Technological advances are essential to the evolution of the finance organization of the future. We talk about increased investment in digital technologies and the preponderance of technology as it relates to improving the efficiency and the effectiveness of the finance function. Yet The Hackett Group’s research reveals that actual technology spend has been consistently declining since 2009. How do we reconcile these seemingly mutually exclusive trends?
In study after study, we find that finance executives are putting greater emphasis on digital transformation and increasing the adoption levels of new tools. As the chart below shows, finance executives project a significant rise in the adoption rates of specific digital technologies. According to our research, the three fastest-growing digital technologies in finance are AI/cognitive computing, robotic process automation (RPA), and advanced analytics.
Solving the quandary
There’s no question that technology will be the biggest force reshaping and enabling the finance organization of the future. Consequently, we’d expect to see the most advanced finance teams increasing their spending on technology. But the very opposite is true. According to our data, world-class finance organizations’ IT spend as a percentage of total finance cost has dropped by 27% over the past decade. IT spend as a percentage of $1 billion in revenue and per employee have both declined by 25% over the same period.
This is not because finance is failing to invest. Rather, these results reflect leading finance organizations’ digital progress since 2009. Back then, most had to contend with a highly fragmented ERP landscape, customized systems, and hard-coded, on-premises bolt-on solutions. Those required large capital outlays, had lengthy implementation cycles, and were very expensive to maintain. A lot of that has since changed.
World-class finance functions have rationalized their IT architecture, migrated more of applications to the cloud, and increased automation levels. The upshot is that running and investing in technology today is a lot cheaper than it used to be, while at the same time automation is greatly improving finance’s capabilities. The composition of the IT budget has also been shifting, as subscription-based services transformed capital investment into operating expenses.
World-class finance organizations spend a lot less on technology now than they used to. Yet finance operating cost has remained steady over the past decade. That’s because the savings from greater automation have been redirected to funding other, more value-creating activities. Our data reveals that while the cost of more transactional finance processes (e.g., general accounting) has gone down, investment in planning and strategy has risen steadily.
World-class finance organizations are self-funding improvements in planning and performance management activities (e.g., analytics) to more effectively support management decisions. They are acquiring new solutions and paying their staff more, as they hire and promote more experienced employees. In the end, digital transformation is achieving exactly what we want it to achieve. It is reducing technology cost while freeing up staff from routine work, and enabling companies to redeploy finance resources into strategic decision-support work.
For more on this topic, see “Leveraging Finance Technology To Boost Enterprise Agility.”
The Hackett Group is an SAP platinum partner.