What is Finance Transformation?

Finance transformation is the strategic overhaul of a company’s financial processes, systems, and operations. It’s meant to improve efficiency, enhance decision-making, and align financial functions with broader business objectives through the use of digital technologies.

It generally involves the following initiatives:

• Shifting outdated financial systems to cloud platforms
• Automating routine tasks like invoicing, financial reporting, and payment reconciliation
• Implementing analytics tools to get real-time insights into financial data
• Streamlining operations to reduce costs while improving productivity
• Improving internal reporting, governance, and control frameworks
• Upskilling finance teams to work with new technologies and processes

Done right, all of these changes make the finance function more responsive to changes in market conditions, customer demands, or regulatory environments. They allow for quicker adjustments to strategies and budgets, as well as improved risk management and compliance.

Synonyms

• Digital transformation in finance
• Digital finance transformation
• Finance digitalization

Finance Operations: Ripe for Digital Transformation

The finance function is one of the most data-intensive areas of an organization. Every sale, expense, and transaction needs to be captured, processed, and analyzed to keep the business running. It’s the basis for sales projections, forecasts, reporting, risk management, and compliance.

Traditional finance operations have relied on manual processes, spreadsheets, and legacy systems that are often slow, error-prone, and nearly impossible to scale. They’re also vulerable to human error, fraud and cyber attacks.

Modern, cloud-based software fixes this (and then some).

• Encrypted access to real-time data
• Automated accounting, reporting, and forecasting processes
• Digitally-enabled financial reports with real-time updates
• Predictive analytics for sales forecasting and budget planning
• Secure transactions on the blockchain
• AI-powered compliance management and fraud detection

Just about every aspect of finance organizations is improved with today’s technology platforms. And, in a broader sense, it’s changed how companies do business.

As the barriers to access to tools like this are significantly reduced, companies are increasingly pressured to make fast decisions about future investments, sales demand, growth opportunities, and legal compliance. And finance team members have to shift the focus from traditional accounting/record-keeping tasks to more strategic roles.

So, in the same way financial transformation enables these things, businesses don’t have a choice in the matter — they need to invest in them to survive in today’s market.

Technologies in Finance Transformation

There are several different technologies you can implement as part of your digital finance transformation. Let’s take a look at the most common ones

Cloud computing platforms

Cloud computing is the process of delivering computing services (servers, storage, databases, software) over the internet. This means instead of running apps locally on a computer or server in your office, you can access them through the web.

In the context of financial processes, cloud computing allows for real-time access to financial data and streamlined processes, providing increased efficiency and cost savings. Cloud-based platforms also offer scalability, meaning they can handle increasing amounts of data as your business grows.

Exampels of cloud computing platforms finance departments use:

• AWS
• Microsoft Azure
• Google Cloud Platform

Robotic process automation (RPA)

Robotic process automation refers to the use of software robots or artificial intelligence to automate routine tasks and processes. In finance, this is normally invoice processing, data entry, and report generation.

Implementing RPA in finance operations frees up time for employees to focus on more strategic work, reduces the risk of human error, and increases overall efficiency. Offloading rule-based tasks to robots also allows for faster processing times and a reduction in operational costs.

Examples of RPA tools for finance processes and accounting automation:

• UiPath
• Blue Prism
• Automation Anywhere

ERP systems

ERP (enterprise resource planning) software is a comprehensive platform that handles all aspects of a business’s operations, including finance. It integrates core financial functions like accounting, budgeting, and reporting with other departments such as HR and supply chain management.

Implementing an ERP system enables streamlined processes, increased visibility into data, improved collaboration between departments, and better decision-making based on real-time insights.

It’s also widely adopted among businesses, with nearly 50% of organizations worldwide already using it as a critical part of their finance tech stack.

Examples of popular ERP systems for finance teams:

• SAP
• Oracle
• Workday

Data analytics tools

Data analytics power the insights needed for proactive decision-making in finance. Analytics tools enable businesses to process large amounts of data from different sources, identify trends, and make predictions about future outcomes.

It’s the basis for financial analysis. Any time you want to determine whether a business decision was profitable (or will be profitable), you need an analytics tool to help you make sense of your financial data.

Examples of advanced analytics tools used in finance:

• Tableau
• Microsoft Power BI
• QlikView

AI and machine learning platforms

AI and machine learning are becoming increasingly prevalent in finance departments for tasks like financial modeling, risk management, and compliance. They can also be used to automate processes like invoice processing and fraud detection.

AI-powered financial modeling is one prime example. Rather than having a physical team member spend hours creating different statistical models, your AI-powered system can run these equations in less than a minute (while accounting for trends in the dataset a human would miss).

