Finance Technology - Now A Global Impact?

Manav is prolifically skilled in vendor management, finance management, receivable accounting, business analysis and financial analysis. He gives some precious insights on

The world around is changing rapidly. Businesses no longer can be conducted in the same manner they have been in the past. Some of the factors which are influencing businesses today are

1. Globalized Companies ­ Nowadays businesses are no longer competing with only companies in their country. The global enterprise has become a reality and businesses can no longer operate in isolation

2. Global Geopolitical Environment ­ Global events can no longer be ignored. Unlike the past when business only concerned themselves on local decisions, today no global event can be ignored. A recession in America is a significant event in India directly affecting businesses. Price rise of a commodity in China would affect businesses in India

3. Impact of Technology ­ Technology is changing the way businesses deliver products and services to the customer. Technology is a great leveler, directly affecting companies which had in the past relied on significant barriers to entry.

4. Availability of Data ­ As the reliance on technology increases, the quantum of data available to businesses has increased manifold. Companies can use the data to provide personalized services and solutions directly to customers creating a new form of loyalty which did not exist before

5. Impact of Regulation ­ As the way of doing business changes, there is a need for the laws and regulation to evolve to ensure that the rights of companies and individuals are affected. Data privacy and Intellectual property rights laws are critical in today's world.

As businesses evolve, the finance function has to evolve along with the businesses. Finance has always been critical to the functioning of businesses. However, in the past a large portion of finance was focused on analysis and reporting. The analysis was mostly done on data generated from events which had already been completed. However, that way of working cannot serve companies operating in the current environment. The CFO needs to become a trusted business advisor. The CFO is unique in the sense that he is one of the few people who would be able to quantify the impact of ever-changing environments to the company's top line and the bottom line helping the company make the unique decision. Thus, it is imperative that the CFO moves from analyzing the decision post facto to becoming an integral part of the decision-making process. To achieve that end it is necessary that the finance function itself evolve.

In the organization of tomorrow, the finance organization would be a more agile unit moving in sync with the business

Finance Organization of the Future
Today most finance organizations are organized in line with the business units. Each division has people who perform functions such as accounting, planning and pricing. Moreover, there are also certain functions such as accounts payable and accounts receivable. These are centralized functions which today are fairly employee dependent. In most companies the finance team does not have people who work on automation. They tend to look at vendors as and when needs arise. The big challenge with this is automation in the finance function ends up getting deprioritized.

In the organization of tomorrow, the finance organization would be a more agile unit moving in sync with the business. To enable this, my view is that eventually the finance function would possibly have three layers and then there would be the CFO who would be using the output of the layers to ensure proper decision making

At the bottom layer you would have smart finance factories. These factories would be common across the company reducing the amount of duplication. These factories would be lean and automation would be a major part of these centers. By and large there would be a specific IT team which would continuously work towards automating processes and reports in a structured manner. This layer would mostly be offshore driving cost efficiencies.

The next layers would be having specialist centers of excellence that would be using the output of the factories to perform specific tasks needed for the business. These would be teams with deep functional capabilities performing functions such as revenue analytics, balance sheet management and reporting. Along with these tasks, most common functions such as treasury, regulatory reporting and tax would reside in these centers of excellence and they would work to ensure regulatory requirements are met.

The third layer would be specific business specialists. These would be people who would work closely with the business units and would be the point of contact between those units and the finance function. One can think of them as controllers for their units. Any customer interaction for their units on the finance side would also be handled by them. This layer would interact with the centers of the excellence and ensure that the requirements of the business would be met. One of the major functions of this layer would be to build scenarios allowing the business to see the financial impact of different business situations.

At the highest level the CFO would be responsible for holding the entire structure together and driving the unit in the same strategic division as the overall business. The CFO would need to keep tweaking the structure to ensure that the needs of the business are met

Digitization of the Finance Function
One of major drivers which would help transformation of the finance function would be the use of technology. Three key technologies which would be important for the digitization of the finance function are listed below.
1. Automation and Robotization ­ Processes which are repetitive can be automated and in many cases the work can actually be done by bots who perform the functions ensuring work is done quickly and without errors

2. Data visualization ­ Various tools allow data to be represented graphically allowing business to make proper decisions. These charts would be updated on a real time basis

3. Advanced Analytics ­ In today's organization, there is no shortage of data. This data however is useless unless the organization is able to use the data to gain a competitive advantage. For that advanced level of analysis would need to be done on the data. The big advantage is that computing power is cheap and readily available allowing organizations to perform analytics which were unthinkable 2- 3 years ago.

While most organizations understand that digitization is essential, there are several challenges which organization would have to overcome. Some of these are listed below
1. Lack of talent specially in skills such as automation / advanced analytics
2. Lack of IT infrastructure
3. Upfront costs of transformation
4. Change in mindset of employees who are happy with existing processes

Ultimately as the world around us continues to change it is essential for the finance function to evolve. While there are challenges which organizations face it is essential that organizations understand that transformation of the finance function is directly linked to their survival.