Digital transformation for modern finance

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Digital transformation for modern finance

The term ‘digital transformation’ has reached buzz word status over the last few

years. In 2019 an online search for the term ‘digital transformation’ quickly returns

more than 440 million results.

It is no surprise, then, that digital transformation initiatives consistently rate

among the top five priorities of most executive teams around the world. Yet, while

the strategic benefits of digital transformation are clear to most organisations,

some functional areas still lag transformation efforts. Often, this includes back

office and non-customer facing departments, and notably, the finance function.

A 2018 McKinsey study found that many companies are “still in the early stages

of applying digital technologies to finance processes in ways that will create more

efficiencies, insights and value”1.

Hallmarks of this lag for finance teams appear in the persistent use of tools such

as spreadsheets, key business outcomes remaining reliant on manual work, siloed

data and disconnected enterprise resource planning (ERP) systems. Also common

is a heavy dependency on legacy systems, slow responsiveness to business

requests and finance teams working 24x7 at month and quarter end.

Challenges for finance and drivers for change

Regardless of industry or organisational size, finance teams commonly face similar

challenges in today’s business environment. These include:

• surging data, legacy systems and static reporting

• manual, inefficient and error prone processes

• inadequate tools to react to growing business complexity

• increasing regulations, risks and threats.

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A 2018 McKinsey study found that many companies are “still in the early stages of applying digital technologies to finance processes in ways that will create more efficiencies, insights and value”.Source: https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/memo-to-the-cfo-get-in-front-of-

digital-finance-or-get-left-back

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These broad challenges translate into specific use cases, which are drivers for

finance to change. Research shows legacy systems can significantly constrain

digital transformation efforts, suggesting that an average of 60 to 80 per cent of

IT budgets are spent on maintaining legacy applications2.

Many finance teams are familiar with the time pressure that comes from the need

to customise many and varied reports for stakeholders. While organisations might

hold a lot of data, it is often housed in multiple systems, again requiring manual

workarounds. Challenges accessing data can force reporting to become linear,

one-dimensional and retrospective.

Lack of standardisation and inconsistent definitions of data, hierarchies, metrics

and key performance indicators can combine to tangle reporting outputs. Often

reporting is customised by one team using data sources unavailable to other

teams. The result is discussions intended to focus on next steps for the business

devolve instead into debate around data accuracy and sourcing.

Every finance team around the world experiences surges of work around

non-negotiable cyclical requirements. Examples include quarter end processing

and forecasting cycles, whether weekly, monthly, quarterly or annually.

Outdated infrastructure and data silos have forced finance teams to adopt

backward-facing perspectives while, increasingly, business stakeholders demand

forward-facing perspectives.

Growing requirements for compliance, privacy and data governance present

increasingly high standards for finance teams to meet with inadequate

infrastructure, manual processes and data silos.

Despite these challenges creating drivers for change, McKinsey research shows

CFOs still spend less time on digital activities than they do on traditional

finance operations3.

Goals for modern finance transformation

There are a few common reasons CFOs spend less time on digital initiatives than

on daily operations. Many CFOs are uncertain about where to begin digital

transformation. Technology is moving faster than ever, the challenges to solve can

quickly become overwhelming and budget isn’t always readily available.

Some CFOs live the reality of having to “change the wheels without slowing the

car”, meaning that the time needed to maintain daily operations leaves limited

time in which to architect a different future.

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Other CFOs fall into believing two core myths around digital transformation.

The first is that there is a requirement to be digitally literate themselves. The

reality is that there are many digitally literate organisations that can help with

the technological evolution. What is more critical for CFOs is to maintain curiosity

around how their function can become more efficient, faster and relevant to

the business.

The second myth is that digital transformation will be big, expensive and time-

consuming. In fact, many digital initiatives that ultimately transform finance

organisations begin with small scale pilots using few team members, based on

technology already owned by the company.

The truth is, almost every finance digital transformation maps to one, or more,

four common goals. Microsoft has designed the following framework to represent

those goals:

• optimising operations, by reducing inefficiencies and improving simplification,

frequency, accuracy and accountability of reporting

• empowering employees, by moving teams up the value chain and empowering

them to work on tasks that make a difference to the business

• transforming products, by evolving traditional finance business models into new

business models while adhering to privacy and compliance standards

• engaging customers, by adding meaningful insights to help business

stakeholders and partners make decisions and take actions.