With NLP (natural language processing), it can even analyze unstructured data like earnings call transcripts and news stories. For investment banks and analysts, this means they don’t have to physically read through thousands of words to get a sense of how to approach earnings estimates.

Examples of AI and machine learning tools used in finance:

• IBM Watson
• Google Cloud AutoML
• H2O.ai

Automated billing and accounting systems

Automated billing is something every business needs. Since billing is repetitive and easy to automate (and therefore, prone to errors), automating it is the ultimate way to become more profitable.

You can use billing software to…

• Build branded, custom invoices
• Send them automatically or schedule them
• Manage subscriptions with zero human intervention
• Handle payment gateways
• Manage your cash flow
• Put revenue recognition on autopilot
• Reconcile your accounts

Even when it comes to complex billing, AI and automation have stepped in. DealHub, for example, has a Smart Revenue Recognition feature that automates complex deals with ease. AI can be used to detect potential fraud and anomalies in financial data. They can even apply dynamic pricing.

Examples of automated billing and accounting systems:

• DealHub
• Stripe
• QuickBooks

Financial planning and analysis (FP&A)

FP&A software allows finance teams to create budgets, forecast future financial performance, and analyze business data for strategic planning. It combines financial and operational data to provide a holistic view of your organization’s performance, so your finance department can make informed decisions regarding your finance strategy.

Some features of FP&A software include:

• Scenario planning
• Cash flow forecasting
• Variance analysis
• Financial reporting
• Dashboards
• Collaborative budgeting

Examples of popular FP&A tools:

• Adaptive Insights
• Anaplan
• Planful (Host Analytics)

Blockchain technology

Blockchain is the newest (and most talked-about) technology in modern finance. It’s a decentralized ledger that stores and records data in blocks, making it virtually impossible to tamper with the information stored.

Unlike other digital technologies in the finance space, which are all about making the financial world more efficient, blockchain is about reducing (and ideally eliminating) the chances of fraud. It also streamlines processes like trade finance, cross-border payments, and supply chain finance.

Adoption is still quite low, with just 38% of businesses saying they use it. But its possibilities are monumental for the finance industry because it doesn’t require a third-party intermediary (like a bank). And that means faster transactions, lower fees, and new operational efficiencies.

Examples of blockchain tools used in finance:

• Hyperledger
• Ethereum
• RippleNet

Benefits of Finance Transformation

When you invest in finance transformation initiatives, you’re doing a lot for your company in terms of data management, capital planning, and overall operational efficiency. But beyond those benefits, the impact of a modern finance department is truly transformative for your entire organization.

Improved decision-making

When you have a wealth of financial data and access to that data, your organization’s decision-making capabilities multiply. Finance transformation means you can easily tap into real-time insights, analyze them with AI tools, and take a strategic approach to things like investments, sales and marketing strategies, and internal resource allocation.

Enhanced efficiency and productivity

Automation and AI tools bring with them the promise of streamlined and standardized processes. For processes like billing, revenue recognition, and financial planning and analysis, your finance team doesn’t have to spend hours making manual calculations and generating reports. Instead, they can shift to more strategic roles in the organization.

Increased accuracy and reliability

According to data from Gartner, 18% of accountants make financial errors at least once per day. Humans are simply incapable of consistently processing large amounts of data without making mistakes. And when you’re dealing with heaps of data, it’s impossible for your team to uncover all the different patterns and trends.

Finance tools solve all of these problems. And they can handle these tasks in seconds, rather than hours or days.

Reduced costs

Over 40% of workers spend more than a quarter of their workweek on manual, repetitive tasks like data entry. When your team is tied up with things like reconciliation, invoicing, and the like, they’re not doing things that move the business forward. But they are getting paid to do them.

Finance transformation reduces the amount of manual work required for these things, meaning the cost of getting them done is slashed by a significant amount. Plus, you’re freeing up your finance team to focus on more important tasks.

Enhanced risk management

Financial risk is one of the most important considerations of the finance function. It involves all the steps you take to identify, assess, and mitigate potential risks that could negatively impact your organization’s operations. It protects you from internal and external threats.

With advanced software, the data you need to simulate scenarios, forecast potential risks, and identify the most vulnerable areas is readily available. And with the right data tools, you can actually make sense of it in a way that drives action.

Improved compliance

Software makes it easy to comply with regulations for taxes, deductions, revenue recognition, and more. Plus, tools like AI-powered risk assessment make it easier to mitigate fraud risks.

Not to mention, reculatory requirements are always changing. To stay up-to-date with laws (especially as a multinational enterprise), you need to have tools that can automatically apply updates and regulatory changes to your data processing and financial reporting.

