June 11, 2016
Over the past decade, one business function after another has been transformed by technology. The ways in which sales, marketing and HR are conducted today are vastly different. Finance and accounting was the latecomer to this party, but it is making the loudest noise.
The changes produced by the automation of repetitive, manual finance and accounting processes have set the stage for remarkable developments ahead: more insightful financial forecasts, vastly improved resource allocation, and extraordinary workflow efficiencies.
These advances are being called Modern Finance. They are occurring at the same time that the CFO function has metamorphosed to become highly strategic. They are changing the definition of what it means to be a corporate accountant, moving the position closer to that of a financial analyst. Most important, they are giving all-sized companies the tools to more effectively align their financial strategy with their business strategy.
The future of finance and accounting is linked to adoption of these cloud-based technologies. Already, these tools are providing organizations with enhanced visibility into the vast array of complex transactions at the heart of all businesses. They’ve resulted in faster financial closings, greater confidence in the accuracy of financial figures, worry-free financial statements, and far more assured regulatory compliance.
This is Modern Finance “now.” What is “new” and “next” is paradigm busting. “There is this amazing journey underway for finance and accounting executives, where they are getting away from the mundane, tactical stuff that has absorbed their time and effort forever, and moving toward functional excellence,” says Brian Sommer, ERP industry analyst at finance technology research firm TechVentive Inc. “The CFO is at last becoming the strategic business partner that CEOs have longed for.”
Assuring this partnership is technology. By digitizing financial data and automating traditional finance and accounting tasks, organizations make this gold mine of information searchable. Powerful algorithms make sense of internal data sets in relation to each other, and these are added to the immense array of external macroeconomic, geopolitical and competitive market information on the Internet. The result: CEOs can plot smarter strategies to be expertly navigated by their CFOs.
“To do this, companies need access to the variable data sets that are stored in provider cloud systems,” he says. “These emerging capabilities will change the role of accountants from validating the accuracy of the numbers to making sure the CEO is creating the right business decisions.”
Sommer is far from alone in this view. Chris Iervolino, a research director at Gartner, cited the improvements in finance and accounting efficiency that have already been achieved by automating manual processes like account reconciliation. But he is especially excited about what these digital tools offer companies in future.
“Cloud-based reconciliation tools have enhanced efficiency and improved visibility into workflows across the business,” he says. “They also have the potential to provide new analytic capabilities; this seems to be where these automated reconciliation tools are headed. This will help the CFO guide and support more organization-wide initiatives. As the role of the accountant evolves, their specialized expertise will be put to more strategic uses.”
This is undoubtedly good news to many accountants stuck in the trenches performing manual tasks like account reconciliations, transaction matching and variance analyses. As the pressure intensifies to close the books each month, these tasks become excruciatingly burdensome and anxiety-ridden, given that senior executive leaders are raring to access the financial data to possibly make adjustments in strategy and tactics.
When uncertainty about the accuracy of a journal entry arises, accountants must dig through a mountain of spreadsheets to prove the balances are correct. Without an automated system attending to this chore, there’s simply no visibility into the underlying data. Literally thousands of multi-line-item spreadsheets must be analyzed, a Sisyphean effort challenged by the different ways the spreadsheets were created and used across the business.
These complex workflows make sorting out a single version of the truth an exercise in frustration and futility. All the while, accountants are aware that a fast and error-free closing is critical to the organization’s bottom line, compliance responsibilities and reputation. As the minutes tick away to close the books, no time is available to do anything else.
This is not Modern Finance. “You’re taking time away from these human resources when they can be adding value, doing things like revenue forecasting, cash flow management and determining where the profits are in the business,” says Nick Castellina, research director at Aberdeen Group.
Robert Ployhart, Bank of America professor of business administration at the University of South Carolina, equates the above to “Staring at your feet while you’re walking, versus looking down the street at where you’re going and what lays ahead.”
He says “Automating rote manual processes, assuming this is available for a particular business function, is a `no brainer.’ You liberate intellectual assets to apply their expertise to more beneficial purposes. Accountants can’t do that when they’re plugging in numbers. There’s this tremendous opportunity at hand to enable them to become strategic thinkers, in ways that weren’t possible before.”
The use of cloud-based software to automate finance and accounting processes has become a competitive differentiator. Boards, shareholders, analysts and other stakeholders have come to expect more refined forecasts of business performance and more rapid identification of growth opportunities and related risks.
