Six Steps to Improve IT Support for Finance’s Digital Transformation
This article is based on a conversation with Risk Pastore, senior director of research in The Hackett Group’s IT Advisory practice.
The lack of support from the IT function is one of the biggest hurdles to finance’s digital transformation. This was one of the top findings of The Hackett Group’s 2017 Digital Transformation Performance Study. The study revealed that the maturity of IT’s digital transformation support capability is weak overall, but it was 25 points higher among top-performing organizations. This indicates a clear correlation between IT capability and transformation performance. (The study divided the population into top performers and peers, based on how they ranked their capabilities against a set of five digital competencies.)
Improving IT support should be an imperative for finance. Finance executives almost universally agree that the impact of digital transformation is going to be profound.. But only 36% of respondents to The Hackett Group’s 2018 Key Issues Study said they have the resources and competencies to execute their digital strategy. Our two studies revealed the following:
FACT – 97% of finance executives agree digital transformation will change how they serve their customers.
FACT: 96% of finance executives agree that digital transformation will drive step-change improvement for the finance function.
FACT: Finance executives rank the importance of IT support as moderate right now but expect it to become critical over the next two to three years.
FACT: Finance executives identified Internal IT support was critical or highly important by finance executives.
The chart below illustrates two important points: First, IT performance levels are going to be highly important in the next 2-3 years. Second, digital transformation is essential to the survival of today’s companies.
Source: Digital Transformation Performance Study, The Hackett Group, 2017
Becoming an Active Consumer of IT Service
CFOs and their teams should not be passive about ensuring they get better IT support. Here are six actions they can take to help IT improve its support capabilities:
(1) Advocate for resources for technology innovation: Whether companies have dedicated funds for emerging technology experimentation and proofs of concept is key to driving innovation performance. Finance should ask IT to dedicate 2%-5% of its overall budget to help fund experimentation. According to Pastore, finance should also consider devoting a portion of its own budget to tech innovation. Sixty three percent of business functions already do.
“Funding is a challenge, and IT has largely had to self-fund the migration, which hasn’t helped speed things up.” One practice for funding is to impose an architecture “tax” on new development initiatives to help raise money. This is a cause finance can support.
(3) Develop cybersecurity acumen. Finance needs to get educated on cyber risk. It must also always include IT/cyber teams when it makes plans and decisions about transformation projects. Our research shows that only 37% of finance leaders do so consistently. “It’s important to consider risk early in the lifecycle of projects,” cautioned Pastore.
Plus, Pastore urged finance executives to own the risk decisions about acceptable risk levels and the right risk-mitigation strategies. Companies are underfunding cybersecurity by as much as 30%. Sixty-one percent of top performers have already boosted funding. But only a quarter of the peer group has done the same. Increased funding makes a big impact. Our research revealed that 89% of companies that increased funding cited a strong or very strong outcome.
Finally, finance should be more tolerant of risk taking. It shouldn’t punish IT leaders when innovative initiatives fail. “The trick in the digital era is to fail quickly and move on with lessons learned,” he said.
(2) Understand the modern digital architecture: Transformation doesn’t produce cost savings right away. Finance must be patiend. It needs to understand the multiple challenges to migrate to and adopt a more efficient and effective technology architecture, such as cloud hosting, mobile engagement, and building a strong master data management framework.
Adoption of digital tools will provide agility, responsiveness, scalability, and streamlined/efficient processes. But the migration process will be expensive. During the transition, finance will have to run redundant systems. Hence, there will be an initial dip in efficiency performance of the IT infrastructure.
(3) Develop cybersecurity acumen. Finance needs to get educated on risk. It also must always include IT/cyber teams in planning and decision-making for transformation initiatives. Our research shows that only 37% of finance leaders say they do so consistently. “It’s important to consider risk early in the lifecycle of projects,” cautioned Pastore.
“In addition, finance should be more tolerant of risk taking, and not punish IT leaders when innovative ideas or initiatives fail. The trick in the digital era is to fail quickly and move on with lessons learned,” he said.
Finally, Pastore urged finance executives to own the risk decisions about acceptable risk levels and the right risk-mitigation strategies. Companies are underfunding cybersecurity by as much as 30%. Sixty-one percent of top performers have already boosted funding. Only a quarter of peers have done the same. Increased funding makes a large impact: Our research revealed that 89% of companies that increased funding cited a strong or very strong outcome.
(4) Drive an accelerated service delivery model. IT is not moving fast enough to support business transformation. One aspect that can affect the speed of development is the governance model. “Finance should help IT develop and support a ‘fast-track’ decision model to apply to urgent and valuable digital opportunities in finance and across the enterprise,” Pastore said.
(5) Change the analytics paradigm: The most common analytics support approach is for IT to create an analytics center of expertise that is dedicated to addressing the needs of the business. According to Pastore, “Finance should support this organizational development. It should work with these centers rather than initiate its standalone analytics efforts.”
(6) Drive accountability. A key area where IT organizations struggle is measuring and analyzing their own performance. “Finance should urge IT to put key measures in place and report results to the enterprise transparently,” Pastore said. More specifically, IT struggles with project-demand management. The volume of requests increasingly exceeds its capacity. Finance should encourage IT to apply analytics to its own demand-management process. This will help the IT function to better predict volumes and assess throughput speeds and resource needs.
Takeaway: The advent of digital technologies is going to significantly affect the finance function. Successful digital transformation is critical to ensuring finance can respond to these new challenges. But finance need not sit idly by and wait for better IT support. It should proactively engage with IT leaders and influence decisions and budgets.