Co-Pilot of the BusinessFinance is the New Guidance System

Executive Summary

What can today’s business environment teach us about the future of the finance function?

As new digital technologies burst onto the scene, the finance role is evolving at an ever more rapid pace. Finance has traditionally been about control, compliance and reporting. But in today’s ever-changing economy—where cloud, mobile, social, and analytics are spawning new business models almost overnight—finance leaders face ever-greater expectations. Traditional accounting skills are seen as merely the cost of entry for a finance director or chief financial officer.

The stakes are higher than you may think. Accounting and auditing functions are among the most likely to be automated by computers in the near future, according to research from MIT, Oxford University, and other institutions.

If finance teams don’t take the lead in broadening their role, they risk being sidelined by other business units and losing their place at the strategy table.

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As the business world shifts under the pressures of digital technologies and global markets, finance leaders must move from governance to guidance. One Oracle customer described finance as “the new guidance system” for the enterprise. To provide this guidance, finance teams should embrace three principles:

• Finance teams should be digital leaders

• Data is the new currency

• Finance should connect the enterprise

This paper will explore each of the above principles, and provide recommendations on how to modernize your finance organization in order to become a true co-pilot of the business.

Finance Teams Should be Digital Leaders

CFOs have always been the stewards of corporate value. Their financial acumen and understanding of how enterprises are valued give them the expertise to comprehend the long-term implications of different business models and investments.

Yet in the digital age, CFOs know that business is anything but usual. When companies like Uber and Airbnb suddenly emerge to dramatically disrupt mature industries, every company should be wondering if its sector is next.

Even if your business hasn’t felt the heat of a disruptive concept, the amazing success of native-digital companies is changing the way all companies are being valued. Tangible assets such as property and equipment are given much less weight. Instead, shareholders are increasingly placing their investment bets on business models that are enabled or extended by digital technologies, while valuations are rising on intangible assets such as brand reputation and intellectual capital.

Companies in multiple industries are responding to this change. A global manufacturer of jet engines, for example, is making significant shifts in its business model to create meaningful value outside of the manufacturing plant. Along with a jet engine, this company’s clients can now buy a range of digital services to help get the most value from their purchases.

We see this in the automotive sector too, with more and more companies exploring connected-car strategies. The goal isn’t simply to gather information about a car’s performance; automakers are striving to grow revenue by creating a better experience for the customer.

In order to introduce these new business models, digital technologies must be embedded throughout the business—even (or perhaps, especially) in the finance function.

The need to modernize is not new to finance professionals. Back in the 1980s and 90s, finance departments were leaders in adopting new technologies. They were the first to automate with enterprise resource planning (ERP) software, as well as the first to adopt analytics and enterprise performance management (EPM). What happened to this leadership position?

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Unfortunately, the very tools that once made finance more efficient are now an impediment. The systems installed back in those days are inflexible, heavily customized, and painful to upgrade. Many finance teams are working with technology that predates the Worldwide Web, and were simply not designed for operating in an internet-enabled world—let alone a digital one.

It’s time for finance to take the lead once again.

Business leaders have grown accustomed to thinking of “digital” as tools for marketing, sales or service; yet few stop to consider that digitizing finance functions—such as ordering, billing and fulfillment—can offer straight-through processing to dramatically improve customer satisfaction.

The impact of digital technologies can be even greater in the back office than in customer-facing functions; automation and efficiencies can increase by as much as 35 percent. For example, mobile access to finance systems allows busy executives to be productive on the go; while access to advanced analytics and visualization tools provide the critical data required to make informed business decisions.

Whether you are a global player or a smaller company, investments in digital finance capabilities are material and will have a big impact on future margins and business valuations. Every CFO must play a strategic role in guiding digital transformation, in order to take on the role of business co-pilot.

In the finance area, we were able to cut expenses by 12 percent…because we have the controls in place, with proper approvals for spending. We were able to reduce about 2,000 man-hours because we’re not duplicating efforts trying to enter information into multiple systems.”

