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What are the benefits of digitalising finance functions, and to what extent have companies achieved it?
This decade, the hot topic for companies around the world is digital transformation. Rightly so, because no contemporary company can do without effective IT architecture. Financial processes and systems are also part of this transformation. But where have we got to in this transformation?
Digital transformation enables companies to use digital technologies to create new or adapt existing business processes, business models, culture and customer experiences, with the aim of adjusting to changes in the internal and external market, and meeting customer requirements.
This all changes the way that companies conduct business and, in some cases, creates entirely new types of companies. Such transformation fundamentally changes the way that organisations deliver value to customers and encompasses a cultural shift that requires organisations to continually challenge the status quo, experiment and even become comfortable with failure.
In finance, digital transformation is the implementation and use of digital technologies specifically to improve the efficiency, effectiveness, insight, agility and quality of financial processes and systems and free up time for the finance function to support the business with better information and knowledge.
In practice, it appears that many digital transformations, both within the finance function and across a business, are difficult and ultimately not very successful. Only a third of companies worldwide have met their expectations of digital transformation outcomes, while two-thirds say their expectations have been met only partially or not at all.
As is to be expected for a relatively new concept, the shape of the digital finance function has not yet fully crystallised in the world’s companies.
Digitalising the finance function
In essence, the digitalisation of the finance function is the automation of the entire financial value chain, from procurement to payment, employee onboarding and furloughing, treasury, tax, governance and internal controls, and is hosted in the cloud using open platforms and ecosystems.
This encompasses all interactions in the value chain, i.e. with customers, suppliers and partners, financial service providers and regulatory authorities — there is no longer any part of the value chain that is done manually or on paper.
Find out more about digital transformation
Subsequently, the company continues to invest in modern technology and digital applications, developing the skills of financial professionals and ensuring that digital strategies remain aligned with organisational strategies.
At its core, digitalisation is about using digital resources and enabling access to company-wide data to integrate and streamline processes across the company with a forward-thinking, continuous improvement mindset, and to make the results understandable to all.
Books are always closed and reported on time without much manual effort, assuring stakeholders that the business is running smoothly regardless of external circumstances. Non-financial performance indicators, such as customer demand, customer satisfaction and retention, project delivery, employee satisfaction and retention are used as key indicators of future financial performance.
This allows for easy identification of difficult business areas and provides actionable insights to management to address challenges, act quickly on critical issues, and take proactive steps to mitigate risk and enable finance professionals to deliver results regardless of physical location and time of day.
Finance professionals are integrated into departments as valued business partners, ensuring they can adhere to corporate governance and financial guidelines, and maintain strong cost and profitability management, and effective internal controls. This helps them to manage the organisation and increase the company’s understanding and use of financial data to drive growth and achieve and maintain profitability.
Digital transformation progress
There is a wealth of information available in the literature on the nature, content and benefits of digital transformation. However, as indicated, two-thirds of companies are not satisfied with their progress and results.
It is recommended not to focus too much on the current lag in the digital transformation of companies’ finance functions. After all, each company has its own internal and external circumstances that determine what resources are available for the digital transformation and the pace at which it can take place.
The urgency placed on the speed of digital transformation does not, therefore, harmonise with day-to-day practices. Progress is most often carried out in phases, given that the financial departments of banks and companies are routinely involved with other demands.
In this case, the recommendation is to allocate human resources to work on the digital transformation project, always with the effective participation of the company’s top management, while day-to-day activities are carried out by other employees. Naturally, this approach requires the creation of specific, focussed financial roles.
Digital transformation is not an end in itself, but a means to better serve customers. This depends not only on the company’s digital architecture, but also, to a large extent, on the professionalism and level of engagement of the company and its senior management, with a focus on the customer.
Both the ‘technical’ and the ‘human’ aspects must, therefore, receive equal attention from management.
Lenildo Morais has a Master’s in computer science, and is a teacher, researcher and project manager.
