In 2018, The Hackett Group conducted a Digital Transformation Performance Study to identify digital top performers (leaders) across finance, IT, HR, and procurement. We used a set of relevant metrics to define the characteristics of digital leaders (top quartile) to compare their progress with peers.
Our analysis revealed that:
- Finance executives were almost 30% more likely than peers to select “competitive functional cost” as their number-one digital transformation business driver. However, finance is four times less likely to choose improving enterprise performance, which is the number-two objective for digital leaders. For finance, it was eighth on the list of critical drivers.
- At the same time, finance outperformed digital leaders in realizing its primary transformation objectives: quality of service, business agility, and cycle-time reduction.
The question is why?
Deconstructing the gaps: the cost imperative
Let’s put finance’s emphasis on cost cuts within a broader context. Our 2019 Key Issues Study shows that cost reduction is second on the list of enterprise objectives this year. Customer-centricity secured the top spot. Companies are recalibrating their priorities to accommodate expectations of a softer economy and slower earnings growth. The enterprise focus on cost directly affects finance’s digitalization agenda. In fact, finance is set to absorb the bigger hit as a result. Both its headcount and budget are forecast to shrink more than other business services functions in 2019.
Despite dwindling resources, senior management demands that finance play an increasingly strategic role. As a result, finance is predisposed to adopt technologies that advance operational excellence to enable redeploying talent to more value-creating activities. For example, finance executives foresee that the rate of adoption of robotic process automation will nearly double, which will make it the second-most dominant digital tool for finance. Automatic reconciliation and self-service reporting are also set for large increases in the rate of adoption. The onus is on finance to tighten its belt while redeploying staff, yet not blow through the budget.
Doing more with less
While there may be a difference between finance’s transformation and top performers, finance bests digital leaders in realizing its top-two business objectives: reducing operating cost and improving service quality. The two have always had an uneasy coexistence. In the past, they were almost mutually exclusive. But not anymore. Our research shows that finance is accelerating its rate of adoption of digital tools. It uses robots to eliminate manual activities while eradicating mistakes and shortening cycle time — thereby working faster at a lower cost. At the same time, advancements in new technologies such as data lakes, data marts, and in-memory computing enable finance to access more and better data. As a result, finance can run more sophisticated analyses and offer valuable business insights.
Successful digital initiatives
That’s the “why” of finance’s choices of critical drivers. When it comes to the “how,” (that is, implementations), finance and digital leaders are aligned (see image below).
Both ranked executive commitment, digital skills/talent, and change management among their top three success factors. Only one important capability is missing from finance’s list: adequate funding and resources. Executive commitment is indispensable; if management doesn’t allocate a budget for acquiring new technologies, it’s going to be impossible to achieve the results.
Both studies cited here foresee a significant rise in finance’s adoption of digital tools and modernizing core systems. This bodes well for the maturity level of finance’s execution of its digital strategy.
For more insight on the future of finance, see “2019 Is The Year To Rebuild Trust In Finance.”