The digital economy is changing the way the finance function works within an organization. How should businesses effectively embrace this sweeping change?
Disruptive technologies are impacting organizations in many ways, and one of the key functions affected in a sweeping manner is the finance function.
The digital economy brings with it changes that include cultural and mindset changes in embracing digital transformation, new ways in managing and using financial data, and new dynamics in interacting with other departments.
Rick Payne, Finance Direction Programme Lead at ICAEW, a leading chartered accountants’ body in the region, provided some insights into the risks, challenges and opportunities these changes bring.
With technologies impacting the finance functions and skill requirements in the digital age, how has the role of the CFO changed?
Payne: Chief Financial Officers (CFOs) have been driving and responding to change ever since the role came into existence. Technologies have always played a key role in this – from the first introduction of computers in the 1950s.
But the pace of change is increasing through rapid developments in data analytics, artificial intelligence (AI), chatbots, robotic process automation (RPA) and so on. These have contributed to increased expectations on CFOs to improve their contributions to decision making, make their finance departments even more efficient while maintaining their stewardship role.
The CFOs who are adapting best to these expectations are taking on leadership roles in strategy, risk management and the use of new technologies across the organization. In particular, CFOs now have to work with the executive team on complex decisions around which technologies to prioritize and invest in when something better could appear on the market within the following weeks.
How would the CFO go about building an effective finance team/function, in an age when organizations need to embrace disruptive technologies?
Payne: Boring but still true, building an effective finance function requires strong leadership of great people using effective processes and systems. The CFOs and finance teams we have been meeting with in Singapore recently have all emphasised finance transformation starts and ends with people. Getting the buy-in of the team to the changes required is fundamental. Of course, you need a good understanding of what the business requires of finance from which you can build a realistic plan.
One thing to emphasize is the importance of active, top-level sponsorship, preferably from the CEO. Sponsorship is necessary to ensure sufficient organizational resources are allocate, any roadblocks are overcome and to keep motivation levels high even when challenges seem insurmountable. Finance professionals tell is that lack of sponsorship is one of the most common reasons for failed change initiatives.
Disruptive technologies open new possibilities for change and CFOs should be reviewing the options they have available to them. For example, greater automation may now be affordable through cloud technology, RPA, updated ledger and enterprise resource planning systems or specialized finance automation software.
What disruptive technologies (AI, advanced analytics, blockchain etc.) are right for the finance functions, and what challenges do organizations face in choosing the right technology to deploy?
Payne: Several factors must be taken into consideration to choose the right technology for finance functions. While all these disruptive technologies have the potential to vastly improve the efficiency and effectiveness of finance work, factors like an in-depth understanding of the business problem, digital strategy and the functionality of the wide array of competing solutions play a crucial role in determining the success of the implementation of such technologies within the organization.
For example, advanced data analytics and AI may be right for large organisations with access to big data while some organisations may still need to significantly improve the basic financial analysis they carry out; RPA may be a good option for automating routine, rules based processes within an organization while Blockchain may be worth investigating where there are opportunities to extend automation and data sharing outside of organizational barriers.
There remain risks and challenges to operationalizing these technologies. Most CFOs have experienced technology promises that failed to deliver, be that due to sales hype, flaws in the software, bad design, lack of processing power, poor implementation and, of course, dysfunctional human behaviors. However, today’s developments in the industry give us reasons to believe that it will be different in the near future.
How should they overcome resistance to change, and help develop the right mindset and culture of innovation, especially among staff in the finance functions?
The need for finance staff to ‘change their mindset’ has probably been the phrase I have heard the most while in Singapore. This is not easy. Our mindset develops over many years and the older we get the more difficult it is to change. If we look at some of our own behaviors and habits we know how challenging it can be.
To achieve change in others, we need to employ several approaches including performance management, incentives, coaching, mentoring, training and so on. Sometimes a burning platform can lead to individual change, such as the fear of losing one’s job. We will also have to be honest, as sometimes people may not be willing or able to change and we will have to let them go. This should be done with compassion and with help in finding a new role.
While we are changing the mindsets of individuals, developing a culture of innovation requires CFOs to lead by example. By being seen to introduce new ideas into the organisation, others will be encouraged to follow. Providing positive feedback to staff who have experimented with new approaches and new technologies, even if they have not been successful, will also be helpful.
When we are part of a particular culture, which derives from shared, deep seated beliefs and assumptions, it is not easy to see the organization’s culture for what it is. So, it is worth getting an outside view on how the culture compares to that of innovative organizations.
Diversity has been shown to make a positive contribution to innovation. Therefore, CFOs should consider the balance within their teams, not just in terms of gender, race, age and disability, but also think about bringing in people with backgrounds in other disciplines such as data science, marketing and psychology. Similarly, the rest of the organisation should think about employing accountants in other functions where their wide-ranging skills can often add value.
I am hopeful that CFOs and their teams will continue to adapt to change, as they have always done, and continue to make a positive contribution to their organisations, the accounting profession and to society.