Embracing the Tech Disruption: A Paradigm Shift in Corporate Finance’s Evolution

The first in a regular series of insights for CFO Magazine A/NZ on digital finance transformation from Tariq Munir, exploring key trends reshaping the Corporate Finance Function of the Future.

There is no better analogy to describe the impact of technology on business than what Thomas Siebel refers to as a “Punctuation in the Corporate Evolutionary equilibrium”. An “Evolutionary Punctuation” is an idea that evolution occurs in spurts instead of slow and steady paths. This is what technology has done to the business world of today. A sudden spurt of innovation is reshaping the world in ways we could not even imagine a few years ago. Whether we call it a Punctuation or a Disruption, it is redefining and challenging the way we think, interact, and more importantly…create!

The Transformation of Corporate Finance

While technology is creating a compelling customer experience and reinventing business models, its most profound impact is on how business processes are being redesigned to adapt to these core changes in businesses.

Corporate Finance lies at the heart of this technological upheaval. It is no longer merely a back-office support function; it is being transformed into a strategic growth navigator for organizations. The rapid digitalization of core finance processes, including transaction processing, consolidation, and financial reporting, serves as the biggest enabler in this transformation. In fact, Finance is one of the key areas experiencing a rapid increase in digital investment. A study by Gartner this year suggested that 92% of CFOs plan to increase their tech spend in 2023.

It does not stop there…by 2028 it is predicted that 50% of businesses will be using AI to drive bottom-up planning. However, amidst all the noise and buzz surrounding AI and ML, Finance leaders are facing increasing challenges in prioritizing the right technologies to enable a digitized future. Allocating resources to the appropriate technology becomes crucial; otherwise, the dream of becoming true strategic business partners for Finance will remain just that: a dream!

Five Innovative Trends in Corporate Finance

In our study of trending and innovative technologies, we have identified five broader trends or innovations that, if invested correctly, can truly reshape and reinvent the finance function of the future.

Data and Development Democratization

Organizations that have truly unlocked the potential of technology, have transitioned from rigid on-premise Data warehouses to flexible cloud-based Data lakehouses. These Data lakehouses host more than just ERP systems and have data from both structured, unstructured, and semi-structured sources. Walmart, the world’s biggest retailer, created a state-of-the-art analytics hub called “Data Café”. This enables Walmart to model and analyze a huge volume of internal and external data at scale, including a massive 40 petabytes of transactional data.

This democratization of data allows for the de-centralization of the reporting function traditionally associated with Finance. It empowers “non-technical” functions like sales and marketing to be self-sufficient in creating reports and dashboards. However, this self-serve revolution does not diminish the relevance of Finance; rather, it frees up time for Finance professionals to focus on strategic business partnering and data-driven decision-making.

Furthermore, the democratization of data has given rise to a new breed of developers called Citizen Developers. These functional experts can now utilize low and no-code tools to develop fully functioning apps, enabling workflow automation, month-end process management, expense tracking, and more. For instance, Accenture trained their Citizen developers and generated 8,000 apps in less than 6 months, a task that would have otherwise taken 5 years! They also reduced dashboard reporting time by 98%.

Tools like Copilot for Microsoft PowerApps are even taking it further by creating a ChatGPT-like experience to create fully functioning apps and workflows.

Process Mining

If there is one technology on which we can bet to revolutionize Corporate finance, it will be Process Mining. It is effectively a convergence of Data Science and Process Management. Process Mining delivers an agile business process optimization and more importantly, eliminates human bias from traditional interview-style process mapping exercises.

An algorithm sits on the ERP and other systems and logs all the events and transactions. Based on these ‘event logs’ it creates process visualizations and then leverages, what J.C Licklider famously termed as, “Human-Machine symbiosis” to recommend the best possible optimization and simplification of processes.

Suncorp Bank in Australia achieved massive efficiencies by partnering with Queensland University, reducing claim processing time from 30-60 days to an impressive 1-5 days.