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Some good news for CFOs is that the rapid rate of technological change actually

makes it easier than ever to transform. Over the last decade, technology to

streamline finance, accounting and operations has gone through much

iteration to become strong, robust and ready to support rapid, innovative

cost-effective change.

Similarly, tools and systems to capture, manage and visualise large data sets have

transformed the ability to develop accurate and actionable insights. Improvements

in connectivity tools have resulted in better integration of disparate data sources

and systems.

Within this four-part goal framework, finance teams pursuing digital

transformation are frequently architecting change across financial analysis

and reporting models, strategy and forecasting frameworks, business process

automation and risk management.

Image courtesy of the Microsoft Corporation

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Getting started with the transformation to modern finance

Feedback from organisations already experiencing benefits from digital

transformation across finance, suggests there are six core steps to take to prepare

for the path to transformation.

1. Identify areas of opportunity and start small. Most successful digital

transformations don’t happen all at once and don’t deliver widespread change

across systems, people and processes with the flick of a switch. The most

effective transformations start on a small scale where new ideas can be tested

quickly and cost effectively. The first step to transformation involves identifying

opportunities for change. Candidates for change are unique to every business;

however, may include the more generic tasks and actions such as reducing time

taken to compile data, improving accuracy in forecasting and data quality, or

creating common visualisations to drive a universal reporting framework.

2. Partner with the business. Business partnering is essential for the

transformation of the finance function. When business partners explain their

needs to pursue new initiatives such as modelling for growth, metrics and

competitive attack, finance has a powerful position from which to deliver

insights, based on the vast amounts of data at their fingertips.

The voice of business stakeholders is often highly persuasive in influencing

investments in technology to deliver future benefits. When finance functions

team with the business to articulate those future benefits, the business case

for digital transformation of finance suddenly becomes more compelling

for decision-makers. With investment flowing to transform finance to better

support the business, finance has the opportunity to evolve from a back-office

support role to a strategic, future-facing business partner.

“Our partnership with the business moved us more in 12 months than we were able to move on our own in the previous decade,” Source: Justin Le Roux, Finance Director and FP&A, Microsoft Australia and New Zealand.

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3. Foster a growth-mindset culture. The success of digital transformation

requires alignment of technology, people and processes. Transformation brings

change, which can trigger resistance across teams if the prevailing mindset is

fixed. Much research suggests that, if a person believes their brain can grow,

learn and create, they behave differently. And, if a person can be shifted from

a fixed to a growth mindset, motivation and achievement increase.4

It is critical for organisations on the path to transformation to nurture a

culture that embraces a growth mindset. Rather than resist change and hold

on to fixed ways of doing things, teams are guided to be curious about future

possibilities, to think about concepts in new ways and understand that failure

delivers learning, not punishment. When hiring new employees, balance hiring

for curiosity and an open mind with hiring for specific functional skill. Often

functional skill can be taught whereas the right attitude and mindset cannot.

4. Embrace disruption. Disruption is a norm of the digital economy. The

lightning fast pace of globalisation and technological advancement is

disrupting traditional business models everywhere. Organisations that choose

to ignore disruption in their market or within functional teams do so at their

peril. Disruption is leading to progressively more sophisticated efficiencies,

cost savings, customer experiences, competitive actions and product releases.

Organisations that don’t transform will simply be left behind.

The only way to keep pace with disruption is to embrace it. Encourage teams

to forget the past while imagining the future. Motivate teams to experiment,

to create solutions as if there were no limits and to express brave ideas.

Ask everyone in the organisation for solutions to recognised problems.

Sometimes it’s the people closest to the data that have the most ground-

breaking suggestions.

It is critical for organisations on the path to transformation to nurture a culture that embraces a growth mindset. Rather than resist change and hold on to fixed ways of doing things, teams are guided to be curious about future possibilities, to think about concepts in new ways and understand that failure delivers learning, not punishment.

