Push the Button: The Costs of Delaying Digital Transformation in Finance
This blog originally appeared here on the Prophix blog page.
“It is already clear from our research that the businesses which have invested heavily in digital transformation over the last 2-3 years are already reaping the rewards in terms of faster revenue growth and stronger net profits compared to businesses lagging in digital transformation initiatives and investments.”
So said Craig Simpson, research manager with IDC’s Customer Insights & Analysis group in 2019. Consider that statement. The return on investments in digital are rapid and marked. Those that make them are pulling away from their competitors in just a couple of years. The later you invest, the greater the lead your competitors may open up.
Where to Invest? Finance First
It’s easy to believe that such impactful investments must be in customer facing areas. These are the high-profile transformations that garner the limelight. But as PwC states in its 2019 Finance Effectiveness Report: “When teams from finance and business focus on performance, they can reach any goal: increase future profits, break into new markets, protect against new entrants or increase the sustainability of earnings. Together, their data analysis uncovers insights that drive the enterprise forward.” The digitalization of finance is a critical component of any transformation program. Arguably, given the given the growth challenges facing business, it should be the priority.
Today’s challenge is about being responsive to rapid changes in the market, customer behaviour, the supply chain, and global issues like climate change. The only way to do that is to be able to absorb, process, and comprehend data at speed. According to McKinsey, “today’s CEOs and boards say they want CFOs and the finance function to provide real-time, data-enabled decision support.” Only an efficient, well-equipped finance function can provide this.
Efficiency Drives Analysis
Efficiency there is critical. The most advanced finance functions cost the business less and invest more time in foresight, steering the business to the greatest growth. According to PwC the most digitally advanced finance functions in medium to large businesses cost the business around 30% less as a proportion of revenue, compared to the median. Despite this lower cost, analysts in these top performing functions can spend 75% of their time on providing insight to the rest of the business. In short, efficient, digitally-driven finance functions are much better partners to the rest of the business.
So what gets in the way of everyone doing this?
Breaking Down Barriers
All too often the problem is that investment in finance is seen as necessarily large-scale projects that will take time and cause pain. And that as a result, won’t deliver value quickly. But as McKinsey says, “…companies should not use their legacy enterprise resource planning and other backbone systems as excuses not to start the change.” Advances in corporate performance management (CPM) systems now allow rapid and relatively low-cost experimentation. Finance leaders can pick individual challenges and find solutions such as Prophix to automate processes or enhance analytics, and build out from there, rather than waiting for the big bang upgrade.
Finance Digitalization Should be the First Step
Businesses can only drive growth in today’s business environment through intelligence. The finance function should be the home of that intelligence, partnering with the rest of the business to drive better decision-making through data. But it can only do that with targeted investment in automation and enhanced capabilities. The longer these investments are left, the further the competition will pull away. As McKinsey says, “CFOs must begin to experiment, however, or risk falling behind other functional groups in the organization and other companies in the industry whose digital transformations are already under way.”
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- IDC Worldwide Digital Transformation Predictions 2019 https://www.idc.com/getdoc.jsp?containerId=CEMA44517818
- PwC Finance Effectiveness Benchmarking Report 2019 https://www.pwc.co.uk/finance/assets/pdf/uk-finance-effectiveness-benchmarking-report-2019-2020.pdf
- McKinsey Insights https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/memo-to-the-cfo-get-in-front-of-digital-finance-or-get-left-back
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