Digital technologies are becoming the engine of finance transformation. Finance executives in our 2018 Key Issues Study nearly universally agree digital transformation will have a profound impact on the survival of their companies and the performance of their function.
We still see a big gap, however, between the percentage of finance organizations that has a digital strategy (56%) and their current ability to execute on that strategy (35%). While more organizations today have a strategy – a third more than last year – finance needs to do better to capture the benefits and drive value throughout the organization.
There’s clearly a disconnect between how critical finance believes digital transformation is to its operating model and performance, and its readiness level. One of the biggest hurdles is the lack of funding. We found that investment of digital technologies accounts for only 5.3% of finance’s overall technology spend. Technology spend itself accounts for only 10.4% of finance’s operating budget. That’s hardly enough resources to spur meaningful transformation.
Identifying The Right Value Drivers
Finance needs to build a better business case to justify a bigger budget. The first thing it needs to do is understand – and communicate — the value proposition of digitization. This is often easier to say than do. Increasingly, finance is piloting technologies that not only help make processes more efficient and less costly; it’s also testing tools that augment its effectiveness in delivering better customer service. The chart below captures the percentage of finance organizations piloting specific technologies. Robotics and advanced analytics are in the lead.
A Call for Action
There are two types of values that are driving finance digital transformation: tactical and strategic. Combined they create a compelling case for greater urgency.
The tactical side is understandably dominated by efficiency measures of value. According to our research, the three most important value drivers of finance digital transformation are maintaining a competitive cost structure, improving productivity through the elimination of non-value-added tasks, and managing finance information security.
As we saw in our Key Issue Study, cost containment was the most critical finance objective for 2018. Cost is a traditional driver of automation.. Minimizing the amount of low-value work is not only a contributor for increased productivity. It’s also a way to free up finance staff to focus on more important things like analytics and developing better business partnership. And it’s no wonder security is a big concern. Our study shows cyber risk is the number-one risk facing companies today.
Strategically, the three most important transformation value drivers include mitigating business risk and control, enabling the enterprise transformation strategy and improving finance agility. Close behind we find providing better decision-making support and improving the business value contribution of finance. These key drivers point to finance’s expectation that by transforming itself, it can increase the value it delivers to the enterprise overall.
Of course, these values are harder to quantify. Take agility for example. Agility represents the function’s capability to accelerate its response time to its internal customer needs; those needs are determined by changes in the external business environment. Today’s business landscape is changing more quickly than ever before, as new technologies and business models disrupt the status quo. Finance ability to adapt must also rise. For example, that means the difference between taking nine months to create an e-payment solution to adopting a cloud tool and being ready to serve customers in six to 12 weeks. The amount of business lost in between is the value of agility.
Evidence of the difficulty finance faces in adopting new technologies is its current rate of digital technology adoption. Our data shows that broad-based cloud adoption in finance stands at 15% today, with 38% of finance organizations showing limited adoption. Only 5% of respondents to our study said they have fully adopted advanced analytics technologies (35% on a limited basis).
These may be small numbers right now, but as the value proposition of digital transformation becomes clearer, that’s going to change. Mainstream cloud adoption is forecast to nearly triple in two to three years. And the adoption of advanced analytics tools will rise by over eight times.
Finance digital transformation does not have to be an ill-defined, hard to prove objective. By focusing on tactical and strategic value drivers, and breaking them down to actual value contributions, it’s going to be easier for finance organizations to get the funding they need to move forward.