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BlackLine Execs Expand on Resilient & Agile Finance

This article originally appeared on TEC. It's a 7-minute read.

A recent blog post discussed the BeyondTheBlack online user conference by BlackLine (NASDAQ: BL), which was held in late 2020. The effects that the pandemic has had on finance and accounting teams was the primary focus of the multi-day event.

BlackLine Customer Presentations at BeyondTheBlack

During the conference, some notable BlackLine customers presented about having to adapt to this pandemic “new normal” and where BlackLine solutions were critical. BlackLine helps customers create a foundation to enable a unified and remote financial close. These customers were better positioned to act more strategically and as a business partner, just as the broader organization looked for precisely this kind of leadership.

The 2020 Modern Accounting Awards honored BlackLine customers who had driven innovation and transformational success. BlackLine Founder and CEO Therese Tucker presented each of the five Modern Accounting Award winners at the BeyondTheBlack virtual experience in November 2020.

Johnson & Johnson (J&J) was the winner of the "The Transformer" award, which honors the company's bold vision across people, processes, and technology. J&J has a complex landscape, with many different ERP systems and employees all around the world. Transformation takes on a different meaning when the project is that big.

Mike Polaha, Senior Vice President, Finance Solutions and Technology, explained that J&J wanted to ensure they had the proper clarity on the critical business problems they had to solve. The company focused on elements of the foundational strategy around quality and accurate data.

J&J viewed data as an enterprise asset and wanted to ensure that it was a high-quality asset. From there, they moved toward forecasting and analytics. Getting the data right became an energizing fuel: they could be more forward-looking and help the business. They determined which markets they wanted to enter into and how they could support their business growth objectives. Mike noted that planning couldn't be legitimate without accurate data.

J&J has seen value on multiple fronts from their usage of BlackLine. It has given them real-time visibility into their reconciliations based on a risk framework. As they evolved toward automating their journal entry workflow, it provided efficiencies and workflow capabilities in the critical close path.

For their part, the winner of "The Closer" award, McKesson, discussed how the company had delivered efficiencies through technology. The Closer award honors the company that embraced a more continuous accounting approach, speeding up the close process and supporting the business in real-time.

At number seven on the Fortune 500, McKesson has a complex environment. Still, in their digital transformation, they've focused on ROI, how quickly they can gain efficiencies, and how much time they can save on automation. The user experience was also crucial for the company—meaning consistency and predictability in performing work to ensure low time-to-value and user adoption.

In targeting some of the low-hanging fruit on their digital transformation project, McKesson automated a risk-based approach which achieved quicker and more accurate insights into the health of the balance sheet. This helped them save a vast number of hours while making an enormous difference to their team. This is because the risk rating prioritizes work so that higher-risk accounts and open items are addressed first, based on business rules and without human intervention.

They were also able to modify the frequency of reconciliations people were doing based on the risk factors. Therese Tucker, BlackLine’s CEO, noted that risk rating is a great way to save time and money, which is a big part of digital transformation. By enabling a risk ranking and materiality threshold framework, KcKesson saved an estimated 7,500 hours per year by reducing account reconciliation frequency.

Last but not least, the Kraft Heinz Company is an example of companies that adapted well to this pandemic by automating intercompany processes in BlackLine's Intercompany Hub (ICH). The Kraft Heinz Company is the fifth-largest food and beverage company globally, with 2019 revenues of $25 billion.

The 2015 merger between H.J. Heinz Company and Kraft Foods Group brought additional complexity for the newly combined accounting and finance function, with dozens of new entities and global operations. Each month, millions of intercompany transactions were especially problematic for non-product invoices, defined as those not directly related to the company's operations or production. The company often faced around $25 million in intercompany imbalances between payables and receivables across multiple entities in any given month. For Kraft Heinz, value-added tax (VAT) was probably one of the hardest to solve issues in terms of complexity due to diverse tax legislation. For example, every country in Europe has its own VAT rules.

To reconcile intercompany balances, Kraft Heinz aggregated data from primary SAP ERP systems in the US and Europe and several other ERPs—including Oracle EBS, JD Edwards, and Epicor—into Oracle Hyperion Financial Management.

