Finance has traditionally equated digital transformation with cost reduction. One of the questions our clients most commonly ask us about building their business case is about the ROI of adopting a smart automation solution. For example, what is the projected headcount reduction from the implementation of X number of robots?
The answer can be elusive. First, our research shows that most finance organizations are still in the early phases of digital transformation, so there’s simply not enough of a track record to calculate average ROI. Second, even those organizations that have accelerated their adoption of digital tools are only in the experimentation phase. Early results from our 2020 Finance Key Issues Study reveal that broad-based adoption is scarce, whereas pilots and limited implementations abound – a positive sign of expected growth ahead
When we asked the executives of business services functions about their digital transformation objectives (in a study we conducted last year), we uncovered significant discrepancies between finance’s goals and those of digital leaders. The latter put greater emphasis on value-creating targets, such as quality of service, cycle-time reduction, business agility improvement, and business strategy enablement (see chart below).
Finance is catching up
A couple of years in digital time can make a meaningful difference. Finance executives are coming to the realization that the value-creating outcomes of digital transformation may be its biggest payoff. In our 2020 Key Issues Study, we asked finance executives to rank the benefits they’ve experienced from adopting digital technologies. Right at the top is an improved ability to provide insight to support management decisions. Cost was second.
What accounts for this change of heart?
Cost reduction is, and will remain, a perennial finance preoccupation. It is the number-one enterprise “ask” from finance in 2020 (86% of respondents). But right behind it, at 82%, is the expectation that finance will support the company’s growth strategies. This seemingly dichotomous mandate reflects the disruption of traditional market dynamics.
Unease about next year’s economic climate and expectations for slower earnings growth year-over-year (YOY) are triggering a focus on increasing efficiency. However, just being the lowest-cost operator no longer suffices. To thrive in a fiercely competitive digital economy, companies must continuously reinvent themselves through product, services, and business model innovation.
Translation: Finance must find ways to provide better insight with greater urgency to enable management to decide where to cut and where to invest. To do so, it needs to augment its analytics aptitude by upskilling and reskilling talent and deploying more sophisticated tools. These tools can enable finance teams to run what-if scenario analysis and predict the impact of business decisions on future financial results. This emphasis is validated by the function’s aggressive YOY adoption growth projections for advanced analytics solutions in 2020.
Finance won’t stop looking for concrete numbers on digitalization ROI. By nature, finance professionals want to see tangible results; plus, the function needs to demonstrate a strong business case to get the funding it needs. What these study results tell us is that the function must also include value-creating objectives and KPIs. While the latter are harder to quantify, they’re often quicker to materialize, even from limited implementations, and can be captured by sharing early success stories, whereas the cost savings may take longer to hit the bottom line.
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