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What does digital finance really mean?

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Bryan Christopher O. King Kay

Taxwise Or Otherwise

“Innovate or die” is driving many companies to constantly improve themselves in order to compete in today’s fast-paced environment. While the digital age brought about many breakthroughs, it also led to the demise of others like Blockbuster, Nokia and Kodak. Today’s top brands may face the same fate if they do not continuously innovate.

Prior to the digital age, the role of finance and accounting people was very simple: to ensure that transactions are properly accounted for and that appropriate financial reports are prepared and submitted to various stakeholders. Licensed CPAs such as myself train for years to become the perfect “traditional accountant,” who can accurately record and post entries and generate reports that management or the government requires. Today, robotics process automation and artificial intelligence have made their way to the market, aiming to replace finance people in the performance of tasks representing the “low-hanging fruit” on the road to greater automation, such as transactional processing and data visualization.

During my time as an accounting lead for a shared services center, top management wanted to take advantage of digitalization by adopting a system that enhances performance reporting. Accountants were forced to learn performance management, proper project management, and business requirements development. To maximize the value of the finance function, they also demanded that capable finance personnel participate in internal improvement projects, and that the organizational structure be made leaner and more efficient. Everyone was forced to learn new skills and adapt to help the business compete.

With digitalization, certain skills of traditional accountants (e.g. data crunching, posting of accounting entries, etc.) are slowly becoming obsolete. Thus, roles within the finance function must adapt to these changes. Digital finance is not just about technology. It is about the finance function holistically leveraging people, organization and technology to take on proactive roles and provide more value to the business in the digital age. So, what must the finance function do?

First is business partnering. Supported by robust planning, budgeting, analysis and reporting processes and tools, timely and actionable information can now be easily generated. With access to quality data, the finance function can provide valuable performance and predictive insights as well as collaborate with the business to assist in informed decision making and achieve favorable outcomes.

Let’s take the case of how an automotive company regained its competitive edge for instance. In the past decade, this particular company had been incurring losses due to its production of various car models that the sales team thought the market demanded.

Due to constant pressure from its leadership and resource constraints, the sales team partnered with the finance team to report and assess the performance of each of the company’s products — including generated revenue and incurred costs. To their surprise, only a number of their product lines were profitable and the company was actually investing significant production and marketing costs in products that were unprofitable. This led to future collaborations between the sales and finance teams to identify where to smartly place investments to generate optimum profit.

Another role that the finance function needs to fulfill is to continuously drive improvement. With increasing competition and limited resources, operating an efficient and cost-effective back office is very important. Increasing the capacity for value-added services and developing scalable service delivery models to support growth should be part of the finance function’s priorities. This is an opportunity to go digital because there are countless technological enablers that can help the business improve the accuracy and efficiency of performing traditional repetitive and voluminous accounting processes (e.g. billing, processing payments, etc.). Taking these burdens off of finance personnel will give them time for more value-added tasks. In recent studies, 25 to 45% of typical finance function processes have been found to be avoidable through automation and continuous process and/or organizational improvements. CFOs and finance personnel should take the initiative to ensure that the finance function keeps its costs low while being as efficient as possible.

According to a benchmark conducted for finance functions around the world, top finance teams operate at 36% lower cost than average performers. Top CEOs and CFOs are leveraging acquired business skills of their finance teams and making them more valuable by providing such personnel with transformation responsibilities on top of their day-to-day activities. The nature and extent of such responsibilities can either be intra-finance functions (e.g. finance personnel continuously striving to spot and implement areas for continuous improvement within their operations) or inter-finance functions (e.g. working with top management to define a new target operating model, working with IT to define new technology requirements, etc.).

Despite all these developments, the future of finance still lies in the hands of people and not machines. It is true that technology is currently a major issue and that CFOs should still make technological improvements a priority. However, priority should also be placed on building new skills to make the finance function more effective such as improving business collaboration and increasing the quality of interactions and relationships. These are necessary skills to execute the new roles of the finance function in the digital age. After all, the power to enable deep organizational change through valuable actions (e.g. analysis, enabling insightful decision making, conducting meaningful business interaction, etc.), leveraging available technology, redefining the finance operating model and seeking out continuous improvement still rests with the CFO and finance personnel.

Forward-looking and high-performing CFOs and finance functions are already taking action because of a strong belief that finance has a key role to play in helping companies respond to their respective business environments through informed decision-making and scalable operations. Finance functions that do nothing not only risk being irrelevant to the business, but also risk the very survival of their companies.

The views or opinions expressed in this article are solely those of the author and do not necessarily represent those of PricewaterhouseCoopers Consulting Services Philippines Co. Ltd. The content is for general information purposes only, and should not be used as a substitute for specific advice.

 

Bryan Christopher O. King Kay is a manager with the Finance Consulting practice of PricewaterhouseCoopers Consulting Services Philippines Co. Ltd., a Philippine member firm of the PwC network.

bryan.king.kay@pwc.com