With BlackLine's Intercompany Hub, the group cut intercompany imbalances in non-product invoices from $25 million to nearly zero. Automation and visibility have given the intercompany team more time to resolve imbalances, contributing to the quick reduction of imbalances.

What follows now is our discussion with BlackLine’s top brass about these recent events, along with a look at the vendor’s current state of affairs.  

Agile, Real-Time Strategic Finance

TEC: What have you observed to be your customers’ most urgent needs, based on what they have been asking you for help with since the onset of the pandemic?

BL: When the pandemic hit, we rallied to ensure our customers had everything they needed to adapt to working remotely. Our unified accounting cloud platform (see Figure 1) was already connected to data sources like enterprise resource planning (ERP) and banking systems. So, there was no change in that regard. The teams continued to resolve exceptions, create action plans, and collaborate with peers virtually. Executives could sign off within the cloud platform, without accountants having to print out copies for review.

Still, one of the most urgent needs was for finance to respond more quickly to business demands. More frequent forecasts and analytics is something that's becoming critical with today's fast-changing market conditions.

Before the pandemic, it was common for companies to update their forecasts every month. But during this crisis, the forecast variables are changing rapidly, and modern accounting processes help adjust to that. It boosts agility for the entire enterprise since finance is the glue that connects the dots of the organization's various operations, freeing up accountants to add more value.

Traditionally, audits have been conducted primarily on-site, with fieldwork, testing, and inquiries relying heavily on face-to-face interaction. There are many types of audits—from the internal operational ones to external financial statement and control audits. The goal is similar nonetheless, which is to infer the effectiveness of internal controls over financial reporting. BlackLine Remote Audit is a standard software package that standardizes and facilitates audit work like managing PBC (Provided by Client) lists and linking policies and procedures for closing tasks dependably.

Finance must move to running continuously. This crisis has taught us that businesses perform in real time—not in days and not in weeks or months, but reacting in hours. Business and planning teams expect data anytime in the period, not just at the end.

Visit our virtual close hub for the resources you need to close with confidence during these uncertain times.

Figure 1. BlackLine Accounting Platform

The urgent needs of our customers do not relate to IT change requests. Our customers work in a unified, high-performance, highly usable software environment. The intuitive, no-code platform gives business users an effective way to adapt to the fast pace of digital business environments. These users are closest to optimizing their business processes themselves—without relying on IT or technical consultants. Ownership is, therefore, key to effectiveness.

For example, making changes such as enabling risk-based automation, or applying technology like artificial intelligence (AI) to transactional matching, modifying variance exception thresholds, or changing standard or custom report fields should all be within accounting's span of control. As new companies are acquired, or business units come on board, they can be easily added to the global closing checklist to drive standardization and visibility while still providing local control and flexibility.    

Emerging Technology’s Assistance

TEC: Have any buzzword technology tools proven themselves during these difficult months?

BL: Artificial intelligence (AI) is not a "thing." It’s a bucket of different technologies and techniques. We can benefit from this mindset as we continue to drive financial risk reduction (effectiveness) and cost reduction (efficiency) while optimizing our customers' overall control environment.

AI can increase user productivity, eliminate tedious, repetitive work, and enhance financial data and inferences. It will enable CFOs and controllers to change the nature of the work done in finance and accounting.

It's important to differentiate machine learning from AI. Machine learning models are "trained" by various data types (actually, lots of historical data), often with defined procedures and outcomes. In the financial close, the outcome could be financial misstatement for a specified reporting period. AI applies ML to task automation, often in a way that mimics how a human might respond to or manage a process. The learning process enables AI to statistically quantify the recommended course of action for a user to take. For example, a mechanism to recommend potential courses of action or updates to an internal control based on the journal entries posted.

Just as big data plays a crucial role in many industries, it fills the same significant role in finance and accounting. Big data is just the high volume of information collected daily from various sources. When analyzed, it can provide businesses with insights that allow companies to optimize strategies. We're seeing a growing number of companies recruit accountants who have a background in analytics and data science. This shows that the accounting industry is shifting from its reactive nature to a proactive one.