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5. Grow your technological capabilities. A clear reality of managing talent

and skills through digital transformation is that the future will require different

skillsets to the past. And, the gap between future and past skills grows wider

every month as new technologies arrive. Some skills are clearly in demand,

now and for the future. Those span data mining, analytics, visualisations

using business intelligence tools and statistical and predictive modelling.

Other skills are gaining in prominence to significantly help finance teams,

including machine learning, artificial intelligence, blockchain and robotic

process automation.

Finance teams can navigate the skills evolution by staying closely aligned to

the requirements of the business and using their own curiosity about future

possibilities to guide which technologies are most relevant to deliver the

outcomes they need.

6. Take action. Finance leaders might be tempted to wait until a detailed, long-

term plan for transformation can be designed and costed. The reality is that

there is no perfect plan for transformation. A strategic framework is necessary

to define the goals, and desired outcomes, for the transformation. Once

execution begins, the path forward is continually defined, and refined, with

each phase of action.

Teams that wait on development of the perfect plan are likely to never

transform. Technology is moving so fast that if transformation initiatives aren’t

started sooner than later, finance teams risk being overtaken by events and

becoming a reason the broader business falters.

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Case studyMicrosoft Finance

As a global household name and a technology company, it is difficult to fathom

Microsoft would need digital transformation in any areas of its business. Yet a series

of targeted transformations are exactly what the Microsoft finance team has pursued

over the last few years.

Before assuming Microsoft is a massive company with enormous resources and,

therefore, their finance transformation is irrelevant to your organisation, pause for a

moment.

The size of the finance team in Microsoft Australia that embarked on this digital

transformation was 20 people.

Drivers for change included significant challenges around accessing immense

amounts of data in disconnected legacy systems. One example was forecasting.

Forecasting required manual data pulls from 350 decentralised data sources. 80 per

cent of analyst time was spent collecting and compiling data. Data extracts were

cut and pasted into Excel for modelling and insights were then cut and pasted into

PowerPoint slides.

Meetings with dozens of people to review forecasts were run on 50 standard

PowerPoint slides supported by another 150 pages of information in size eight font.

Due to inconsistent definitions, processes and reports, confidence in the data was low.

Annual forecasting took an average of two months to complete.

In 2014, the CFO and VP of Machine Learning launched a proof-of-concept (POC)

with two goals: to improve the accuracy and frequency of forecasting using machine

learning. The POC started with one data scientist. After two years of refining, machine

learning is now used in all revenue forecasting and as an input to analyst calls.

Forecasting results are now 98.4 per cent accurate with machine learning versus 97.1

per cent accurate using traditional methods.

“The machine-learning forecasts from the Cortana Intelligence Suite let us combine

core financial data with additional sources of information including macroeconomic

factors, product launches, promotions and Bing search trends. With the improved

machine-learning forecast accuracies it is becoming an integral part of our financial

planning and budgeting process,” Amy Hood, Chief Financial Officer, Microsoft.

Other results from the finance digital transformation at Microsoft include:

• reduction in time on budgeting cycles from three months to three weeks

• replacing Microsoft Excel and PowerPoint by delivering targets in Microsoft Power BI

• improved cross-team collaboration using OneNote, Teams and Skype.

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Lessons learned

The lessons experienced by the Microsoft finance team are similar to those

experienced by finance teams in other organisations, large and small.

1. There are no data shortcuts. However large or small the transformation, all

roads lead to data. Data definitions, data sources, data governance, data

accuracy and how to access, and integrate, data held across and beyond the

finance department.

2. Early wins matter. Early wins are integral to the long-term success of digital

transformation initiatives. Early wins show that change is possible, create

momentum for change and signal milestones of progress to celebrate.

3. Celebrate progress and risk takers. Change is notoriously difficult and

not everyone will happily embrace it. Acknowledge the teams and individuals

who step forward with ideas to evolve according to the transformation vision.

Celebrating progress, however small, highlights improvements are being made

towards a future that is different to the past.

4. Partner with the CIO. With technology becoming the most powerful platform

to differentiate a company and add value, CFOs need to partner effectively

with their CIO counterparts to drive transformation. It is essential these

two leaders develop mutual understanding of how to support each other’s

functions, align IT spending and drive strategic business growth.

