The financial structure of a professional services company is organized from the top down, making the CFO an essential piece of the transformation puzzle. Thanks to digital transformation, the very job of the CFO is constantly evolving. Disruptive technology and shifting business strategies require the CFO to stay informed and agile because selecting the right technology at the right time enables greater agility, simplified finance processes, and adoption of new business models. This can make the difference between staying competitive or getting left behind. According to an article in MIT Sloan Management Review:
“Companies with 50% or more of their revenues from digital ecosystems achieve 32% higher revenue growth and 27% higher profit margins.” *
The financial challenges the professional services industry faces are unique: intangible assets such as people and intellectual property, profit margins that need to be tracked carefully, the necessity of visibility into utilization rates and projects, continuous reduction of fixed overheads, and compliance with audit and regulatory standards. The tools it needs to become more flexible are changing rapidly and include cloud platforms, blockchain, Big Data, and predictive analytics. These technologies can significantly transform financial processes – and subsequently the work of the CFO.
Challenges to modern CFOs
First, let’s take a deeper look at why digital transformation is disrupting the traditional professional services business models. The traditional model of billing consultants on a time and materials basis is being challenged by customers who expect engagements to be tied to specific business outcomes and by leaner new entrants to market with digital business models. Digitalization has enabled digital service delivery, which drives costs down and enables fees to be charged on a usage basis or subscription basis.
These developments aren’t the only disruptor; shifting economic centers and digitally enabled new entrants to the market are fueling disruption as well. And in the information age, clients have higher expectations and instant access to expert knowledge online, while firms face more and tougher competition – spurring the need to differentiate themselves more clearly and provide higher value-added services.
The automation provided by digital technologies poses a particular threat to the professional services industry. Accounting professionals, for example, can be replaced to a degree with machine learning and algorithms that automate accounting processes and technology, allowing clients to take over certain accounting services such as filing taxes.
Despite the impact that digital transformation might have on some professional services sectors, it presents a major opportunity for growth and innovation for the industry as a whole. In a recent study by SAP and the Oxford Economic Unit, 96% of industry leaders see digital transformation as a core business goal, compared to 61% of all other companies. Similarly, 94% of leaders are investing in next-generation technologies such as Big Data, the Internet of Things, and machine learning, while only 60% of all other companies are making such investments. The trend is clear: to invest in digital change is to be a leader in your industry.
For CFOs of professional services firms, digital innovation can have a significant impact on the bottom line. The same study from SAP and the Oxford Economic Unit found that 85% of leaders say that transformation efforts have increased their market share, and that they expect 23% higher revenue growth in the next two years. A full 80% of leaders say transformation has increased their profitability.
The tools CFOs need to create more responsive organizations
What are these digital technologies that leaders are investing in, and how can they help professional services firms remain competitive?
With intelligent enterprise resource planning (ERP) software, CFOs can create a digital core to simplify finance processes. A digital core can help reinvent business models and drive new revenues by instantly connecting people, devices, and business networks. For example, an intelligent ERP can help streamline accounts payable, invoice management, cash and liquidity management, and financial planning and analysis. You can eliminate IT complexity and create a flow of real-time information with a digital core that helps you run a live, digital business.
To become a digital leader, it’s important to look to the future, not the past. Predictive analytics allow CFOs to do just that, forecasting results and revenue predictions based on customer-experience profiles and current demand, instead of comparing to previous years as most companies still do today.
With high-performance analytics, it is possible for a CFO to review, in a single dashboard, revenue and margin by country and period, utilization rates per country, revenue and margin by practice by period, headcount by practice, and utilization by practice. Armed with this detailed financial information, the CFO can make a greater contribution to strategic decisions.
Big Data and cloud platforms
Instead of using the traditional consulting business model for audits, CFOs can also rely on Big Data. The amount of data at the CFO’s fingertips is exponentially greater than in years past, but many companies don’t know how to exploit it. By using a cloud platform, CFOs gain easier access to Big Data for audits and can better analyze it for business insights.
Blockchain can be used to improve information traceability, enabling transparency while improving auditability and regulatory compliance. Blockchain technology allows companies to share important or confidential documents securely – without an intermediary. The information can be shared quickly, in a format that cannot be changed. This method has the potential to help ensure the privacy and security of shared information, which is crucial for professional services companies and their clients.
New customer experiences are constrained by the ability of companies to support microtransaction-based revenue models tied to consumption. Blockchain provides a secure approach to enabling this automation.
Only the firms that are embracing technology are expected to survive and thrive in the years to come. If you want to stay ahead of the competition and continue to move forward, the time to look at Big Data, predictive analytics, blockchain, and artificial intelligence for your financial processes is now.
For more insight on digital leaders, check out the SAP Center for Business Insight report, conducted in collaboration with Oxford Economics, “SAP Digital Transformation Executive Study: 4 Ways Leaders Set Themselves Apart.”
*Source: Peter Weill and Stephanie L. Woerner, “Thriving in An Increasingly Digital Ecosystem,” MIT Sloan Management Review, Magazine Summer 2015.