The Dilemma of Finance & Accounting at Midsize Organizations

This post was written by IDC.

Midsize organizations have several challenges that make financial operations management particularly difficult. Many such organizations operate in a very lean manner and yet are still focused on growth.  While the complexity of financial management applies equally to midsize organizations, they do not enjoy the resource availability of their larger counterparts. Thus, midsize organizations must address challenges associated with rapid growth and regulatory compliance with their limited resources.  

In this blog post, we aim to discern the evolving landscape of midsize companies by analyzing significant trends, their related challenges, and opportunities for these organizations to succeed in an ever-evolving landscape.

The following are key trends affecting finance and accounting teams at midsize organizations:

• Talent management is becoming a financial priority. Over the past 12 months, core finance and accounting teams (accounts payable, accounts receivable, budgeting planning, auditing etc.) have quit at an alarming rate. In a recent survey conducted by IDC, staffing and labor shortages preventing effective use of technology were among the top 3 greatest concerns for midsize businesses. (Source: Future Enterprise Resiliency & Spending Survey – Wave 6, IDC, July  2023). This attrition is largely due to the combination of high pressure, heavy time commitment and legacy tools – all of which plague midsize businesses. Financial operations teams are built upon core accounting staff as a foundation; high turnover in this area can impact productivity and even the company's bottom line.

• Greater emphasis on dissemination of business-critical information. The rapid pace of growth within midsize businesses puts a spotlight on the communication of business information. Smaller businesses are often hampered by their inability to quickly gather business-critical information and disseminate it to their necessary stakeholders. In a recent IDC survey, communicating business and financial metrics to stakeholders effectively was cited as among the top 3 pain points by CFOs. (Source: C-Suite Survey, IDC, August 2022). As rapidly growing businesses rocket toward financial exit strategies, the ability to share real-time information with banks, investors, key suppliers is an essential element of success.

• Demand for a more strategic/analytical skill set for finance teams. According to IDC research, 44% of CFOs said they envision more involvement with IT decisions involving finance, ERP, analytics, and so forth. (Source: CIO Advisory Board: Exploring the CIO-CFO Relationship, August 2023). The necessary skill set among financial team members will evolve to include more strategy/analytical skills. The ability to look at financial data and see the opportunities and strategic insights within the data will become an essential part of the job. Going forward, IDC believes smaller business will lead the way and combine positions like CFO and the CIO to support the business in the emerging digital first economy. 

Many of the opportunities for midmarket businesses to modernize financial operations relate to the need for speed and agility. The top reasons driving digital transformation initiatives include the following needs:

• Improvements in productivity and process automation to decrease cost per transaction. For midsize businesses, 26% listed working late to catch up on accounting processes as their top frustration with their current system.  (SaaSPath Survey 2023, IDC, March 2023).

• Faster finance and performance insights to manage uncertainty and guide risk appetite

• Managing the evolving regulatory compliance landscape with the lens of integrated risk and finance. More than 28% of midsize businesses spend their time on regulatory compliance working manually or in spreadsheets.  (SaaSPath Survey 2023, IDC, March 2023).

• Faster financial close period to reduce time spent on analyzing the past and instead focus on future value-added strategies. For midsize businesses financial close was one of their top 3 most manual processes (SaaSPath Survey 2023, IDC, March 2023).

Midsize businesses are very focused on technology that allows them to do more with less. Lean finance and accounting teams must be flexible and nimble. Team members have to wear multiple hats to conduct their core responsibilities. When considering change, midsize organizations must move quickly; they have neither the time nor the resources for longer optimization projects.

The role of finance and accounting has evolved beyond simply monitoring debits and credits. This trend is happening the fastest in those midsize businesses where there are fewer managerial layers. These businesses tend to have greater overlap in roles and duties (e.g., the CFO also serves as the head of compliance and operations). Today's midsize finance office and the people who manage it are being asked to do more than ever before:

• F&A is evolving into an operational data hub. In addition to added strategic duties, F&A is becoming the key hub for many aspects of business data beyond financial including operational data, IT system data, supply chain data, ESG data, and so forth.

