While finance leaders fully recognize the unprecedented opportunity to drive performance improvement via digital transformation, most lack a comprehensive strategy and are not clear where or how to deploy digital technology to their best advantage, according to new Key Issues research from The Hackett Group, Inc.
In addition, The Hackett Group found that significant skills and competency gaps are preventing finance organizations from taking full advantage of digital transformation.
Digital transformation will result in dramatic changes in the business, as well as the finance service delivery model itself, with both moving forward at unprecedented speed, according to the study.
Deal with skills and competencies challenge
The research warns that finance organizations that fail to meet the challenge of closing the digital transformation skills and competencies gaps will quickly fall behind in performance and put execution of the enterprise digital strategy at risk, potentially compromising their ability to compete.
"This study shows an emerging problem within finance organizations. They recognize the tremendous potential to change the way they operate. But in this early stage of the digital revolution they are struggling to determine how to move forward, and how to truly attain the greatest benefit," said The Hackett Group Senior Research Director Nilly Essaides. "There's a significant opportunity for companies that can figure this out and make the necessary changes to technology, processes and people."
The research also showed that more than 90 percent of finance organizations believe that digital transformation will fundamentally change the way finance services are delivered, including the way it services internal and external customers, suppliers and partners, as well as the talent and leadership roles it must develop.
Growing adoption of digital technologies in finance
Adoption of digital technologies in finance -- including cloud-based applications, advanced analytics, robotic process automation (RPA), mobile computing, and big data – is expected to grow dramatically in the next two to three years, the study found.
Yet only 44 percent of finance organizations have a formal digital strategy and only 35 percent have the right caliber talent. What's more worrisome, only 15 percent are planning to revise job profiles or competency models this year to address digital business transformation needs.
Finance organizations expect to remain heavily focused on reducing costs and headcount in 2017, as companies move from defensive postures to more aggressive growth through innovation.
Revenue growth, fall in headcount
Despite projected revenue growth of 4.1 percent, finance organizations expect their headcount will fall by 4.4 percent and budgets by 3.8 percent, on top of declines of 3.3 percent in headcount 4.0 percent in budgets last year.
According to the study, digital transformation is likely to provide significant support for this effort to improve efficiency. Many emerging technologies offer opportunities to improve productivity and quality levels beyond what can be achieved with traditional ERP-based business process automation.
The research also found very high levels of exposure to a broad range of business risks and sharp projected increases in these same risks over the next two years. The top four areas of projected risk – cyber-security, intensified competition, disruptive innovation and access to critical talent – are all related to structural transformation of the business, which in today's world is inevitably digital in nature and driven by technology innovation.
While adoption levels of emerging digital technologies in finance are low at present, they are projected to grow dramatically over the next two to three years, according to The Hackett Group's research.
Mainstream adoption of cloud applications, analytics
Mainstream adoption of cloud-based (software-as-a-service) applications is expected to grow by more than 2.5x, to nearly 40 percent, in the next two to three years. Mainstream adoption of advanced analytics is expected to grow by more than 4x, to 35 percent of all finance organizations.
The research also found similar projected sharp increases in adoption of several other key digital technology areas, including robotic process automation and mobile computing.
Advanced analytical and business intelligence capabilities, key elements of digital business transformation, are particularly critical for finance organizations to improve, as they enable finance to more effectively support enterprise strategy and provide the business with better and faster insight.
Improving analytics was listed as one of the top enterprise-level finance goals by companies in the study.
"To maximize its value contribution to the business, finance's priorities must be aligned with enterprise strategy and growth objectives, which are increasingly being shaped by technology-based innovation," said The Hackett Group Finance Transformation Practice Principal Richard Cardillo.
"Finance leaders must develop a sense of urgency and seize this opportunity. The potential is clear - digital transformation can enable entirely new business models, allowing companies to leapfrog the competition.
“Finance leaders must develop digital transformation strategies that leverage emerging technologies and align with their company's overall approach, and develop a structured program to hire and/or develop the talent they need to succeed."