“

Kimberly Leeper Controller, CyraCom International Incorporated

(“Oracle ERP Cloud Translates to Big Savings at CyraCom,” Oracle, 2015)

Data is the New Currency

Finance helps the business say it with numbers. Because finance professionals are trained to be analytical and skeptical, they are ideally positioned to drive a data-driven culture throughout the enterprise. The CFO’s office has always had credence as being a source of truth. Today’s flood of data is the perfect opportunity to extend that credibility to other statistical analyses and more data sources.

Increasingly, companies are using the value-creating power of data insight to launch new products, services and business models. In fact, some would say that data is the new currency—or at least, a new form of high-potential capital.

Investors have taken notice and are rewarding data-driven initiatives, because such insight can increase positive outcomes across the enterprise. Data has become at least as important to modern commerce as cash assets, inventories, facilities and intellectual property; in some business models, it’s the only form of capital.

Wherever your company falls on this spectrum, you can be sure the data within your enterprise is valuable. It’s also quite likely that you’re losing some measure of that value by not optimizing your data.

According to an Oracle survey of 742 executives conducted in collaboration with WSJ. Custom Studios, nine out of 10 executives consider the ability to garner insight from data vital to their company’s future. Yet, more than half have serious doubts about their organization’s ability to manage significant data inflows. On average, the surveyed companies are losing an estimated 16 percent in revenue annually, and close to one-fifth of the respondents estimate their revenue loss at more than 20 percent.

Who takes charge to make sure a company’s data is being used as effectively as possible to support high-level strategy?

CFOs and other finance leaders seem like the logical choice to fill this role, because they have:

• A high-level view of the extended enterprise, from supplier management to fulfillment and across functions internally

• A quantitative mindset with experience in analyzing data

• Business training and acumen with the ability to see new opportunities that others might not

In addition to the above skills, companies that want to optimize data for value creation need the right technology in place. Executives participating in the WSJ. Custom Studios survey noted that, with their existing tools, business managers must rely heavily on IT to access, compile and analyze data—which in turn leads to a lack of timely information.

Companies should consider adopting new predictive planning and analytics tools, including visualization technology, to quickly identify important signals within the data. Cloud-based models make it easier and more cost-efficient to roll out these tools to a wider group of people across the organization. Instead of mapping where the business has been, modern finance professionals can lead the way in identifying new paths to further the organization’s strategic goals.

Finally, there are “soft skills” that finance leaders should develop in order to build a data-driven culture. Much of today’s key data—especially when it comes to customer satisfaction—comes from marketing, sales, service, and other areas outside the CFO’s office. Finance professionals must learn to motivate, mobilize and guide collaboration among these disparate teams. The goal should be to instill an analytic culture within all departments, to drive business decisions based on facts, not intuition. This is where finance has the opportunity to truly connect and guide the business.

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Oracle Planning and Budgeting Cloud Service is the gold standard of cloud-based planning solutions. We wanted a rapidly deployable system to improve our planning systems and forecasting accuracy during a period of ambitious global expansion.”

“

Elaine McKechnie Head of Group Management Information Systems,

Baxters Food Group (“Baxters Food Group Drives Efficiency in Expanding

Food Manufacturing Business with Improved Forecasting, Planning, and Budgeting,” Oracle, 2015)

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Finance Connects the Enterprise

When top-notch math skills and financial knowledge are described as “only the tip of the iceberg when it comes to excelling as a financial professional,” it’s fairly obvious that finance’s role is changing. To get ahead as a finance professional today, opportunities come to those who demonstrate strong communication skills, relationship-management expertise, and problem-solving capabilities, to name a few.

As finance teams play a larger role in connecting the enterprise, CFOs can focus more of their attention on investment in growth, seeking opportunities to boost business transformation, and building and measuring new sources of value.

