities or emerging technologies. Function leaders should commit to remaining well-informed about the evolving finance digital ecosystem in order to maximize the potential benefits.
- Finance organizations are thinking critically about building the next-generation workforce.
If the finance function is to achieve its goal of becoming a strategic advisor to the business, professionals must have excellent teamwork and collaboration skills, and evolve their business and industry acumen. This will require new roles such as dedicated business partner and finance transformation leader.
Not surprisingly, aligning skills and talent with evolving business needs moved up several spots in the 2022 Key Issues Study. Nearly one-half of companies added acquiring or developing new skills and talent to their finance priorities list.
Pandemic-triggered disruption and accelerated digital transformation are sparking a reevaluation of the finance operating model. Remote working appears to be stabilizing and is expected to be just over 80% at the end of 2022. During 2022, however, the balance of work will shift away from today’s predominantly work-from-home arrangements to a hybrid model.
The third major finance talent challenge in 2022 is managing an unprecedented increase in voluntary turnover in response to the COVID-19 pandemic, generally referred to as the Great Resignation. It is impossible to know how persistent this trend will be and how profoundly it will impact business. But in 2022, there is no escaping it, and finance organizations must develop specific talent retention strategies to mitigate its impact.
- Finance executives are focused on improving the function’s value to the enterprise.
Acting as a strategic advisor to the business remains one of the function’s top two priorities for 2022. This requires increased emphasis on business partnering. Not surprisingly, many finance organizations have 2022 initiatives designed to strengthen this capability.
The focus on business partnering and acting as a strategic advisor will be critical for achieving other priorities among this year’s top 10, including optimizing working capital and enhancing control and compliance capabilities.
Finance business partners play an important role in managing the inflation risk that emerged in 2021 and will continue to be a concern in 2022. An inflationary environment poses strategic and operational business challenges that require financial analytical support. Given the prospect of continued instability in demand patterns and the supply chain, companies will need to maintain strong discipline around working capital health and liquidity – developing both the insight necessary to manage them proactively and the agility to respond to unexpected changes.
- Finance continues to emphasize greater cost-efficiency.
The fact that cost-efficiency – which traditionally is among the top two finance priorities – ranks only sixth this year does not mean that it has lost its importance. Rather, it reflects the accelerating transformation imperatives that are competing with it for time and attention.
Finance executives are preparing for another demanding year of having to do more without comparable increases in staffing or budget. They project their organizations’ workload will increase by nearly 5% in 2022. With small, expected declines in both budget and head count, finance will need to make up a 5.3% productivity gap during the year. A substantial increase in technology spending – up nearly 7% – demonstrates a growing reliance on technology to increase finance productivity, efficiency and effectiveness.
Finance organizations are looking to COEs and global business services organizations to absorb the bulk of the increased workload. At the other end of the spectrum, the smallest increases in projected workload will occur in outsourced and insourced (previously outsourced work moved back in-house) units.
The emerging environmental, social and governance agenda
The emerging environmental, social and governance (ESG) agenda is rapidly becoming a strategic priority for many companies. This has far-reaching implications for finance organizations. In the Key Issues Study, 63% of executives rank the need to develop and support ESG strategy as highly or critically important. However, only 32% rate their ability to meet business needs as high. Finance organizations must make their expertise in financial planning and analysis (FP&A), forecasting, compliance, and statutory and management reporting available to the organization in order to support the ESG strategy and execution of operational plans.
Disruption will continue – but finance organizations are preparing
Our research looked at the various types of disruption that finance organizations face and how they are preparing. Finance executives cited the transition to virtual working, the impact of artificial intelligence (AI) innovation on work execution, and the as-a-service deployment model as the most likely disruptors to their operations in the next three to five years. Many finance organizations are actively planning for these and/or already executing response plans. More than one-half are currently executing work-from-home plans – consistent with other functions – while over 60% are planning or executing their responses to skills gaps and data democratization that will empower citizen data scientists.
Sharpen your focus
It’s clear the turmoil of the past two years is not coming to an end – at least yet. The research findings above represent a very broad and ambitious agenda. Finance leaders will need to be laser-focused – making sure they are investing their time and resources in the areas most critical for elevating their value to the enterprise.
So, where should you focus? That, of course, will depend on your specific needs and operations, but based on our work in the market, we believe the following six areas apply broadly to most finance organizations:
- Accelerate digital transformation
- Reduce complexity
- Strengthen business partnering
- Enable better insight for finance and the business
- Define and develop future-ready finance skills
- Establish a dedicated transformation capability
Collectively, action in these areas creates agile organizations that can weather continuing change.