Technology

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A convergence of technologies is now driving the next phase of finance transformation, accelerating the journey that CFOs began toward delivering greater insight in the 1990s with enterprise resource planning (ERP) implementations. This next wave of technologies will transform the way that finance adds value.

Finance leaders need to understand key emerging technologies, make pragmatic decisions about the optimum time to invest, decide when to run pilots or other initiatives to test new innovations, and determine the people skills and capabilities they will require.

 

“Technology is changing so rapidly and arriving so fast, there is a certain motivation to be cautious and take a wait-and-see approach. You might think, ‘I’m going to be smart and sit back a little bit and see what happens before I make a decision.’ The problem is that the change is so significant and the new capabilities so advantageous, that if you take a wait-and-see approach, you run the risk of being put at a severe competitive disadvantage.”

Tony Klimas, EY Global Finance Performance Improvement Advisory Leader

We explore five key technologies that we believe will play a significant role in transforming the finance function:

  • Advanced data analytics and forecasting

    1. Advanced data analytics and forecasting
    The value to the finance function
    • Improve ability to predict outcomes – and manage strategic risk – through scenario analysis and forecasting
    • Better understand the financial impact of key strategic and operational decisions
    • Provide better and faster information to key stakeholders, from investors to supervisory boards
    • Improve enterprise performance measurement by combining financial and non-financial data
    Current market activity
    • Active take-up – most organizations have made dedicated investments and are committed to using advanced analytics across decision-making processes

    In the future, contending with volatility and uncertainty will be the new normal. A range of forces — including growing pressure on natural resources, more frequent and severe climate events, and increasingly sophisticated cyber attacks — will create ever-greater challenges for multinational organizations, particularly as global operations become increasingly connected.

    To be able to set the right course for the future, finance functions must get better at processing — and extracting forward-looking insights from —large amounts of data, keeping track of new types of data and incorporating them into their models as they emerge. CFOs must actively investigate how they can use sophisticated, forward-looking analytics to enhance their organization’s performance in a range of areas, for example by:

    • Deploying big data platforms that are designed to be interrogated by computers rather than humans, using machine learning to analyze massive data sets to make fine-grained predictions, such as how an asset on a balance sheet will behave
    • Combining structured and unstructured data (such as social media and web monitoring) to identify rogue activities, patterns and trends and mitigate risks such as fraud or cyber breaches

    The future of tax management: managing data as a strategic asset

    In their efforts to meet the increasing compliance demands of tax authorities, tax teams already consume and distribute significant amounts of data. But in some countries, tax authorities now expect that data in real time – an expectation that is likely to become more common as tax administration around the world becomes increasingly sophisticated.

    Many organizations are not ready for this change. In particular, organizations that continue to rely on manual spreadsheets, which can be inefficient and raise the risk of tax statement errors and potential reputational damage, will find it difficult to comply.

    According to Carolyn Bailey, Americas Digital Government Tax Transformation Leader at EY, tax teams need to radically streamline the collection of data through information management systems. “The data they collect should be aligned with a global data management strategy that addresses tax requirements across multiple jurisdictions,” she said. “Once collected, the data should be analyzed to identify the value it contains for the organization, then assessed for sensitivity and various audit risks before being shared with tax authorities around the world. By establishing robust data management and analysis processes for tax information, CFOs can help make this possible.”

    For Simon Kelly, former CFO and COO at Australian media company Nine Entertainment Co., this means historical data is losing some of its importance. “While historical information is important for areas such as reporting and tax, it doesn’t add a great deal of value beyond that,” he says. “Value-add is in the real-time data about how things are trending in our business right now.”

    “In the future, the investment is going to need to be in real-time data and in generating insights so businesses can respond to changing consumer preferences without waiting for accountants to pull together historical financials. The historical transactional part of finance is really a commodity, not a competitive advantage,” said Kelly.

    For Vincent dell’Anno, EY Executive Director, Performance Improvement, Ernst & Young LLP, part of the investment CFOs should be making is in real-time data, and the other part is in real-time analytics. "For example, there are sensors that are required to act in real-time or as close to that as possible,” he says. “That means you want to facilitate analytics as close to the source of data as possible, you want to be able to drive streaming analytics where possible and relevant to the business problem.”

    This is also reflected by our survey, in which “improving data and analytics capabilities to transform forecasting, risk management and understanding of value drivers” was the priority most cited by CFOs as number one for their finance function (see Figure 1).

    Figure 1: Priorities for the future finance function

    Improve big data and analytics capabilities to transform forecasting, risk management and understanding of value drivers 23%*
    Meet the need for new skills by transforming how finance talent is recruited, retained and developed 22%*
    Make significant changes to the finance function skill set 17%*
    Reduce finance function costs through new technologies such as robotics and process automation 14%*
    Refine risk management capability, including cyber 13%*
    Drive efficiency improvements through offshoring, shared services and outsourcing 12%*

    *% of finance leaders that chose this priority as number one

    Reaching your analytics potential

    Many organizations find it difficult to introduce the technology needed to generate forward-looking insights. For example, they are often impeded by multiple ERP systems, legacy applications and non-integrated architecture.

