2021 – 2030:  Finance teams to be the guardians of value creation

2021 – 2030: Finance teams to be the guardians of value creation

Group Finance departments have emerged as cost-efficient, performance-enhancing powerhouses with a very bright future, a recent McKinsey report suggests. In the future a modern finance function focus on value creation – not just crunch the numbers.

Over the past decade or so, finance functions’ costs have decreased, contrary to some expectations. Regardless of industry, scale or geographic spread, finance has trimmed its costs by up to 35% in some cases (McKinsey studied hundreds of companies and found an average reduction of 29%).

All this gives the lie to the idea of a forced choice between cost reduction and increased effectiveness. So a modern finance needs to controls costs and focus on value creation. So how have the most successful finance functions done this? And how can their success be emulated?

Look at the more strategic areas of finance

Transactional functions such as accounts payable and accounts receivable have already had their revolution. With low-end or “first-wave” automation such as RPA in place, surely, these functions’ costs can’t be pushed down more. So it’s time to embed high-end automation (AI, machine-learning) technologies in areas such as FP&A, tax planning, internal audits, and financial risk management. Algorithms can keep an eye on financial and business continuity risks, for instance.

McKinsey found that these strategic areas – also known as value-added activities – are already prioritised by finance leaders, who spend on average 19% more of staff time on these activities than organisations did ten years ago:

Let finance set the standard of data

The global data expansion is accelerating . There are over 60 zettabytes of data in the world now; by 2025, there’s expected to be 175 zettabytes:

Finance functions will need to factor in large volumes of data to arrive at coherent and actionable information and insights.  Algorithms and system intelligence will help out with cross-referencing and cleaning data.

Finance departments must play a significant part in defining data strategy, setting the standards on structure, entry, aggregation, storage and protection. Fewer than 50% of CFOs have led efforts to drive transformation in data operations and governance. But they are uniquely placed to steer that development for the benefit of not just the finance function, but other  business functions too – and ultimately the whole organisation

Provide clearer, faster and richer insights for decision-making

The finance department takes centre-stage in framing discussions on the organisation’s performance. Using second-wave automation provides an opportunity for finance. They can fully and rapidly communicate performance against anticipated outcomes, with underlying factors and context clearly shown. This should take in data sets from internal and external sources, with the ability to simulate and project “what if” scenarios.

Broaden skills and talent in an agile operating mode

McKinsey has identified that implementing job rotations is an effective way to build a highly-skilled and agile finance function. As is incentivising capability development. Mapping the entire finance function onto a transparent competence matrix (such as the simplified “Six Sigma” style one below) assists the planning of on-the-job skills development. In this way advanced practitioners train their colleagues.

Mobilising and cross-training pools of analysts across the finance function future-proofs against sudden or encroaching challenges. By embedding skills (such as algorithm programming and the translating of business data into actionable insights) across flat networks of teams is a great model for accommodating ever-changing situations and priorities.

Finance departments are well placed to help organisations gather and use data. This feeds into predictions, simulations and contingency plans. Indeed, finance leaders are already doing this. As a result, they can strategise and make decisions in ways that were completely unreachable a decade ago. In the right human hands, the automation technology on offer today will result in ever-greater performances.

To consider this in greater depth – and cited examples – read the full McKinsey report (‘Finance 2030: Four imperatives for the next decade’).

If you would like to review your current processes and see how you could take the next step to value added finance, why not enquire about a scoping workshop that will help roadmap your finance journey.