Respondents to a recent survey by CGMA® (Chartered Global Management Accountant) confirm that CFOs are already playing a larger role in most areas of the business. CFOs retain primary responsibility for financial planning and analysis, risk management, and shared service centers. In addition, they are ranked second as the people primarily responsible for strategy, supply chain, information technology and digital transformation.

Yet finance lags behind other departments in providing key performance indicators to the business—especially in the areas that investors are rewarding, such as customer retention, satisfaction, and brand reputation. These key metrics are most often reported upon by marketing and sales teams (Figure 1), giving those lines of business increased prominence within the organization.

Key performance indicators and the functional departments that provide them (The Digital Finance Imperative: Measure and Manage What Matters Next, ©CGMA, reprinted by permission)

Figure 1

At a time when traditional accounting functions are at high risk of automation, finance teams cannot afford to cede their influence to other departments. Instead, they should collaborate more closely with other teams, providing them with the reporting and analysis they need in order to do their jobs more effectively.

LinkedIn offers a great example of how finance teams are working with the business. “Our approach to business partnering has evolved,” said Richard Wong, vice president of finance, LinkedIn, USA, in the CGMA report.

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“We take time to understand the business and problem; have a point of view on all matters and issues; and provide value-added analytics to drive the right outcomes and bring clarity to all the (massive big data) noise out there.

“Finance is sometimes the first line of defense for these business units,” Wong said, “to flag any risks and ensure that each business unit is contributing to the company’s growth and vision as a whole.”

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Recommendations

Of course, asking finance professionals to become digital leaders, drive a data-driven culture, and provide more support to business units begs the question: Where do they find the time?

The problem is that most finance teams are still saddled with manual reporting and control processes. If your finance team is spending all their time pulling data into spreadsheets from multiple sources, assembling reports, or checking transactions for control violations, there is very little time left for them to think about business strategy.

The finance executives we see as true co-pilots for the business—meaning that they’re sitting side-by-side with the CEO to guide the enterprise toward new opportunities—are investing in digital technologies that automatically flag control exceptions, provide real-time dashboards for reporting and forecasting, offer access to mobile, on-the-go finance systems, and speed up collaboration and workflow through modern social tools. With these enabling technologies, CFOs are delivering substantially more value than ever before.

The time savings that efficient finance tools can provide are dramatic—for example, procure-to-pay solutions can automate the processing of a vendor invoice, saving the 27 hours (on average) that it takes to complete the task manually. Companies can all but eliminate delays between transaction processing and multidimensional analysis; harness zero-based budgeting to reduce SG&A costs by 10 to 25 percent; and more easily spin up new businesses and spin off defunct ones.

With increased levels of automation, modern finance teams are looking more like investment banks, using data and algorithms to predict business opportunities. These teams can help the business identify future sources of growth, revenue and margin, and then develop the budget, strategies and capital allocation plans to achieve their goals.

With the new, digital models enabled by subscription-based cloud finance services—including ERP and EPM cloud—achieving this level of automation is within the grasp of companies of any size.

When you look at the ranks of Fortune 500 CFOs, only a minority—27 percent—have public accounting backgrounds. The skills and talents that CEOs and boards are looking for in a finance leader are changing. What got you into your current position won’t be enough to get you to your next one.

Oracle CEO Safra Catz, in her keynote address at the inaugural Modern Finance Experience, spoke about how the finance role continues to evolve with more automation. “We used to spend all of our time looking backwards, reporting on what happened,” Catz said. “Now it’s about looking into the future. It’s about planning and integration. The role of finance is now that of a partner in the business.”

Conclusion

For additional reading, download the CGMA report, “The Digital Finance Imperative: Measure and Manage What Matters Next.”

Finance leaders should not wait for other business units to decide their fate. Wherever automation is possible, it will eventually happen, so finance teams must lead the change rather than resist it. Embrace automation now, invest in the technologies required to free your teams from manual reporting and processes, and use that newfound freedom to refashion your department’s role to become a true co-pilot of the business.

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