5. Leadership must prioritise. Typically, functional teams themselves are highly

attuned to the digital opportunities in their area of the business. In the search

to perform their role more easily and effectively, many teams will analyse

data, engage with technology vendors or, even, create their own apps. Grass

roots creativity and motivation is excellent but often the efficacy of these

initiatives is eroded because ideas are ad-hoc and disconnected from other

initiatives. Turning front-line input into revolutionary change requires crisp

prioritisation. Organisational leaders are best placed to capture the challenges

and use those as a basis to narrow prioritisation, explore cross-functional

interdependencies, define the phases of change and empower teams to

move forward.

6. Compliance focus. As volumes of data held by an organisation grow

exponentially, so do considerations for privacy, security and compliance.

All three areas have evolved materially over the last decade, creating new

technologies, processes and skillsets for organisations to adopt. Keeping

pace with the changes and updates is taxing and the cost of mistakes is high.

Organisations have no choice but to adhere to compliance guidelines as

specified by various government and industry bodies.

Case studyMicrosoft Finance

“Unless the data is right,

you’re only letting yourself

make bad decisions faster,”

Brian Foley

Group Financial Controller,

Microsoft Australia and

New Zealand.

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Solutions for the digital transformation of finance

Microsoft Dynamics 365 for Finance and Operations offers a comprehensive range

of out-of-the-box capabilities designed specifically to help finance teams. The

suite provides integration of data from multiple sources to create a real-time single

source of truth, the simplification of reporting with easy-to-use customisable

templates and automation of repetitive tasks to improve processing time and

accuracy of data.

Microsoft Dynamics 365 also lets organisations shift core business systems to the

cloud. Cloud-hosted applications offer cost savings through subscription-based

licensing models, reducing the requirement for expensive on-premise hardware,

and eliminating the need for costly upgrades because the platform automatically

updates in the cloud. With Microsoft Dynamics 365, businesses no longer need to

leap into a large-scale implementation. Instead, organisations have the flexibility

to implement the specific modules in the cloud that make sense to their business.

Microsoft Power BI, included in most Microsoft Office 365 subscriptions and often

used in conjunction with Microsoft Dynamics 365 for Finance and Operations, is a

cost-effective, fast and simple tool to transform reporting formats. Microsoft Power

BI business analytics software is available across a range of business applications

and can access data anywhere it is housed, in whatever format.

Using hundreds of data sources (including data from Internet of Things devices)

rich, interactive, real-time visualisations can be created with an interface simple

enough for users to drag-and-drop inputs to design their own reports and

dashboards. Reports and dashboards can be shared internally, and externally, to

improve collaboration. Apps power mobile connectivity so users can connect with

data and insights anywhere, from any device.

www.dxc.technology/au/eclipse © 2019 DXC Technology Company. All rights reserved.

Additional resources

It is important to note that digital transformation of the finance function is

not about removing or replacing finance teams. Instead, the value of digital

transformation for finance lies in empowering teams to deliver what is required by

the business more efficiently and creating scope to help align to new directions.

Partnering with Microsoft, DXC Eclipse has a strong track record of helping

organisations successfully transform their finance function. Whether the

transformation requires migration, new implementations or upgrades, DXC Eclipse

has the team to provide the best possible results.

Microsoft Dynamics 365 provides fit-for-purpose, configurable solutions that

help accelerate access to real-time, data-driven insights. DXC Eclipse provides

the expertise to guide an organisation through designing strategic objectives for

transformation, and transparent project roadmaps to achieve those objectives.

For more information around how DXC Eclipse and Microsoft Dynamics 365 for

Finance and Operations could transform your business, visit:

www.dxc.technology/au/eclipse

1 https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/

our-insights/memo-to-the-cfo-get-in-front-of-digital-finance-or-get-left-back

2 https://www.itproportal.com/features/why-legacy-platforms-pose-a-risk-to-

your-business/

3 https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/

our-insights/memo-to-the-cfo-get-in-front-of-digital-finance-or-get-left-back

4 https://www.mindsetworks.com/science/