Gartner has identified four transformation initiatives chief financial officers (CFOs) should implement or risk failing to meet their objectives.
These plans will fail if CFOs do not fully account for the comparative advantages of their function.
“Many business activities that were the traditional remit of finance departments, such as centralised data governance, are either being democratized across the enterprise or are no longer major differentiators in the value that finance teams can offer to the business,” says Peter Nagy, research vice-president in the Gartner Finance practice.
“To meet the vision of a leaner, digital-first finance department by 2025, CFOs need to double down on the things finance can do better than anyone else.”
Finance transformation initiatives already have a historically poor track record, with just 39% of finance leaders agreeing that these projects have delivered on expected benefits to the function, and even fewer agreeing that the overall business has benefited. Now the stakes are higher, as digital is disrupting how businesses are run, and CFOs must reposition how they think about adding value to operations.
The comparative advantages of the finance department, those services that finance can provide better than other functions, have shifted notably in recent years.
“Data, analytics and sophisticated technology solutions have increasingly become democratised throughout the organisation, with many functions and decision makers better positioned to analyse and act on their own data,” says Nagy.
“In an environment of increasing organisational complexity that makes it more difficult for finance organizations to tailor support, transformation plans need to be organised around the areas where finance’s enduring strengths most stand out: maintaining quality standards, end-to-end process design expertise and decision support at the portfolio and balance sheet level.”
Gartner has identified the four areas of comparative advantage where finance transformation initiatives should be focused:
* Maintain High-Quality Data – With the velocity, variety and volume of data growing exponentially and becoming increasingly accessible to decision makers throughout the organisation, finance leaders should de-emphasise their focus on driving corporate-approved performance data. Instead, finance should focus on guiding data owners’ governance of performance data, departing from a “single source of truth” to a “sufficient versions of truth” approach, optimised for decision-readiness, rather than reporting accuracy.
* Portfolio-Level View of Decision Support – Finance has long sought to tailor its support to business unit-specific decisions. In an environment of increasing organisational complexity, this model suffers from a lack of scale, reduced decision support speed and the risk of duplication and “shadow finance” risks. Instead, Finance should focus on providing support at the portfolio level, with specialized decision experts focused on areas such as cost optimisation, inventory and product improvements. Such an approach has provided a 2,5-times improvement in the financial soundness of operational decisions.
* Balance Sheet Expertise – Business units are increasingly capable in conducting their own P&L analysis, yet 67% of decision makers agree or strongly agree that they would welcome more balance sheet-focused support from finance. Currently, 87% of support from finance is focused solely on P&L support. Finance departments should embed more balance sheet decision support experts from treasury and accounting into their go-forward support models, and resist defaulting to FP&A and embedded finance business partners for all business decision support requests.
* End-to-End Process Design Expertise – While the business is less fully reliant on finance for both data synthesis and analytics support, there is scope for finance to provide further value through its unique expertise in end-to-end process design, which is becoming increasingly critical as more processes get disrupted through digital automation. This process expertise should also be leveraged within finance to accelerate the function’s digital ambition. For example, hyper-automation is going to become increasingly commonplace in finance organisations of the future, but most finance teams continue to focus their digital initiatives simply on reducing manual work.
Gartner’s Future of Finance survey data, which interviewed 137 senior finance leaders in Q4 2020, revealed a common vision of the future of the finance department shared by 93% of respondents. It is a digital-first approach, able to provide data on demand, with a highly scaled finance structure and a broader diversity of skills among team members.
However, CFOs report that finance departments are lagging against their ambitions: 15% were satisfied with progress on automation initiatives, 23% were satisfied on real-time commercial analytics and just 12% were satisfied with progress on driving digital technology adoption.