The importance of harnessing big data and implementing a holistic solution to drive finance transformation and process optimization.
The pandemic exposed the deficiencies in many companies’ planning processes and technology infrastructures. As events unfolded at a breakneck pace, FP&A leaders were expected to deliver quick insight to support critical strategic decisions. However, many were hampered by a lack of data visibility and inflexible and suboptimized forecasting and planning processes.
According to members of NeuGroup for Large-Cap Heads of FP&A, which met in Atlanta April 21, finance organizations are revving up their digital transformation initiatives, cleansing and consolidating disparate data sources and implementing foundational technologies that integrate operational and financial data so they can shed manual work and focus on delivering actionable insight. “My team needs to step up to become the CFOs of the functions we support,” one member said. While this vision will take time to realize, “we’re having the right conversations with the business leaders.”
Moving forward faster, smarter. “It’s about the need for speed at the CFO level,” said Scott Stern, vice president of global product marketing and strategy at OneStream, which sponsored the meeting. Mr. Stern added: “At the same time, speed for speed’s sake is not useful.” Speed must be combined with strong governance. “We want to enable our teams in an environment of fractured data, within and outside of finance. The challenge is how to curate this data so it can be harmonized and used to support decisions.”
To get a seat at the table, according to Mr. Stern, finance must expand beyond its traditional realm. “Increasingly, we see the alignment of FP&A and the operation’s data and functionality requirements,” he said. “Good or ‘OK’ teams are still focused on the financials. The leading-edge ones are partnering with the business.”
- The biggest issue for everyone is getting a handle on data that is typically stored in disparate systems. “There’s a ton of data,” said one of the participants, “and that’s our biggest challenge.”
- “Our core data is a mess, even the actuals,” reported one member whose company is on a three-year transformation journey. That has to be sorted out first, even before buying a tool to curate and analyze it. “The challenge is to get everyone on board to make an enterprise-wide investment to fix these issues.”
Transformation 2.0. While many first-generation transformations were primarily focused on reducing head count, today’s initiatives embrace a broader mandate: scaling up while freeing up finance capacity to focus on strategic activities such as planning and analysis.
- “Our priority is to set manual, operational work aside so we can focus on the strategic aspect,” one member said. This is good news for finance professionals: “No matter how automated things become, automation is not going to eliminate FP&A because its main job is the storytelling,” said one of the meeting attendees.
- “We see massive growth on the horizon,” another member noted, “so finance has to scale up without a significant increase in head count.” In addition, his FP&A team is challenged with providing management with better insight into how to steer the business, e.g., via more sophisticated forecasting models. This combination underlies the company’s overhaul of its tech stack, including the consolidation of more than 100 finance systems into 20 to 30, and the establishment of a centralized and consistent data layer to support insight generation across functions.
- In addition, this company and others expect economic and market conditions to continue to change at a rapid clip. In practical terms, this means transformation initiatives do not have an expiration date. “For us, transformation will be a continuous process,” the member above said. Another added: “My job is to keep one hand on a wheel while driving at 100 miles an hour.”
Technology as the backbone of change. The implementation of a new system is an opportunity to standardize and automate processes. “The stupidest thing is to optimize an existing process without first determining whether it’s even necessary or adding value,” cautioned one of the attendees. “Ask the question first: Should we even do this?” Members have taken different approaches for spearheading change.
- “We started three years ago and set up a team dedicated to process improvement that included three Six Sigma black belts and a director.” This “SWAT” team worked with different functions to identify opportunities for change and was charged with building traction and getting the ball rolling. They are also the ones doing the postmortems.
- Another way to make breakthrough improvement is by getting different parts of finance together to exchange best practices, according to another member. This also helps socialize the change and getting buy-in along the way. “We identified where the waste was and what needed to change,” he said.
- At another company, transformation is its own pillar within finance. The benefit, according to the VP of transformation, is that the project does not lose steam and stays on target. It creates the right accountability. But there is a drawback. Depending on the culture of the organization, this may seem like a third party pushing through process change. The “happy medium” is to have transformation centralized but “have in-business champions to ensure people understand that you are there not to replace them, but to take away the worst part of their job.”
Which comes first? Among transformation leaders, fixing process before considering a solution has been a long-time mantra. Today we see a paradigm shift: enterprise-wide and function-specific new technologies are the trigger for process redesign. First, many tools come with “off-the-shelf” embedded best practice processes. In addition, the broader technology platforms create capabilities that did not exist before, for example regarding data aggregation and end-to-end process management.
- At one member company, the change agent was the implementation of a new ERP. Not only is finance leveraging the project to consolidate applications, but it is also rethinking the way things work; for example, collecting and analyzing data to improve forecasting accuracy. “This is the time to think about what opportunities exist for the company and for finance, including the addition of new tools like predictive analytics and machine learning. Everything is on the table,” he said.
Changing the service delivery model. Technology is also sparking innovation in the way finance delivers services to multiple stakeholders, e.g., leadership, business partners and other SG&A functions. Several members reported they are migrating activities to shared service centers (SSCs) or centers of excellence (COE).
- One company established a COE with junior-level staff who are responsible for basic reporting like actuals vs. budget. This way, the business partners can have the strategic conversation. The problem, he noted, is that the HQ staff is not necessarily ready to support the business as strategic advisors. “We found that not all of them are prepared for this conversation.”
- At another organization, transactional work, specifically AP and AR, has been transferred to an SSC that relies on chatbots and other automations like RPA, to execute its processes, and managed to reduce headcount by 50%. “We have not gone into the strategic aspect—yet,” said this member. That is the next step.
Other key takeaways. The day-long meeting, which was facilitated by Brian Kalish, senior executive advisor and Nilly Essaides, NeuGroup’s managing director of research and insight, covered a range of topics: from technology- and data-enabled finance transformation, to talent management and the finance operating model of the future. The group discussed:
- Automating to create strategic capacity, while directly addressing staff concerns about their future roles.
- Leveraging technology to supercharge finance transformation journeys by consolidating disparate systems and creating a “blessed” data layer.
- Emphasizing change management and cultural awareness as a critical ingredient of transformational change.
- Scaling up through process standardization and automation to support rapid revenue growth.
- Rethinking process improvement, i.e., challenge before optimizing/automating.
- Establishing FP&A centers of excellence and migrating routine tasks (e.g., consolidations and reporting) to global business services organizations.
- Harmonizing and cleansing data to enable decision support through advanced analytics.
- Building more effective, AI or machine-learning-enabled, top-down P&L and cash forecasting models, which can pull in granular data from ops and the customer-to-cash process.
- Aligning FP&A’s engagement model with the company’s operational strategy and providing a hybrid of centralized and “boots on the ground” support when necessary.
- Addressing the challenge of a shifting talent profile (and a tight labor market) as FP&A sheds tactical work and focuses on business partnering and high-level decision support.