Increased agility and scalability

When you’re stuck using “traditional” finance tools (e.g., Excel spreadsheets), making updates or changes to existing reports and processes is sometimes impossible. Even if you can, it would take weeks and there would be severe limitations.

Cloud-based financial systems can handle any number of additional users, data fields, and calculations with ease. You can make changes to your processes and improvements without serious disruptions.

Challenges in Finance Transformation

Now, there are significant challenges that come with any kind of digital transformation. And a finance transformation strategy is no different.

When you’re developing one for your organization, you have to add guardrails for all of the following issues:

• Employees resistant to change
• The costs of replacing legacy systems
• Data security risks (especially if you’re in the finance industry)
• Integration with your other systems
• Skills required to actually use the tools
• Accessibility and training for all employees
• Choosing the right tools for your specific needs
• Managing change managemen

You also have to plan for additional costs, because things will almost certainly go over your projected investment when you’re transitioning to a new system. For example most ERP implementations cost 3-4x what was originally budgeted.

Four Phases of Finance Transformation

There are four key steps in the finance transoformation journey. These are:

1. Designing your strategy and establishing a busienss case
2. Defining your processes and creating a roadmap
3. Building the infrastructure for transformation
4. Running the transformation and maintaining it

Phase 1: Strategize

The “strategize” phase in finance transformation sets a strong foundation by first assessing the current state of finance through data, systems, and benchmarking. It’s about ensuring alignment with enterprise IT and activating executive sponsorship to ensure smooth execution down the line.

The goal is to align stakeholders on a clear case for change and develop a future vision for finance that supports the enterprise’s goals. This is what helps you secure the budget and other resources you need to move forward.

You also have to answer the question of, “What do we need to transform, exactly?”

Is it…

• An operations function like payroll
• A treasury function like balance sheet management
• A controlling function like closes and consolidations
• A specialty function like taxes or investor relations

…or is it a combination of the above?

Once you have that, you’ll create a high-level operating model that includes people, processes, and technology involved in the transformation. This will act as your guideline for the entire finance transformation process.

Phase 2: Plan

Now, your main job is to transition your finance transformation strategy into a detailed, actionable roadmap.

Start by developing a thorough business case with financial projections, including cash flows, NPV (net present value), and IRR (internal rate of return), to secure resources and stakeholder commitment. You also want to consider the financial elements of the program (project costs, projected savings, ongoing expenses). 

Building the roadmap starts with setting a timeline and categorizing key workstreams like people, process, technology, and data. As tasks are outlined, you’ll form your core enablement team — ideally, a highly skilled group of 5-or-so people. This is who’s driving these projects and making sure the transformation stays aligned with your business goals.

Phase 3: Build

Once you have everything mapped out, you’re ready to start building. It’s time to get the tools and resources you need (e.g., software, contracts with consultants) in place so you can properly execute your processes.

The success of this phase relies on proactive, data-driven communication and constant feedback to keep the transformation on track.

Here, there are two major points of focus:

• Program management
• Change management

Establishing a program managemet office (PMO) helps with governance, coordination, and risk management. An extended team with HR, IT, and legal support will prove essential for tackling people, process, and technology changes.

Change management is another crucial consideration, as we mentioned earlier. Using methods like ADKAR will help employees adopt new ways of working.

Phase 4: Run

The “run” phase of finance transformation marks the transition from project mode to steady-state operations. It sets the foundation for long-term success and adaptability in a continuously evolving financial landscape.

It involves:

• Establishing a core process structure
• Assigning global process owners (GPOs) to lead and continuously improve key finance processes
• Integrating your data and technologies with other enterprise platforms
• Automating treasury, security, controlling, and operations processes
• Developing a KPI system to monitor the ongoing success of your transformation

Implementing a business process management (BPM) approach allows for ongoing optimization and performance measurement. A formal continuous improvement (CI) program ensures that improvements are sustained, embedding the culture within your finance department.

Finance Digital Transformation Strategy

Building efficient finance operations is all about creating a solid digital transformation strategy. Beyond the abovementioned steps, this includes a few crucial steps and best practices:

• Clearly outlining your business goals and objectives
• Assessing your current financial processes, systems, and operations to determine where exactly you need to streamline, simplify, or automate
• Visualizing how exactly your different finance tools will work with together with each other and your broader tech stack
• Evaluating software based on usability, scalability, feasibility for your organization, and integration with your other systems
• Building a strong (but agile) project team
• Involving employees from day one, so you choose the right technology and processes for their needs

On top of all that, you’ll need to determine a way to measure your ROI from the transformation. This will be a combination of cost savings, time saved on manual tasks, or increased efficiency and accuracy in financial reporting.

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