8 Key Insights from Inside the Strategy Room

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The digital transformation of the finance function is one of the most important trends in business today. As the world becomes increasingly digitized, finance teams are under pressure to adopt new technologies and ways of working to keep pace.

During the recent CFO Talks podcast (Inside the Strategy Room), CFOs from leading companies discussed the digital transformation of finance functions. Communications Director Sean Brown from McKinsey’s CFO Forum in London was joined by two experts, Liz Fasciana and Bjørnar Jensen, on the digital transformation of the finance function. They shared insights on the key trends, challenges, and opportunities in this area.

This blog post delves into eight key insights into the digital transformation of finance function, drawing parallels to real-world examples.

Here are 8 key Insights:

Key Insight 1: From reporting to forecasting.
Key Insight 2: The full potential of digitization remains largely untapped.
Key Insight 3: The benefits of digitization.
Key Insight 4: Barriers to digitization.
Key Insight 5: The role of CFOs in digitization.
Key Insight 6: Technologies and architectures.
Key Insight 7: Benefits after transformation.
Key Insight 8: Impact on supply chain disruptions.

Key Insight 1: From reporting to forecasting.

Traditionally, the finance function has been focused on reporting on past performance. However, the modern finance function needs to be able to forecast the future to help businesses navigate uncertainties and make better decisions.

This shift is being driven by several factors, including:

• The increasing availability of data: Businesses now have access to more data than ever before. This data can be used to develop more sophisticated predictive models and to make more informed decisions.
• The rise of artificial intelligence (AI): AI is being used to develop new predictive analytics tools that can help finance teams forecast the future with greater accuracy.
• The changing nature of business: Businesses now operate in a more volatile and uncertain environment. This means that they need to be able to adapt quickly to change and to make decisions quickly.

Real-world example:

Netflix is a company that has embraced the shift from reporting to forecasting. Netflix uses predictive analytics to forecast demand for its content and to make decisions about where to invest its resources. This has helped Netflix to become one of the most successful streaming companies in the world.

For example, Netflix uses predictive analytics to forecast how many people will watch a new show on its platform. This information is then used to decide how much money to spend on marketing and production.

Key Insight 2: The full potential of digitization remains largely untapped.

While most finance departments use some form of digital tools, the full potential of digitization still has room for exploration. A study by McKinsey found that only 45% of finance tasks are currently automated. This means there is a significant opportunity for finance teams to improve their efficiency and effectiveness by automating more tasks.

There are several reasons why the full potential of digitization has yet to be explored. One reason is that many finance teams are still using legacy systems that are not designed for the digital age. Another reason is that many finance professionals do not have the skills and knowledge necessary to use digital tools effectively.

Real-world example:

General Electric (GE) is a company that is making significant progress in digitizing its finance function. GE uses digital tools to automate many of its manual tasks, such as invoice processing and accounts payable. GE also uses digital tools to improve its financial reporting and analysis capabilities.

GE is utilizing a digital tool called Predix to gather and analyze data from its machines. This data is utilized to foresee when the machines may fail. The predictions are then used to schedule preventive maintenance and prevent expensive downtime.

Key Insight 3: The benefits of digitization

Digitizing the finance function can bring several benefits, including:

• Improved efficiency: Digital tools can automate many of the repetitive tasks that humans currently perform. This can free up employees to focus on more strategic work.
• Reduced costs: Digital tools can help to reduce the costs of the finance function by automating tasks and streamlining processes.
• Enhanced insights: Digital tools can help finance teams gain better insights into their financial performance. This information can be used to make better decisions about resource allocation, investments, and pricing.
• Improved decision-making: Digital tools can help finance teams make better decisions by providing them with real-time insights into financial performance and risks.
• Increased agility: Digital tools can help finance teams to be more agile and responsive to change. This is important in today’s rapidly changing business environment.

Real-world example:

Walmart is a company that has benefited significantly from digitizing its finance function. Walmart uses digital tools to automate many finance tasks, such as invoice processing and accounts payable. Walmart also uses digital tools to improve its financial reporting and analysis capabilities.

As a result of digitization, Walmart has reduced the costs of its finance function by 20%. Walmart has also improved its financial reporting and analysis capabilities by 50%.

Key Insight 4: Barriers to digitization

There are a number of barriers to digitizing the finance function, including:

• Aligning ambitions: CFOs and other senior finance leaders need to be aligned on the goals of the digital transformation and on the resources required to achieve those goals.
• Setting up the right program: It is essential to have a well-defined program in place for the digital transformation of the finance function. This program should include a clear vision, goals, objectives, and timelines.
• Bringing everyone on board: It is vital to get buy-in from all stakeholders for the digital transformation of the finance function. This includes employees, managers, customers, and suppliers.
• Investing in resources: Digitizing the finance function requires significant investment in new technologies, training, and change management.
• Managing change: Digitizing the finance function is a major change initiative. It is essential to manage change effectively to minimize disruption and to ensure that the transformation is successful.

Real-world example:

One of the most significant barriers to the digital transformation of the finance function is aligning ambitions. CFOs and other senior finance leaders need to be aligned on the goals of the transformation and on the resources needed to achieve those goals.

A recent study by McKinsey found that only 30% of finance teams have a clear vision for the digital transformation of their function. This lack of vision is a major barrier to progress.

