Finance organizations expect digital transformation will have a significant impact on their performance and ability to support the business. But they have a long way to go to realize the promise of “digital.” Right now, typical finance functions still get a very low grade from management on their progress and ability to affect the business.
According to The Hackett Group’s 2018 Digital Transformation Performance Study, only 42% of finance functions are meeting management’s progress expectations, compared to 86% of digital leaders. Just one in five finance organizations currently has a mature digital strategy with corresponding initiatives in place. And most finance functions are very inwardly focused; they are primarily interested in improving the efficiency of their internal processes, not the performance of the enterprise.
Finance must rev up its digital engines
To thrive in an environment of unrelenting change, finance has to harness the power of data and smart automation to squeeze out cost, but also to deliver sharper insight. This way, leadership can navigate greater unpredictability and the emergence of new technologies and business models.
Many finance executives are cognizant of the digital imperative. Fifty-eight percent of them report that they are in the process of developing a mature strategy. According to The Hackett Group’s 2019 Key Issues Study, 90% will have a mature strategy in two to three years. But finance is not waiting around. Our data shows that it is already heavily engaged with new technologies through exploration, piloting, and implementation.
Ninety-three percent of finance functions are working with cloud applications and robotics. Eighty-six percent are involved in master data management (MDM) projects. The chart below shows the areas where we see the most activity by finance organizations.
This may sound disappointing. So let’s put that in context: Digital transformation is a multifaceted effort with many complicating factors, including substantial process alterations and upskilling. Thus a 50% full-on success rate is actually pretty good. And in the case of RPA, finance is more successful than digital leaders.
That only 25% of MDM projects deliver on all their objectives is worrisome. You can’t go digital without building a sound data foundation. To be fair, most finance functions are still operating in a highly fragmented system environment, and systems rarely talk to each other. Unifying disparate data is a tall task. As more finance teams transition from exploring and piloting MDM to full-fledged implementations, we’ll identify critical success factors and boost that accomplishment rate.
Take the first steps
What should finance executives do to catch up to digital leaders? Here are three critical steps:
- Speed up the development of a mature strategy. Without a strategy, projects will occur on an ad hoc basis. There will be little transfer of knowledge and the risk of launching duplicative initiatives or initiatives that address the wrong business problem.
- Invest in the foundation first. Data is the lifeblood of digital transformation, and it needs to be consistent to move seamlessly throughout the enterprise. Getting the data house in order is critical to realizing the digital promise. In our digital transformation study, we found that nearly half of typical organizations list MDM capabilities as a drag on transformation progress, compared to only 22% of digital leaders.
- Don’t wait for the eventual migration to next-generation ERP. Finally, while migrating the ERP to the cloud is a growing trend, finance can’t hold off until the projects are completed. Finance teams need to move forward by taking a lead role in guiding digital projects so that they are not entirely reliant on IT for support.
Examine the role that robotic process automation and artificial intelligence can play in finance operations in our “RPA And AI In Finance” series.