Further, incorporating process mining into a digital transformation strategy can deliver tangible benefits to a company’s bottom line. For instance, GE Healthcare, a global healthcare leader, streamlined its day-to-day operations and unlocked working capital efficiencies, resulting in an increase of $1.3 billion in free cash flow.

Process Digital Twins

Digital Twins have been employed by businesses for years, creating virtual replicas of physical products or systems. For instance, based on huge amounts of data generated by IoT sensors on a production plant, a digital model can be created for the whole plant which will then be used to simulate various scenarios to optimize processes like production planning and predictive maintenance. Countries like Singapore have created Digital twins at a Country level to help them with resource and urban planning.

In Finance, using a similar approach like process or business mining we can create a Process Digital Twin of the entire Finance organization. However, the difference with process mining is around its scale and interaction with other business processes.

A Financial process digital twin extends beyond a single process like Order to Cash or Record to Report. It captures the ‘digital-footprint’ and spans all the sub-processes, operating models and data flows within Finance processes and how they impact other business and financial metrics e.g. supply and demand planning, sustainability goals, productivity metrics and so on.

In addition to creating visibility of product level information, this can revolutionize the way we make decisions around product lifecycle and how non-financial information is integrated, for example, with financial information to report on carbon footprint, profitability and other ESG measures.

Generative AI

This is by far the most talked about but least understood topic today and most of the time ends up being a buzzword in Finance and IT leadership meetings. However, the true value of Generative AI emerges when these Large Language Models (LLMs) converge with ‘traditional, prescriptive and predictive analytics.

Through this convergence, CFOs will not only be able to generate a sales forecast using Predictive analytics on past data but using Generative AI, they will be able to simulate how an entirely new product will perform in the market.

Innovations like Microsoft Copilot for 365 are enabling finance leaders to run on-demand analysis and data-driven visualizations.

Further, AI’s convergence with IoT will streamline and mitigate greenwashing risks from the ESG Reporting and hence will save millions in potential fines and possible reputational losses.

As a minimum, AI is enabling standardization and automation of transaction processing, creating enough space for Finance leaders to focus their priorities on strategic value addition. NH Hotels, a global hotel chain, implemented an AI-based cash application algorithm which reduced their invoice handling time by 60% thus enabling them to process an additional $50 million worth of payments per month.

Digital factories

Organizations are great at initiating pilot projects; however, the real challenge comes when these projects need to be scaled across functions or business units. Many pilot projects end up in what we call a “Pilot Purgatory,” remaining unfinished or underutilized, and hence becoming part of complicated legacy systems.

This is where a Digital factory comes into play. A dedicated function or organisation within a firm comprising cross-functional domain experts, developers, analysts and data scientists. Like physical factories, their purpose is to create digital products and services at scale.

Efficient and effective Digital Factories play a crucial role in scaling an organization’s Finance transformation efforts, often determining the success or failure of such initiatives. These factories operate with agility, embracing experimentation and enabling rapid deployment of ideas and projects. Volkswagen Digital Labs exemplifies the transformative power of a Digital Factory, reshaping its business model from an automobile manufacturer to a mobility solution provider. PepsiCo has also established two global Digital hubs (Barcelona and Dallas) as key enablers to accelerating the way they develop and deploy digital capabilities.

While not every organization has the budget or scale to establish global Digital Factories, the initial focus should be on establishing, ironically, a “pilot” Digital Factory at one business unit. By delivering quick wins through standardized and scalable business solutions, other units or functions will naturally be drawn towards adopting the Digital Factory concept. As the idea gains traction within the organization, it becomes easier to persuade the Board or Executive team to establish global or regional hubs.

It is important to remember that all the above innovations are just that: innovations.

There is no intrinsic value associated with these. The only real value lies in their deployment and adoption within the proper context of a well-thought-out Digital Transformation strategy. It is critical to have this strategy aligned with organisational goals and made part of the objectives of executive and mid-management teams alike.

Technological disruption (or ‘punctuation’) is here to stay. If we are not ready, it has the power to be the deciding factor between staying in the business or watching from the sidelines.

The choice remains in our hands.