“Are we there yet?” That’s the question that is top of mind for architects of finance digital transformation. The answer is “not yet, but we’re getting much closer,” according to The Hackett Group’s key issues study, “2019 CFO Agenda: Building Next-Generation Capabilities.” Our findings offer a sobering yet optimistic reality check on just how far finance has progressed in its digital journey.
It’s tempting to assume that finance has advanced significantly, given all the hype and the rapid introduction of new technologies. However, our study found that the current impact of digital transformation on finance is limited. As the image below illustrates, only 31% of finance executives reported that digital transformation is currently having a high or very high impact on finance performance. Less than 30% have experienced a significant effect on their finance delivery model or ability to achieve enterprise objectives. Even the talent impact is muted.
This sounds worrisome. But if you take a look at the right side of the chart, you will see great cause for optimism. While the impact may be only partial today, it is expected to shoot up by an average of 2.6X in the next two to three years.
This begs the question: How will finance realize greater digitalization benefits – that is, what’s going to change between today and two to three years from now? We found the answer by examining four critical enablers of digital change: the maturity and alignment of finance’s digital strategy, the function’s execution capabilities, and the level of support it gets from IT (see image below). While the data shows a low level of current enablement, it also portends a momentous rise across all four.
Having a clear digital transformation roadmap is an essential success factor. The percentage of finance organizations with a mature strategy will double in the next two to three years. This time frame makes sense. We know from The Hackett’s Group Digital Transformation Performance Study (2018) that it takes digital leaders an average of 2.5 years to fully evolve their strategy. The same study revealed that 58% of finance organizations are currently in the process of developing their strategy. The speed of development will accelerate as early adopters share successful use cases.
It’s all in the execution
A great strategy is useless without having the right resources and competencies, including adequate IT support. The 2019 Key Issues Study shows that only 24% of finance organizations already have the execution capability and just 31% get the help they need from IT. As these gaps narrow dramatically, finance will rev up its digitalization engines. The digital transformation study found that:
- Finance projects that the share of its IT budget dedicated to new initiatives will rise in the next 12 to 18 months.
- Finance expects an increase in the percentage of project funding dedicated to digital efforts.
- Finance anticipates that the share of FTEs dedicated to digital projects will rise, as well.
Of course, successful execution is not just about having more money and a bigger headcount. It’s equally about having people with the right skills. Our Digital Skills Poll (2018) revealed that typical finance organizations still suffer severe talent shortages in key areas. The most significant gaps between finance’s skills today and the skills it must master in a digital world are in data and technology savviness and analytical, innovative/creative, and design thinking. The good news is that the same poll also showed that the leaders in digital skills have already dramatically narrowed the gaps, at least by half, and in some cases even more than that. This means it is absolutely possible for finance to upskill, even as demand for talent continues to outstrip supply.
Finance organizations have been slower to show progress in digital transformation and realize its benefits compared to digital top performers across business services functions. That may sound bleak, but we have every indication that finance is gathering momentum. It’s poised to bolster its execution gap and more quickly develop a holistic strategy that is aligned with the enterprise’s overall digital transformation vision. Our research reveals substantial projected increases in the adoption rate of smart technologies like robotic process automation, cognitive computing, and next-generation enterprise resource planning solutions. Finance can catch up. And it must.
For more on the state of digital transformation in finance, see “Where Does Finance Stand Versus Digital Leaders?“