Financial services today is changing rapidly, and conditions are becoming more challenging than ever. Competition is not only coming from peers, but also from nontraditional new entrants, such as financial technology (FinTech) firms. To become more agile, traditional financial services companies need to reimagine the way they run their businesses. This will require includes continually reshaping their business models and being able to measure, analyze, and evaluate the financial impact to meet the demands of a new digital organization.
Moving beyond transactions
Although finance is a vital part of any financial services organization, it is still branded as “the back-office and support function.”
This perception is influenced by the amount of administrative and other non-value-added tasks performed currently in most financial services organizations. There are many manual processes, such as reconciliation, matching, and intercompany consolidation, that they need to perform throughout the financial preparation process. Due to increasing complexity in processes and technology in most banks and insurance companies, finance is left with very little time to work on value-added and high-profile tasks.
Becoming a strategic agent: a road map
With the markets becoming more volatile and increasingly risky, as well as the move to digitalization, the finance function in financial services organizations needs to become more proactive and think beyond reporting, budgeting, and accounting. Today, value-added services and customer-focused financing represent the new reality. Therefore, finance needs to act as a cross-functional integrator by bridging the boundaries and enabling the flow of timely and insightful information and support f or decision-making.
Striking a balance between the back and front ends
There are seven key elements that any financial services organization needs to take into consideration in transforming the finance function into a strategic agent.
- Redefined role of finance – On the front end, finance will serve as strategic partner, modeling changes and helping find the optimal scenario. On the back end, finance will be specialized in rapid execution and reporting methodologies to ensure execution of the business plan. Finance needs to look beyond the basics. The primary role will be in supporting financial-services business-model transformation, M&A, and other major capital investment decisions. It will focus on topics that finance owns: transfer pricing optimization, proactive working capital management, tax optimization, proactive currency and commodity hedge management, and so on.
- The analytical hub of the financial services organization – Finance organizations will implement finance platforms, not enterprise resource planning (ERP) systems. A core competence of finance will be a deep understanding of the business and the ability to translate this knowledge into financial and operational metrics. Day-to-day analytics will be handled as self-service for business users via artificial intelligence and natural language processing. Finance will focus on enterprise-level strategic analytics and KPIs.
- Enterprise risk management – Finance is becoming the owner of enterprise risk management (ERM). With technology-enabled insights, and the enterprise-wide view of the business, proactive risk management strategies will be driven by requirements at the board level. The view of ERM will extend through the company’s ecosystem, allowing for even greater risk management capabilities.
- Dynamic accounting and budgeting – Accounting will be a continuous activity, mostly performed via automation and business networks instead of period end exercise. With digitalization, budgeting will become a dynamic activity, allowing for rapid adjustments to meet changing business requirements. On the other hand, artificial intelligence will allow nearly full automation in traditional processes such as record to report, procure to pay, and order to cash. As a result, shared service centers will shrink dramatically, and scarce human capital will be redeployed to support high value-added activities.
- Compliance as strategic differentiator – As new legislation and compliance have become all-important today, companies with highly automated compliance capabilities will create strategic cost and velocity advantages. They will become highly automated and employ machine learning capabilities to become self-learning systems. Moreover, deeper business insights and “know your third party” information will be of strategic advantage to companies, opening safer business opportunities.
- Blockchain for twofold effect – Blockchain, although at a nascent stage, will see a twofold effect of increased transparency, and accuracy in commercial activities between entities (B2B, B2C, public/private), together with a dramatic reduction in transaction costs and operational risk. As a result, blockchain is likely to be widely adopted in the financial value chains among participants in the business networks.
- Consumer-grade experience in finance – The general perception is that finance branded as the back-office function does not require a consumer-grade graphical user interface (GUI). But consumers today are looking for leaner, meaner, faster, and transparent services. Finance users expect the same experience as in their private lives.
Evolving into a smart digital organization
This shift in the role of finance can be achieved only when the organization transforms and redefines itself, and adopts the right technology as the foundation for executing a smart digital operation.