To enable customers to connect to any source system for the close, BlackLine has launched an API portal empowering new data integrations, workflows, and communication between BlackLine and other data sources (/).  Using modern APIs, BlackLine is laying the foundation to optimize further and automate end-to-end accounting and financial use cases, further increasing efficiency and control.

Cloud Financial Close Solutions are purpose-built software specifically designed to be owned and autonomously managed by accounting to automate the Record-to-Report process. Unlike robotic process automation (RPA), they typically replace spreadsheets and paper-binders rather than augmenting them.

Moving on to the RPA buzzword (where the definition seems to be a moving target), it's best to think of it as part of an automation framework and not a holistic capability. It's a tool. The general purpose is to assign a machine to remove low-value, repeatable steps like accessing and querying, gathering, and aggregating data. By contrast, unified solutions for the financial close are designed for accounting, providing dedicated dashboards and task management that enable users to automate the entire close process and all its dependencies. They route approvals and signoffs and monitor the close process, such as unreconciled balances or outstanding items awaiting approval.

Manual accounting is a high-touch approach to accounting and the related closing processes. We’ve moved to modern accounting from manual accounting, but accounting principles remain the same, even in the digital age. With digital technologies, we can process data far more quickly and reliably than before. The ERPs drove the first wave of digitization. Then the internet helped drive the second wave with SaaS-based solutions. We moved our solutions to a SaaS model around 12 years back, and our Account Recs, Matching, Journals, Intercompany Hub, Compliance, Tasks, and other solutions help the digital close process.

In the technology universe, we are used to seeing new buzzwords come up regularly. Sometimes these are yet to be proven out (hint: blockchain). Other times, we get a glimpse into the future. The rise of the "Compostable ERP," according to Gartner, shows a significant trend for high usability in the face of increasingly complex technologies. The user experience (UX) will prevail in the CIOs strategic priorities. The old monolithic mindset and practices will be out the door, opening up opportunities for intelligent modern technologies that offer off-the-shelf, event-driven, API-enabled solutions.  

Venturing Some Future Outlook Predictions

TEC: With the promise of the pandemic subsiding or going away completely, do you think companies will rethink their financials and cash management for the future?

BL: FSN's recent research, The Future of Automation in the Finance Function, which was carried out during the height of the first wave of the pandemic, underlined the crucial importance that automation plays in building organizational resilience and agility in the face of disruption.

The COVID-19 pandemic has had far less of a disruptive effect on "automation leaders," who’ve outperformed their contemporaries by a significant margin across a wide range of measures, showing the ability to change processes on the fly and respond quickly to new and changing information requirements. Those that embraced cloud technologies were at a particular advantage, with standardized procedures and agility—both of which are crucial characteristics of a well-organized Record to Report (R2R) process. As we approach the year-end reporting season, automation leaders will be well placed to timeously close the books, produce their financial statements, and meet demanding audit requirements with unified audit trails.

Our customers are now looking to the next phase of their modern accounting journey: intelligent accounting automation. This will be possible with the technological innovations made in data, analytics, and machine learning at BlackLine, including new reporting APIs, to help customers optimize their data strategy and machine learning models to drive a "low-touch" approach to the financial close process.

The touchless close is where we all want to go, and a good analogy for it is the self-driven car available today. Like the automobile industry has made the journey from a manual vehicle to an automated vehicle to an autonomous vehicle, the financial close will follow a similar journey from a high-touch close to a low-touch close, and finally to a touchless close.

Technology is changing rapidly, and a touchless close may be possible with purpose-built automation, autonomous workflows, anomaly detection, and autonomous exception-driven management with controls. Your accounting skills and experience will continue to be as important as it is today.

Last but not least, cash flow is, and will continue to be, a top priority for companies around the world as we chart this path back to normal. BlackLine is the partner in this journey, and we are making the necessary investments to help our customers on this journey.  

Predrag Jakovljevic

Digital Transformation