Many businesses have yet to realize these emergent expectations. “There are many dysfunctional companies still stuck on spreadsheets and out-of-date technologies,” says Sommer. “This is unfortunate because functionally excellent companies are where things get really cool. They’ve shifted to (using) cloud accounting and finance workflow management tools, where manual processes remain for exceptions only. This fosters greater collaboration up and down the value chain – or what I call the `automation everywhere’ business organization.”
…accountants can apply their expertise to ensure compliance. “It just makes the whole process easier,” Castellina says. “You’re less likely to be audited, and if you are audited it’s less likely to cost you.”
By automating rote tasks, people are freed to apply their skills to more strategic needs like financial analysis. The same automation also sets the stage to undertake these examinations. “By digitizing the financial data and storing it in a centralized repository in the cloud, companies make this information searchable, facilitating real-time calculations,” Castellina says.
What might these calculations be? For one thing, accountants can apply their expertise to ensure compliance. “It just makes the whole process easier,” Castellina says. “You’re less likely to be audited, and if you are audited it’s less likely to cost you.”
Iervolino agrees: “Assuming visibility into the financial data, companies can expect definite enhancements from an auditability standpoint.”
Easier calculations also facilitate a faster close. With an automated account reconciliation system, data is imported from the ERP system into this system’s online document repository, which stores and safely archives all supporting documentation. Accountants can search through the details of account balances across all balance sheet accounts, explore any discrepancies that pop up, and then make the required corrections.
Since users have visibility into the progress of all processes involved in the financial close, the ability to validate the accuracy of the data is vastly enhanced. “No longer will accountants have to deal with inexact numbers, which drives them nuts,” Sommer says.
Others in the organization can be offered the same visibility into the financial data to improve the services they provide the business, Castellina notes. “Not only is it easier to share this information across the business, you quickly learn that you can do the same tasks with fewer people, resulting in significant resource efficiencies.”
Rather than manually crunching numbers, human resources are applied to tasks that are strategic by nature. These are prized benefits of today’s Modern Finance, available to companies right now.
What is coming down the pike – the application of Big Data and analytics to financial data – promises the greatest change in finance and accounting in its history, upending the role of the CFO and his or her staff to navigate the business going forward.
The same tools now used to automate manual accounting tasks will be leveraged to create workflow efficiencies and inform strategic financial analyses. “The overarching goal is for businesses to be able to ask questions of their data to plot more assured strategies, manage workflows more efficiently, and allocate resources toward where they will achieve the biggest bang for the buck,” says Sommer.
Much work in this direction is currently underway. “Predictive modeling of financial data is close to the point of describing current workflows in relation to task performance,” says Therese Tucker, founder and CEO of BlackLine. “The models will help identify opportunities for improvement in finance and accounting workflows, which in turn will help staff become more productive for strategic purposes.”
Since providers of enhanced financial automation tools are repositories of an enormous amount of financial data across different industry verticals – imagine how much account reconciliation data these firms have stored – it is expected that such companies will lead the effort to develop these predictive models. When they do, finance and accounting will learn where they are ahead of the eight ball or behind it, process-wise.
Predictive modeling of financial data is close to the point of describing current workflows in relation to task performance.
For instance, say that finance and accounting in a manufacturing firm wants to learn whether or not the volume of account reconciliations it rejects is consistent with the experience of other manufacturers. By acquiring information on the average volume of rejections, it can learn if its practices are below the mean. This metric for benchmarking purposes would be available from the financial automation services provider.
Even better, the provider can leverage predictive modeling to provide going-forward advice. By understanding the factors causing deficient performance, for example, a company can reengineer its workflows to improve its score. As more clients take these steps, this adds to the provider’s data storehouse, feeding the expanding knowledge of account reconciliation best practices.
“The promise of Big Data in finance and accounting is its ability to identify patterns involving time and resources and how better to utilize them,” says Ployhart. “When you’re stuck spending all your time on validating the accuracy of the data, there’s no time left to discern these patterns. To borrow a sports analogy, it’s the difference between being a scorekeeper and a coach. The scorekeeper tallies the numbers; the coach is looking strategically five plays ahead on how to win the game.”
The CFO is this coach. He or she has become so vital to their companies’ corporate performance management (CPM) that Gartner recently split its tracking of CPM into two areas – strategic CPM and finance CPM.
“We see a definite trend, from automated tools that increase efficiency and support the process of planning, through more transparent workflows, and toward finance using these tools for predictive modeling and improved analytics,” Iervolino says.
It’s tomorrow’s Modern Finance, whipping into shape today.