Progress toward digital transformation in finance and other business services functions trails that of digital top performers. The Hackett Group’s 2018 Digital Transformation Performance Study found that only half of typical business services functions (finance, procurement, and HR) have been able to meet or exceed management expectations for digital transformation progress and business impact (Only IT did better.) That’s compared to 100% of cross-functional digital leaders.
We determined digital leaders based on (1) how much progress/impact they’ve achieved; and (2) to what degree they had realized the benefits of their digital initiatives.
This invites the question of why some functions do better than others. To find out, we asked executives which factors enable their success, and which inhibit it. The chart below shows two dimensions of the answers. In the middle is the overall ranking of the importance of specific capabilities or practices. On each side we see the positive and negative ranking of specific capabilities that hinder or drive the success of peers and digital leaders.
Typical finance organizations identify inadequate master data management capabilities as a significant hurdle to realizing their transformation objectives. This means finance must lay down a strong data management and governance framework before it can proceed. Without consistent data definitions, it cannot achieve the benefits of advanced analytics and other digital tools. For example, robots need common data definitions to execute tasks across processes. In our 2019 Key Issues Study, we found that only 9% of finance functions have adopted MDM technologies on a broad basis, although they expect a four-fold rise in 2-3 years.
Treating Digital Transformation Like Any Transformation
Lack of resources and inadequate IT support were also big drags on transformation. However, we believe one element, insufficient project management capabilities (29%), is not getting the attention it deserves. It came out as seventh on the overall list of enabling capabilities.
Its ranking reflects a misconception about the travails of digital transformation. There’s a lot of hyperbole in the market about just how fast companies can complete digital projects, how quickly they can reap benefits, and how much simpler the implementation process is. This hype has inflated management expectations and minimized the perception that finance has to approach digital transformation as it has any other major change initiative. It’s easy to fall into the trap that digital transformation is all about technology. In fact, it has substantial people and process implications. It will also receive the same degree of scrutiny from top management.
We know from our research and experience with clients that establishing a transformation management office (or TMO) is one of the most crucial determinants of project success.
Who owns project management doesn’t matter. What matters is deploying proven leaders in a project management role, as they are the lynchpin that can mitigate the other negative factors. It’s also critical that organizations secure management commitment, obtain sufficient IT support and assemble the right team. Those who lead the effort must be able to see across different initiatives, ensure those are aligned with finance’s and the enterprise’s broader agenda, and prioritize which projects must be completed first. Without a central orchestration authority, finance won’t be able to scale up individual pilots to realize the full promise of digitization. And that promise is huge. An analysis of our finance benchmarks database reveals that the typical finance function can lower process costs by 35% by becoming highly technology enabled. Even world-class functions have much to gain; they can cut cost by 21%, at the same time incrementally increasing their technology investment by 5%.
Signs of Progress
The good news is that finance executives are coming to the realization that having someone in charge of all aspects of the transformation project is essential. In our 2018 Digital Skills Poll, we found that 30% of finance organizations have already created a digital project manager role; nearly 40% more recognize that they need to. Whether they deploy a center of excellence, a TMO, or a functional project manager, if finance organizations want to speed up their digitization progress and realize its tremendous potential, they must treat digital transformation as they have other big initiatives before.