Digital Finance: oxymoron or opportunity?

What does it mean for the CFO to accept the challenge of innovation?

It means moving towards a new paradigm, integrating the historical mission of steward of accounting integrity, financial performance and compliance with radically different prerogatives:

• Become a co-driver of value generation, measuring the company’s performance across the board, developing forward-looking capabilities, and becoming involved in decision-making processes, from strategic to operational
• Resolutely pursue the operational excellence of one’s function, combining the objective of reducing costs with that of developing new capabilities
• Become a catalyst and promoter of the digital transformation of back-office processes, stimulating the evolution towards new operational and organisational models, even going beyond the historical boundaries of Finance

Areas of innovation for the Finance function
The CFO must galvanise evolution of the function in seven directions:

Operational Excellence
Today, Finance can achieve new levels of operational efficiency and effectiveness in its processes by combining:

• Increasing automation of transactional activities, starting with accounting processes, but reaching hitherto unexplored areas such as controlling and even tax management. The goal of “zero-resource” Finance is still nothing more than a slogan, but it gives a sense of the direction to be taken.
• New capabilities, especially in the areas of data analysis & prediction, risk management and artificial intelligence.
• Even more, Finance can and must become a promoter of the improvement of back-office processes, acting as a kind of technology incubator to be exported outside the boundaries of the function.

Going paperless
To compete effectively in a fast-moving global economy, all companies must transform their methods and processes. But the transition from legacy systems to the digital economy is challenging on several fronts: one of them is digitising information. Finance can seek to eliminate all paper inputs by following these guidelines:

• Structure and organise the process to reduce costs and speed up processing
• Pursue close integration with the ERP system (e.g. SAP). This is essential to integrate information and ensure its completeness, accuracy and relevance through validation, correction, formatting and labelling.
• Transform and improve the invoice verification and electronic storage process, making it possible to save around 4 million sheets of paper per year and thus significantly reduce the environmental impact.
• Help companies also digitise the flows related to delivery notes, sales orders, customs bills, the signing of business documents (whether purchase orders, invoices for purchases, etc.).

Data & Insight
Big Data are not just an asset for Marketing and Sales, and require sensitivities (data accuracy, value-oriented metrics) and capabilities (cross-functional analysis, familiarity with visualisation and analysis tools) that fall within the domain of the F&A function. Putting Finance at the centre of all data is a categorical imperative for analytics-driven enterprises that want to invest in growth, resource optimisation and better risk protection. Finance cannot refrain from participating in or even leading the way towards analytics, to progressively improve data visualisation and analysis to the point of developing predictive and prescriptive capabilities.

Strategic Risk Management
In today’s times of extreme business volatility, developing the capabilities to identify strategic risks, monitor them and include them in forecasts is a priority for the Finance function. The guidelines in this area are: focus on top risks, introduce quantitative and statistical methodologies based on big data to measure and predict them, integrate risks into planning processes by measuring the volatility of various scenarios, consider the Finance Risk team as a centre of excellence to promote ERM culture in the company.

Smart Planning
If Finance is to aspire to the role of business co-pilot, then it cannot do without innovating the planning process along the following lines:

• Make strategic (medium-term) planning systematic, integrating it with budget/forecast cycles.
• Redesign the operational planning, aiming at a monthly frequency and the development of a rolling horizon of 12-18 months. Provide for its close integration with Sales & Operations planning and make the budget a by-product of the rolling forecast.
• Use driver-based simulation models to implement a process that can be simultaneously lean, responsive and accurate. Aim to evolve further towards predictive models through the use of big data.
• Integrate economic planning with cash flow and financial planning.
• Adopt smart tools that support collaboration and workflows.
• Develop a culture of “one version of the truth”, forcing business functions to cooperatively share data and scenarios, while at the same time eliminating redundancies and overlaps

Data & Insight
Big Data are not just an asset for Marketing and Sales, and require sensitivities (data accuracy, value-oriented metrics) and capabilities (cross-functional analysis, familiarity with visualisation and analysis tools) that fall within the domain of the F&A function.
Putting Finance at the centre of all data is a categorical imperative for analytics-driven enterprises that want to invest in growth, resource optimisation and better risk protection. Finance cannot refrain from participating in or even leading the way towards analytics, to progressively improve data visualisation and analysis to the point of developing predictive and prescriptive capabilities.

Organisation
A modern Finance department has to question its own organisation, taking the example of large, international organisations and evaluating the following drivers of change:

• Find the right balance between central (group) and local (market) finance, focusing the latter on the business partnership mission.
• Centralise transactional activities in Shared Service Centres that act as true “Factories”, expanding the scope of action outside the F&A perimeter. Here the focus is not only on cost reduction and outsourcing, but on continuous improvement of end-to-end processes.
• Create centres of excellence to concentrate and develop core competencies, making them available to the company network, on topics such as: risk management, tax, planning & analysis, data analytics, innovation portfolio management, etc.

Talents
To meet this challenge, Finance needs to expand its competencies with new skills: data science, risk management, business planning, project & transformation management. The acquisition of these skills is undoubtedly a critical success factor that great attention should be paid to.
Above all, international organisations will then have to foster the development and growth of talent, incentivising training and the creation of a community that is also open to other corporate functions.

Strategic Risk Management
In today’s times of extreme business volatility, developing the capabilities to identify strategic risks, monitor them and include them in forecasts is a priority for the Finance function. The guidelines in this area are: focus on top risks, introduce quantitative and statistical methodologies based on big data to measure and predict them, integrate risks into planning processes by measuring the volatility of various scenarios, and consider the Finance Risk team as a centre of excellence to promote ERM culture in the company.

Technological levers
As always, technology is an enabler of innovation, but it must be properly designed as part of a clear vision of the future and bolstered by appropriate talent and skills.
The aspects of innovation that a CFO must know how to engage with and manage are:

• The evolution of “traditional” ERPs, as in the case of S4 Hana for SAP
• New Enterprise Performance Management systems, supporting planning and reporting
• Big Data and Analytics technologies
• Tools for digitising processes, going beyond invoice management
• Smart automation: Robots, Chatbots, Artificial Intelligence, etc.
• Blockchain applied to Finance and B2B processess
• There is no one-size-fits-all solution: it is increasingly a matter of developing and managing a portfolio of different products, to be combined together.

Conclusions
Today, accelerating is a key factor for business competitiveness. A plan is needed, inspired by a broad vision, but built pragmatically, and the digital CFO cannot wait any longer.