Part 2 of a 2-part series. Read Part 1.
Part 1 of this series examined two megatrends – automation and analytics – and how finance leaders are beginning to leverage technology to disrupt their own businesses before they are themselves are disrupted. In this blog, we’ll look at three more megatrends leading organizations toward intelligent finance: global value-chain modeling, real-time predictive analytics, and blockchain.
Megatrend #3: Integrated modeling for global value chain optimization
Trade tensions, tariffs, and tax changes: There has never been a more compelling need for sophisticated financial modeling capabilities. Trade tensions remain elevated, and finance teams are actively analyzing the effect of tariffs on cost of goods, ability to raise prices and pass through the cost increases, and how currency fluctuations are offsetting or magnifying the financial forecast. Some firms are being targeted for retaliatory tariffs, with substantial shocks to their overall volume.
In addition to tariffs, the new Tax Cuts and Jobs Act (TCJA) in the U.S. brought about a significant reduction in the U.S. corporate rate, along with moving from a worldwide system to a territorial system. This dramatically impacts how CFOs think about the optimal global supply chain.
From a modeling point of view, the tax changes have in no way eliminated complexity, with new deductions as well as new taxes enacted as part of the law, such as BEAT (Base Erosion and Anti-Abuse Tax) and GILTI (Global Intangible Low-Taxed Income). Given these dramatic changes in U.S. tax policy, modeling the tangible flow of goods has never been more important or complicated, in addition to the geopolitical risks and rules around base erosion and profit shifting (BEPS).
These intercompany transfer-price challenges are made even more daunting with the requirement to allocate shared operating expenses and calculate the payment of intellectual property royalties to the appropriate legal entities. Since the tax team desires pretax profit by product by legal entity, many adjustments and extra calculations are needed to transform the book-related financial dimensions and values in the general ledger for tax purposes.
To holistically analyze and optimize the global value chain, a sophisticated application is required to model and perform simulations, allowing business users to change logic, rates, and cost assignments on the fly. High performance is mandatory, given the scale of data and the number of scenarios to be evaluated.
Collaborative enterprise planning is emerging as a leading practice to unify financial planning, economic modeling, intercompany transfer pricing, and operational supply chain planning.
Megatrend #4: Real-time data – batch is dead
Technology advances have eliminated the need for batch processing. With in-memory computing, data can be aggregated on the fly as accounting teams automate accruals, eliminations, intercompany reconciliations, equity pickups, and other closing entries. The automation can utilize machine learning to determine patterns, drivers, and data relationships, improving accuracy and shortening cycle time. The result is instant insight into financial position on any day of the month. These close-to-disclose applications are becoming part of the ERP suite. The last mile of finance no longer needs to be a separate application and database.
The same integrated, real-time paradigm can be applied to planning. Gone are the days of having a separate budgeting and forecasting system where actuals were moved from a relational database over to an online analytical processing system with latency, redundancy, reconciliation, and risk. Cloud and on-premises planning systems can access actual data at the source without replication. This data access not only obviates the time delay and reconciliation tasks; it also provides real-time updates. When an accountant makes a journal entry, the YTD forecast is updated immediately. The continuous accounting and real-time planning mindset is the future of financial planning and consolidation processes.
From group meetings to executive boardroom gatherings, real-time analytics can access actual and predictive forecasts and serve up visual presentations, with live data enabling scenario-modeling capabilities. Working anywhere, anytime is a key aspect to a fulfilling career for many in the current generation of finance professionals. Cloud deployment and a mobile-first design enable any device to facilitate collaboration, enhancing the real-time mindset. And with the advent of 5G wireless, these capabilities will be extended anywhere on any device.
Though it might sound like something you would see in the movies, this technology is available today and being used by progressive finance teams to dramatically accelerate the data-to-decision process.
Megatrend #5: Blockchain – the great disintermediator
Distributed ledgers and blockchain technology are all the rage. These systems replace trust with verification and thus have the potential to disintermediate the value chain of almost any industry. Use cases vary from asset management using digital twins to e-bills of lading to financial services, including the payment space.
Both the new and old generations of finance professionals are interested in this disruptive technology, as it creates a more direct relationship between supplier and customer – thereby increasing efficiency and lowering overall cost. For example, in the digital music value chain, this efficiency is seen by some to translate into fairness, as the artist’s portion of the economic reward is greatly increased.
In the enterprise, the blockchain will provide reliable digital records, leading to real-time, accurate, and transparent transactions. Smart contracts are often cited as the ideal use case – though experts will need to address interoperability, identity management, and transaction volume. Product provenance is another common use case where a secure supply chain can eliminate counterfeit products, saving hundreds of billions in the pharmaceutical industry alone.
Given the breadth of the opportunity to re-engineer business processes, a leading practice is to start with an ideation and visioning session, then move to rapid prototype, and iterate. Ultimately, a technology roadmap with interdependencies is required, along with a business case that quantifies ROI. Blockchain is undoubtedly part of the future of the intelligent enterprise, helping to connect people, things, and businesses.
Embracing the technology revolution
Successful CFOs are embracing the technology revolution – and its incessant waves of change – to drive business-model innovation, strategy execution, enhanced insight, process automation, and employee/supplier/customer engagement. The digitalization of finance is here to stay. Finance executives will create competitive advantage by investing in team members who demonstrate the uniquely human skills of creativity, storytelling, and relationship-building while also possessing the acumen to leverage modern technology tools across the enterprise. Guided by a technology roadmap designed for the modern era, the intelligent finance function harnesses the power of humans plus machines for optimized processes, faster decision-making, and ultimately, customer success.
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