Digital World Class® Finance: Bridging the Performance Gap With Gen AI – Transcript

John O’Mahony:             

What that is enabling to do is move from incremental services enabled using AI, which are driving efficiency, to more transformative-related things, which are driving better experience and better effectiveness of process, and into what I refer to as those breakthrough activities that are driving true enterprise value.

Announcer:                       

Welcome to The Hackett Group’s “Business Excelleration^® Podcast.” Week after week, you’ll hear from top experts on how to achieve Digital World Class^® performance.

Jim O’Connor:                  

Hello, and welcome to The Hackett Group’s “Business Excelleration^® Podcast.” I’m your host. I’m a principal in the EEA Transformation practice where we help clients transform through infusing technology and process change. Today, we’ll be talking about Digital World Class^® finance, insights from top performers and how to level up with Gen AI. My guest is John O’Mahony, principal, Finance Transformation. So let’s get started. Well, John, good morning. Maybe a quick introduction, and we’ll get this going.

John O’Mahony:             

Hi Jim, and hello to you as well. Good to see you again. John O’Mahony, I head up the Business Transformation practice for The Hackett Group in Europe. I specialize in finance transformation, and I’m looking forward to this conversation with you today.

Jim O’Connor:                  

Well, to get it started, I thought I would spend just a few minutes to talk about Digital World Class^® companies and what we really mean by that. I always say – I always quote Socrates – “The beginning of wisdom starts with the definition of terms.” And at Hackett, let’s talk about when we say Digital World Class^®, what that means. We study what the best companies do. We do this through our benchmarks, our research and our client interactions. So when we say Digital World Class^®, it has a specific empirical meaning. Let me just briefly define that for the audience.

You’ve likely seen The Hackett Group Value Grid. This is what we use to plot company’s performance in benchmarks, including finance. We look at it through two lenses. The first is business value; the second is operational excellence. The business value – imagine a Y axis – it’s a composite of stakeholder experience, digital enablement and traditional effectiveness metrics. On the X axis – as I mentioned, operational excellence – and that’s a combination of metrics around efficiency and business process automation. We define Digital World Class^® as those companies that achieve top-quartile performance in both of those dimensions.

So the takeaway I want you to have before we continue this conversation is these companies outperform peers – the median of our database – significantly in value and operationally. So think cost and capability. As an example, Digital World Class^® companies this year have nearly half – 53% – of the cost of their peers, and yet they have higher capabilities. The second point is these are real companies. So when we talk to them, we extract best practices to learn from. So

throughout this and in our paper, you’ll see stats, and some of those observations will be pummeled throughout this conversation and you can reference it in our paper online. So that’s enough academia, John, but I wanted to get that started. Can you offer your thoughts on some defining Digital World Class^Ò characteristics that most resonate with you?

John O’Mahony:             

There are kind of four key themes that you see most organizations that are well on the journey to achieving Digital World Class^®. First of all, in terms of operational excellence, what they are able to have done is they’ve reduced their operating costs – particularly around transaction-related activities – by 47% compared with their peer organizations. They offer more value. Indeed, those organizations invest effort around 42% of their time in FP&A-related activities versus 28% of their peers. They also focus on leveraging technology heavily.

They focus on automation. They focus on getting technology to do the hard work as it were and to free up time to save on value – to spend time on value rather. In those cases, they roughly invest 1.5 times that of their peers on technology.

Last, but not least, they very much ingrain Digital World Class^® as something that’s part of their culture in that they have this relentless adoption of best practices. They’re structured to drive excellence through global process owners, etc. As a consequence, they’re continually evolving. They are the type of characteristics that you see in Digital World Class^® organizations that enable them to achieve total shareholder returns of 55% in excess of those of their peers – organizations such as AstraZeneca, Vodafone and others among those in that kind of peer group. So Jim, in terms of your perspective on that, what’s your thoughts?

Jim O’Connor:                  

I think you bring some great points, and it’s hard to build on that, but I really liked your 42% versus 28% point around FP&A. I’ve seen a big shifting of resources with leading companies. In fact, I had one client – so often we go in and we want to save money when we’re transforming – they actually doubled the size of their FP&A organization. I think we’re seeing that more and more as companies move to capabilities to achieve some of those differentiators you just mentioned. So it’s pretty powerful.

