EXECUTIVE SUMMARY OF THE MODERNIZATION OF FINANCE JOURNEY
This blog post is an introduction to the Modernization of Finance and the transformation needed in the CFO Office to achieve this. It also provides an overview of the content of other blog posts on this subject.
Finance modernization: What it is and how to get started?
Open any finance-related magazine today and you will find at least one article on the modernization, transformation or evolution of finance. One thing is certain – the modernization process that is now sweeping through the sector will eventually touch every finance organization and department. This is why I think it is time to dedicate an article to this modernization and to paint a more concrete picture of what it entails, as well as answering some important questions.
Why is finance modernization needed?
There are three main reasons why finance should modernize:
- Finance is now at the epicenter of an organization. Finance used to be focused on financial data, but now, thanks to growing demands for analytics, strategic insights and integrated reporting from across the whole organization, finance departments now find themselves in charge of all important company statistics from financial and operational data;
- There is a growing need for agility, flexibility and collaboration with other departments, intensifying the call for modernization;
- New IFRS standards, such as IFRS 9, 15, 16 and 17, increasingly demand detailed data collection, calculations and reports, which require strengthening your data governance.
Modern CFOs must ensure that their data is at all times consistent, accurate, reliable, up to date and accessible — regardless of its source — so they can provide all stakeholders with reliable (financial and operational) information whenever needed in a time- and cost-efficient way. And as you can see below, the breadth and depth of responsibilities is rapidly expanding in the typical finance office.
What are the benefits of modernization?
The results of modernization are clear. Your business will become more agile and competitive, your team more productive and involved. The finance function will transform to a focus on strategic leadership and meaningful collaborations with the business that immediately contribute to operational results. As a result, the CFO will turn into a business partner who guides the organization through challenges and identifies growth opportunities. Based on research by FSN Publishing in 2017 and published via the Modern Finance Forum on LinkedIn, the following results were found:
▪ True innovators* – are early adopters of technology across the enterprise and outperform
▪ True innovators – have better access to technology-savvy talent
▪ 66% of true innovators are able to reforecast within 1 week
▪ 30% are able to close within 3 days (and 83% within 7 days)
▪ 55% are able to forecast within +/- 5% forecast accuracy
* 23% of the population are true innovators and Europe is the most conservative to new technology.
What are the steps in the journey towards modernization?
In general, the following steps apply when transforming into a modern finance function:
- Zero-point measurement. What is your maturity-level related to data (governance and a single data-point model), processes, people and strategy? Consider how you collect data, the quality of your data, which tasks or processes are (or can be) standardized and automated, as well as whether you have a talent strategy and a detailed vision on modernization;
- Identify the areas that require improvement or change;
- Prioritize activities based on most urgent business needs, greatest potential value and benefits for users;
- Create a roadmap to realize your vision, defining the steps from the current state to your desired state;
- Make a timeline and identify what you need to achieve your goals, including identifying a ‘dream team’ (a mixed team with methodological, process and IT expertise);
- Get started!
How can technology support modernization?
To become a valuable business partner and meet changing expectations, modern finance professionals need to have the right skills and supporting technology. Most finance organizations currently execute their entire planning and control cycle using multiple, separate applications, each with their own data storage and definitions and often with additional spreadsheets. Such an approach is problematic for a variety of reasons: data consistency cannot be guaranteed, data sources and changes cannot be traced, and progress cannot be managed or tracked. Moreover, the risk of human error is considerable.
This can be solved with a unified solution that allows finance professionals to provide analytics and insights for all the steps in the planning and control cycle. For example, a finance transformation platform for Enterprise Performance Management (EPM) combines in-depth domain expertise, professional workflows, intelligent built-in financial and analytical functions. With a platform owned by finance professionals, it is also easier to bridge the gap between finance and IT. Eventually the financial close process can be shortened by days or even weeks and the costs of the IT infrastructure and maintenance will drop considerably resulting in a lower total cost of ownership.
What about data governance?
Gary Simon, the founder of the Modern Finance Forum (FSN), expects data governance to become the most important function of finance. I fully agree. An information-centric data hub supports the finance function in being able to improve data governance in an effective manner, offering centralized storage of all the data needed for the complete planning and control cycle and allowing the rapid provision of information to all stakeholders. Financial and operational data is captured at a granular level in the data hub to provide business partnering to other departments with drill down capabilities and a complete audit trail. A Single Point of Truth is finally realized allowing financial and operational data to support the financial close, compliance, financial planning, analytics and performance management on an enterprise-wide scale.
Modern technology enables finance to collect, process and share the growing amount of data for enterprise-wide collaboration in order to automate the past and drive the future. Innovating your way to success requires a holistic approach and integrated thinking. As research has proved, companies that embrace this approach as a true innovator will benefit the most. Now is the time to create your company’s vision and roadmap towards executing modernization.