• F&A is evolving into an insights hub. F&A is expected to leverage the financial systems and the latest technology to identify risks and challenges and use this information to create accurate forecasts. In addition, F&A teams are now under even greater pressure to create more detailed forecasts much more frequently.

• F&A as an engine for growth. Today’s F&A team is expected to uncover strategies to drive revenue growth through efficient planning, accurate forecasting, and tight collaboration with other management staff.

There are several places where midsize businesses still struggle today.

Lost time on mundane tasks. In the March 2023 IDC SaasPath Survey, midsize respondents (companies with between 500-1000 employees) listed "too much of the time spent on accounting duties is low-value, data-entry heavy" as their top frustration with their current accounting system. For midsize businesses, the biggest time sinks (i.e., areas where they spent the most time) were reporting/analytics, accounts receivable and the financial close according to the most recent SaaSPath Survey 2023 (IDC, March 2023). A reliance on spreadsheets figured prominently for these tasks. In addition, resource misappropriation is common due to the relative lack of resources.

Lack of accurate information. Midsize companies  listed their second highest frustration with their current accounting system as "the financial reporting has a high error rate."  Finance leaders at these companies need timely and accurate  information to optimize decision making. Less than accurate data results in rework (additional validation and substantiation) that ultimately slows down the financial close process and erodes the confidence in the final output. With many midsize organizations unable to substantiate the full balance sheet, high priority accounts may require triage leading to late or inaccurate financials, or both.

The expected benefits of financial modernization include the following:

• The ability to harness the latest technology to scale up data management capabilities. Businesses will be able to agnostically integrate their core systems, optimize accounting processes with automation technology, and capture market expansion opportunities with budgeting and planning technology.

• The ability to leverage the latest technology to provide flexibility, minimize costs and ensure strategic insight into an organization’s business

• The delivery and maintenance of systems related to finance, performance, risk and compliance capabilities/functions in a cost-effective manner

• Flexibility to meet business needs and support evolving business and regulatory requirements

• Data at multiple levels of detail from source systems transactions to posting GL balances and financial consolidation results

• Progressive future state transformation, leveraging existing components to co-exist in the current environment

Think holistically. Over the past 2-3 years, IDC has seen a growing trend among financial software vendors to bring more holistic applications to the market. Recent M&A activity reflects this trend as well.

Put end users at the center. Financial applications are evolving rapidly as vendors invest research and development dollars into bolstering, augmenting, and in some cases, redesigning their applications. The applications must align with the new digital enterprise and how finance and accounting professionals adopt technology.

Look for SaaS applications that are built and maintained with trust. It is vital for enterprise application vendors to build trust in the SaaS economy including being more transparent, delivering on commitments, engaging end users, supporting customer success throughout the relationship, and helping customers achieve their business outcomes.

As finance and accounting departments move into the digital-first economy with a focus on agility and scalability initiatives, the finance function itself is turning to advanced technologies to enable its evolution. Fueled by inefficiency within the finance workstreams, the CFO requires more advanced and innovative technology.

Given that financial management for midsize organizations is an exercise in data management, many businesses are looking to advanced technology to cope with the data burden at scale and at speed. The technologies include:

• Integration. Developers and managers require integrations to quickly add/modify data that flows into and out of software applications. This enables midsize businesses to quickly move data between systems and be more flexible as business needs change over time.

• Cloud-native architecture. This architecture provides organizations with the necessary flexibility/agility to meet the demands of a highly dynamic market landscape. According to IDC, 80.7% of finance leaders reported they would be willing to pay more for cloud-native architecture featuring microservices and containers.

• Automated workflows. Financial software vendors are embedding intelligence within the "record-to-report" (R2R) workflows to unleash the full power of automation.

• Artificial intelligence (AI). AI is finding a foothold in nearly all aspects of financial operations from the record to report process to procure to pay and beyond. AI offers midsize organizations the ability to compensate for a lack of resources through the use of virtual assistants and intelligent automation.

• Advanced analytics. Many organizations are flooded with business data from a variety of sources and a variety of data types. As a result, midmarket companies are turning to advanced analytics to glean insights from their data.