With that in mind, John, what are some areas clients are investing in the most to get to Digital World Class^®? Obviously, there’s probably hundreds of projects they could pursue. But what are some of the key points of focus as they try to invest and move toward Digital World Class^® status?

John O’Mahony:             

So first of all, Jim, what they’re doing is they’re investing heavily in terms of technology as you’d expect. I’d mentioned earlier about that investment to ensure that they drive automation. Secondly, in terms of what they are also doing is ensuring that they’re operating technology in a way that is highly integrated, so that therefore there are, let’s say, opportunities that they’re availing of – where they’re maximizing how technology delivers benefits to

them. In addition to that, they’re leveraging platforms to deliver on AI, so that as a consequence behind that, they’re spending more time on the value-adding activities. What I would also say is that 92% of their transactional activities are automated, so therefore what they’ve leveraged down on costs.

Now, what I’d hate to think about is that it’s all just about spending money on systems and the system’s bullet. In reality, they look at other components in parallel. They focus on service placement. They use global process owner models to be able to drive end-to-end optimization of ways of working. They focus their function on value-adding activities. We spoke about FP&A, we spoke about business partnering, and bringing in the right skills into the organization to be able to enable that. We spoke about service placement, leveraging global business services to be able to provide services on a scaled and homogenized basis. And last but not least, in terms of their organization’s design, whereby they bring the specialisms together into a capability to be able to provide enterprise-level services. And that’s the type of investments that they’re making to be able to drive Digital World Class^® performance.

Jim O’Connor:                  

Those are significant. I really like your point – your dual point around the importance of technology and digital transformation. Yet, it’s not all about the technology. I know earlier in my career a client used to call me Process Jim because I always think process first – and I still do – but the reality is, certainly over the last decade, we’re often leading with technology. But if we do that in isolation, it’s dangerous. So I totally appreciate your point around looking at those other factors. I think many people may have seen our service delivery model, but it’s an easy way to go around the wheel to look at all those other factors you’ve talked about – service design, analytics, governance, talent, service partnering. One of our longtime clients on our advisory council still says he pulls that out – any transformation – and they are a highly adopting technology company to make sure their transformation is successful to look at all those. So I can totally appreciate that point.

We talked about technology, but we haven’t said the magic word “Gen AI,” which obviously is a huge game-changer for us here in finance, but obviously at the enterprise level as well. In your mind, how are leading organizations better prepared to capitalize on Gen AI, and what are they doing?

John O’Mahony:             

A very interesting area and very topical. As you know Jim O’Connor, it’s an area where, quite frankly, if organizations aren’t seriously thinking about it, the likelihood is that they’ll get left behind. And that’s not just hype. We’re starting to actually genuinely see where organizations are moving the needle around customer services, marketing, sales, R&D, and indeed into finance in terms of driving new ways of working and ways of enabling that. Indeed, if we look at Hackett, studies that have been done across 300 odd organizations in terms of survey input, there’s a belief that 42% of the cost of finance and staffing opportunity exists over the next five to seven years. That is absolutely materially significant for any organization and something that cannot be ignored.

Now, what are organizations doing to be able to harness AI and turn it from a concept into reality? Well, first of all, they’re putting some of the key components in place. Nineteen percent of organizations that are on this AI journey and that are considered leaders basically are likely to use standard data. Now, what I emphasized previously on one of our webinars is the concept of the use of data and the exploitation of data as being absolutely critical to the success. What I also emphasized is that unstructured data doesn’t mean effectively bad data. So those organizations that do AI well, they’ve got that bedrock of reliance on quality data. Secondly, that they’ve got the right data government structures in place to be able to manage and certify what they use as a bedrock for it. They also have the ability to be able to access that data readily and to be able to manipulate and use it in a way whereby provide services in terms of enabling Gen AI activities and solutions.

Last but not least in terms of those organizations that do it is they have the savvy to use embedded capabilities within their platforms to be able to exploit those. And where they have unique cases, they’re building up that capability to be able to deliver groundbreaking services more in a way that is better than any of their peers are doing, so what I’d regard as true pioneering activities. What that is enabling them to do is move from incremental services enabled using AI, which are driving efficiency, to more transformative-related things, which are driving better experience and better effectiveness of process, and into what I refer to as those breakthrough activities that are driving true enterprise value. And that sets themselves up for success and differentiates them from their peers. So I’d be interested in your thoughts on that.