Another barrier to the digital transformation of the finance function is setting up the right program. It is crucial to have a well-defined program in place with clear goals, objectives, and timelines.

Many companies need a well-defined program for the digital transformation of their finance function. This lack of planning can lead to delays and cost overruns.

Key Insight 5: The role of CFOs in digitization

CFOs play a pivotal role in the digital transformation of the finance function. They are responsible for setting the vision for the transformation and allocating the resources needed to achieve it. They must also act as role models and champion the transformation within their departments.

CFOs can play a number of specific roles in the digital transformation of the finance function, including:

• Setting the vision: CFOs need to develop a clear vision for the digital transformation of the finance function. This vision should be aligned with the overall goals of the business.
• Allocating resources: CFOs need to allocate the necessary resources to achieve the vision for the digital transformation of the finance function. This includes investing in new technologies, training employees, and supporting change management.
• Acting as role models: CFOs must act as role models for their teams by embracing new technologies and working methods.
• Championing the transformation: CFOs need to support the digital transformation of the finance function within their organizations. This includes communicating the benefits of the transformation and getting buy-in from all stakeholders.

Real-world example:

Graeme Pitkethly, the CFO of Unilever, is a champion of the digital transformation of the finance function. Pitkethly has invested heavily in new technologies and has created a team of data scientists to help the company make better decisions.

Under Pitkethly’s leadership, Unilever has made significant progress in digitizing its finance function. For example, Unilever is now using digital tools to automate its invoice processing and to improve its financial reporting and analysis capabilities.

Key Insight 6: Technologies and architectures

CFOs need to focus on different technologies and architectures when digitizing the finance function.

These technologies and architectures include:

• Core transactional systems (ERP): ERP systems are the backbone of many finance functions. They provide a single platform for managing all financial transactions, including accounting, procurement, and inventory management.
• Reporting layers: Reporting layers sit on top of ERP systems and provide finance teams with the ability to generate reports on financial performance.
• Analytical tools: Analytical tools can be used to analyze financial data and to identify trends and patterns.

In addition to these three core technologies, CFOs should also consider using other technologies, such as:

• Cloud computing: Cloud computing can help CFOs to reduce the costs of their IT infrastructure and to improve the scalability of their IT systems.
• Artificial intelligence (AI): AI can be used to automate tasks, such as data entry and reconciliation, and to analyze financial data and identify trends and patterns.
• Blockchain technology: Blockchain technology can be used to improve the security and transparency of financial transactions.

Real-world example:

Walmart is a company that has taken a holistic approach to the digital transformation of its finance function. Walmart has invested in new ERP systems, reporting tools, and analytical tools. The company has also integrated its finance function with other functions, such as risk and tax.

This holistic approach has helped Walmart to improve the efficiency and effectiveness of its finance function. For example, Walmart can now generate financial reports in real-time. Walmart can also use its data to identify and manage risks more effectively.

Key Insight 7: Benefits after transformation

Companies that successfully digitize their finance functions can expect to see a number of benefits, including:

• Improved financial performance: Digitizing the finance function can help companies improve their financial performance by reducing costs, improving efficiency, and making better decisions.
• Increased agility: Digitizing the finance function can help companies to be more agile and responsive to change.
• Improved risk management: Digitizing the finance function can help companies improve their risk management by providing them with better visibility into their financial performance and risks.
• Improved stakeholder relationships: Digitizing the finance function can help companies improve their relationships with stakeholders by providing them with more timely and accurate information.

Real-world example:

GE has reaped significant rewards by digitizing its finance function, slashing costs by 20%, and improving financial reporting and analysis capabilities by 50%.

GE has also used digital tools to improve its risk management. For example, GE can now use its data to predict when machines will likely fail. This information is then used to schedule preventive maintenance and to avoid costly downtime.

Key Insight 8: Impact on supply chain disruptions

A digitized finance function can also help companies to respond more quickly to supply chain disruptions. This is because a digitized finance function can provide companies with real-time insights into their financial performance and risks.

For example, a company can use its data to track inventory levels and to identify potential disruptions. The company can then use this information to make decisions about how to allocate inventory and to avoid disruptions to its production schedule.

Real-world example:

During the COVID-19 pandemic, companies with digitized finance functions were better able to respond to supply chain disruptions. These companies could use their data to track inventory levels, identify potential disruptions, and develop contingency plans.

Walmart successfully leveraged its data to monitor its inventory levels and anticipate potential supply chain disruptions. By analyzing this information, Walmart was able to make informed decisions on how to allocate inventory and prevent any disruptions to its production schedule.

Conclusion

The digital transformation of the finance function is not just a technological change. It is also a cultural change. CFOs need to create a culture of innovation and experimentation in their teams. They need to encourage their teams to think outside the box and develop new and creative ways to use digital technologies to improve the finance function.

CFOs also need to be willing to invest in new technologies and training for their teams. This investment will pay off in the long run in terms of improved efficiency, effectiveness, and agility.

The digital transformation of the finance function is a journey, not a destination. It is essential to be patient and to celebrate small successes along the way. CFOs need to communicate their vision for the transformation to their teams and stakeholders and to keep everyone aligned on the goals and objectives.

I believe that the digital transformation of the finance function is one of the most important trends in business today. CFOs who embrace this trend will be well-positioned to lead their companies to success in the digital age.