Finance digital transformation is the implementation and use of digital technologies to improve the efficiency, insight, and agility of finance teams. New research sheds light on the key pillars of finance digital transformation, including cloud planning platforms, automation, data optimization, predictive analysis, and modern planning processes.
Why is finance digital transformation important?
As business conditions become less predictable, finance must be able to help executives throughout the organization make informed decisions quickly and confidently. This was true even before the COVID-19 pandemic, but the global crisis has only amplified the need to equip businesses to operate with agility.
For many businesses, this has meant a reworking of the tools and processes that drive finance today. Known as finance digital transformation, this effort is aimed at replacing outdated planning tools (such as spreadsheets and hard-to-use legacy planning platforms) with modern technologies and processes that help deliver data-driven insights, detailed what-if scenarios, accurate forecasts, and plans that encompass both financial and operational data. The result is a holistic view of the business, with actuals automatically imported from core enterprise systems and individual functional plans that feed into the overall corporate plan.
The measurable benefits of finance digital transformation
New research establishes a direct link between finance digital transformation and much-needed agile business practices. The latest CFO Indicator, which analyzes survey responses from 225 CFOs from around the world, reports that finance digital transformation is helping enterprises of all sizes adapt to unprecedented change on several fronts. The report, which Workday Adaptive Planning has commissioned since 2015, finds that 54% of CFOs surveyed say their organizations have implemented some aspect of digital transformation. (The report characterizes these finance leaders as “digital accelerators,” whereas those that have yet to begin their journey are “digital novices.”)
The result? Digital accelerators are seeing better performance from their finance organizations. In real terms, this means:
- More efficient reporting, planning, and financial close. Of those organizations that have at least started their finance digital transformation journey, or digital accelerators, 79% say their teams are proficient in several key finance roles. This is twice the percentage of digital novices (at 38%) that claim proficiency in these tasks.
- Greater confidence. Here again, significantly more digital accelerators than novices (73% vs. 43%) report they are more than somewhat confident in the accuracy of their two-year P&L forecast.
- Improved business agility. Seventy percent of digital accelerators say they’re more than somewhat efficient at responding to change. Just 38% of digital novices reported the same level of agility.
Achieving those results requires change. And though it’s difficult to embrace change in the midst of disruption, those efforts pay measurable dividends. Notes the report: “Our survey data reveals that finance digital transformation helps businesses to recover efficiently from crisis and emerge stronger.”
The steps to finance digital transformation
If business agility is the goal of finance digital transformation, then what should finance teams look to implement? Each organization is different, but judging from the experience of thousands of companies, nonprofits, and educational institutions that have transformed their own planning environments, we can point to five key pillars that every finance leader should consider.
- Cloud planning platforms. Finance planning software has changed dramatically in recent years, and a defining characteristic of today’s leading planning solutions is that they are delivered in the cloud. (In fact, in 2017, a globally respected analyst firm eliminated on-premises solutions from its annual ranking of finance planning software.) Cloud technology is a pillar of finance digital transformation because cloud platforms are scalable, flexible, and elastic, which makes them an ideal choice for enterprises that are growing or facing constant market shifts. And because cloud solutions are accessible anytime to users via desktops, laptops, and mobile devices, they’re an ideal solution for modern workforces—and particularly now when so many employees are working remotely. (In fact, remote delivery of finance services, such as remote close, is a priority for 28% of CFOs surveyed in the latest CFO Indicator.)
- Automation. It’s a safe bet that the digital accelerators profiled in the CFO Indicator aren’t wasting valuable time manually consolidating data from hundreds of spreadsheets and passing around hard-to-track versions of plans and budgets via email. (In fact, finance teams that don’t benefit from digital transformation pillars like automation spend up to 83% of their time on nonstrategic tasks like data collection and consolidation.) This is why automation is such a crucial underpinning of a modern, agile planning environment. When data automatically flows into plans, forecasts, and budgets, finance teams can focus on strategic activities like modeling what-if scenarios, analyzing performance data, and uncovering new business efficiencies or opportunities.
- Data optimization. The CFO Indicator reveals that many finance leaders struggle with decision-making because of inefficient access to data and an inability to derive insights from data culled from across the organization. About half of the CFOs surveyed also say critical business decisions are sometimes delayed because of conflicting data between finance and operations and a lack of accessibility to real-time data. Clearly, an important predicate to developing confidence in a finance team’s projections is being able to work with data that is both accurate and readily available to people who plan. Finance digital transformation efforts typically involve establishing a “single source for truth” for all budgets, forecasts, and plans—a shared data source that brings actuals from throughout the enterprise stack into the planning environment. The CFO Indicator report recommends CFOs hone their team’s technology skills, build their data strategy around risk and compliance, and explore the possibilities of advanced technologies like artificial intelligence (AI) and machine learning (ML).
- Predictive analysis. Digital accelerators focus on planning for what’s next. Doing this requires the ability to not only analyze historical trends but to also look forward with confidence. Modern planning solutions achieve this using sophisticated AI and ML algorithms that help planning systems “learn” from data and decisions, which over time leads to more accurate predictions. This heavily data-driven process isn’t just a bell or whistle. Its benefits are apparent in the CFO Indicator survey sample: 30% of digital accelerators—those higher-performing companies—say they routinely use AI to “provide prescriptive, personalized, and prioritized insights to the wider business.” This compares to just 3% of digital novices.
- Modern planning processes. The fifth and final pillar of finance digital transformation is where cloud platforms, automation, data optimization, and predictive analysis all come together in modern, agile planning processes. Where these processes are implemented first may vary. Today, survey respondents are focused more on revenue projection and cost containment, but they expect to focus more on driver-based planning and scenario modeling a year from now. Yet no matter where they’re applied, modern planning processes are defined by three characteristics: They’re continuous, so they support ongoing agility by ensuring that plans and forecasts always use fresh data; they’re comprehensive, to ensure that planning spans the entire business and understands its complexities and nuances; and they’re collaborative, because they use a single source for shared data accessible to the entire team via the cloud and make it easy for all stakeholders to easily engage with the numbers.
Overcoming barriers to finance digital transformation
Despite the obvious benefits, nearly one-third (31%) of CFOs report that their finance digital transformation initiatives have stalled. Among the reasons given, two stand out: Finance teams lack the skills to make the most of new technology once it’s implemented, and CFOs face internal resistance to change.
Both of these challenges can be overcome, and CFOs can lead the way.
- Fixing the skills shortfall. New technologies come with new demands for skills. Strategic CFOs, the CFO Indicator notes, should identify technology skills they’ll need now and in the future, with particular emphasis on strategic data analysis. They should work closely with HR to determine whom to hire and whom to reskill from within, including tapping “citizen data scientists” who may already be in their midst but need additional training.
- Breaking through the culture clash. CFOs can set the tone for change by embracing new technologies and processes and by setting KPIs that encourage finance team members to help drive the transformation process. Incentivizing team members to uncover areas of inefficiency and then work to solve those inefficiencies can create demonstrable wins that show why transformation works. And it does work. As noted in the CFO Indicator, 88% of digital accelerators are “more than somewhat confident that the culture of their finance function supports digital transformation.” Just 35% of digital novices are as confident in their culture.
About one-third of CFOs (34%) say they plan to prioritize finance digital transformation in the next year. They’re doing so because the benefits are proven, the pillars of finance digital transformation are all readily available, and any existing barriers can be overcome.
Business agility will continue to determine who wins and who loses in an increasingly disrupted world. For CFOs who wait too long to begin their own finance digital transformation, positive forecasts may be hard to come by.