Jim O’Connor:                  

First of all, thank you. I think that’s an excellent summary. I love your points around data. I think it has to start with data and real estate. It’s location, location, location. I think in Gen AI it’s going to be data, data, data. Right? As I’ve said before, I think we could think of Gen AI, it’s a little cheeky, but think about it as we should be generating actionable insights. It’s partners for the firm. And I love your point, we got to get started, right? And many already are. Our poll that we did at the beginning of the year, there are about 20% that were looking at it, and now everybody is looking at it and about 30% are doing it. So it is moving quick to your point, if we don’t now, we’re going to miss out on what you called breakthrough activities. We have to get some of those incremental wins. We’ve got to start looking at transformational opportunities, and it’s just an exciting space. I know for many it’s new but an area client has not put down a plan. So if you haven’t, I think that’s absolutely critical.

And I would encourage people to think about what are some of those breakthrough activities because Gen AI is certainly going to automate, and to your point, incrementally improve. It’s going to be transformative. But there are ways that we can’t even perhaps think of now that will change how we do things. And I tend to think of FP&A as one of those areas, but I think you could look at compliance as well. And I think back just a few years ago with digital transformation – before really Gen AI had its place – how drastically that’s changed some of the roles in my clients, and it’s going to happen here.

One client, after they automated so much, their AP clerk manager moved into a supply chain wizard. What does that mean? Well, she had so much capacity, she started to focus on category spend, she started to focus on risk factors for vendors, and I can only imagine how this is going to improve finance in the future and the quality of our jobs and our ability to impact enterprises. But with that, I know we’re coming up a little bit on time. I would like to give you an opportunity to talk a little bit, looking forward, what tips might we offer, lessons learned to clients to accelerate their transformation?

John O’Mahony:             

Thank you for that, Jim, and thanks for the insight in terms of some of the examples that you gave there, particularly I like the one about the wizard. That resonated with me. In terms of then, if you look at AI, is AI the best, etc., kind of getting the rubber to hit the road? How do you go about it and where do you focus? Well, the advice I would offer, and it’s the advice based on what we’ve seen with organizations that we’re working with is, what differentiates them is where they have real focus around the AI agenda and understand what they’re going to get out of it.

So first of all, there are four key things that I would emphasize. Those organizations that do this well, they actually take the lead and they don’t follow. They don’t expect somebody else to come up with the idea and then that they can adopt it – the me-too mentality. They aim high and they’re proactively looking at opportunities to be able to flex the capabilities and what Gen AI can offer them, right? That’s first of all in terms of, they are leaders.

The second thing is its relevance, right? Their approach matters. They look at use cases within their organization. They generate the case for change. They come up with proofs of concept, and then they turn that into success – a proven case by having the relentlessness and the resilience to follow through on it. So those organizations know where they stand. They know where there are gaps in terms of performance within their organizations, opportunities that exist within their ecosystem and as a consequence they basically identify those opportunities. They relentlessly pursue them. They generate those cases for change, and they’ve got the resilience and the determination to follow through on those opportunities to deliver value-add capability – true Gen AI.

Last but not least then, in terms of they create the capacity to focus on breakthrough performance – to deliver a step change in what they have got the ability to be able to deliver on. And as a consequence, create that paradigm shift in performance as a result of harnessing the technology. Those are the big tickets where they’re placing their focus on to generate opportunities, and as a consequence to deliver true value to the organization.

Jim O’Connor:                  

Those are some great pieces of advice, John. I particularly know where you stand resonates with me because I think with a newer technology like this people tend to often jump in idealistically and just start operating. In my experiences in many of my clients, you got to establish a business case, so you got to know where you are, what you’re trying to accomplish, and then you can actually measure that and use the successes to even build further. But I think that brings us to conclusion. I want to thank you, John, for joining me today. I’ve enjoyed this conversation. I look forward to the ongoing pursuit of both Gen AI and Digital World Class^® companies with our clients.

John O’Mahony:             

Thank you, too, Jim. Great conversation, and look forward to seeing the fruits of some of these technologies and how they’re going to change our future.

Announcer:       

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