    In the future finance function, however, inflexible and costly IT infrastructure will be replaced by scalable and innovative IT. Many CFOs are already incorporating new advances into their ERP systems, such as:

    • In-memory computing
    • Cloud and hybrid cloud deployments (see later section on “Cloud and SaaS”)
    • Better and more mobile user experiences
    • RPA to federate data from different systems.

    Choosing the right tools to capture and mobilize data and enable the insight-driven enterprise is a complex challenge, particularly given the rapid pace of technological innovation. But CFOs also need to focus on the “consumption” side. Finance leaders need to think about, for example, where technological innovations such as those cited might come up against the brick wall of organizational resistance, or what incentives systems are needed to encourage adoption.

    Change management will be essential to address this critical “people” dimension.

  • Robotic process automation

    2. Robotic process automation
    The value to the finance function
    • Reduce costs significantly by automating key finance processes
    • Improve consistency, control and traceability
    • Improve quality through reduction in error rates
    • Overcome systems fragmentation by consolidating data from disparate systems
    Current market take-up Developing – organizations are growing their understanding of the technology and its benefits. Take-up poised for significant growth

    Imagine a team member in tomorrow’s finance function who:

    • Represents no significant overhead
    • Works much faster than their colleagues
    • Completes huge volumes of repetitive tasks without ever making an error
    • Keeps a perfect audit trail

    In the future finance function, RPA technology will play an important role. 65% of respondents worldwide said that “standardizing and automating processes and building agility and quality” into processes is a significant priority for the finance function.

    And while it is a particular priority for cost-focused CFOs, it is also important for those focused on growth (see Chart 1).

    Chart 1: Automation a priority for tomorrow’s finance function

    EY - Chart 1:  Automation a priority for tomorrow’s finance function EY - Chart 1:  Automation a priority for tomorrow’s finance function

    Claude Changarnier, Vice President of International Finance at Microsoft International, believes that automation plays a key role in helping the finance function strike a balance between adding value and effective control. “The approach we have taken over the past years and that we are continuing to take today is trying to automate, centralize and/or outsource transaction-based activities,” he says. “This is so that we can free up time for people to be able to do two things. One, to add value to the business by providing business insight. Two, to put in place a very strong controls and compliance environment in the different subsidiaries that we are operating in the world.”

    For EY’s Tony Klimas, automation offers the opportunity to drive the next evolution in how finance is delivered. “The traditional offshore model is starting to fall apart,” he explains. “Many popular offshore locations are becoming more prosperous, and what used to be ‘cheap’ isn’t so ‘cheap’ anymore. People are looking for alternatives and they’re looking to leverage technology advances, from robotics to artificial intelligence.”

    This point of view is echoed in our research: 58% of respondents worldwide said that “combining state-of-the-art technology with process improvement” is a significant priority. And it is a particular focus for large and complex global organizations, whose CFOs must often seek to cut waste, standardize approaches and combat bureaucracy and inflexibility.

    Chart 2: Tech-enabled process improvement critical for large organizations

    EY - Chart 2: Tech-enabled process improvement critical for large organizations EY - Chart 2: Tech-enabled process improvement critical for large organizations

    The shift to RPA can help improve organization performance in a number of ways by enabling CFOs to:

    • Automate key finance processes, from data reporting to payments
      For example, improving corporate reporting by using RPA to access and present data from multiple systems.
    • Target system inefficiencies
      RPA can bridge the gaps between different ERP systems in cases where organizations have not yet achieved a single integrated system. They can also act as an interface between an ERP and critical legacy systems.
    • Improve the quality and speed of finance processes
      RPA provides a clear audit trail record, which can make compliance with regulatory requirements easier to manage.

    Is the future of finance robotic?

    For EY’s Chris Lamberton, Robotics and Process Automation Global Center of Excellence Leader, successful finance functions in the future will be those that find the right balance between robotics and people, with each doing what they do best. “Ultimately, what you want to establish is the right combination of people and robots,” he says. “Quite often it’s not just a cost play. It’s also about how you improve your service or create new services.”

    “The best way to think about robots is as the ultimate companion to humans. Let robots do the grunt work, and free up people to do things they’re really good at, which is analyzing all the data that robots can pull together,” says Lamberton.

  • Cloud and Software-as-a-Service (Saas)

    3. Cloud and SaaS
    The value to the finance function
    1. Reduce costs, as organizations only pay for what they use
    2. Provide greater flexibility, in terms of adopting new technologies and flexing to changes in demand
    3. Improve disaster recovery, as back-up solutions and capacity can be accessed from anywhere, taking into account different circumstances, such as loss of power
    Current market take-up Deploying – widespread adoption by organizations across the world is growing fast

    Although a company’s financial management system is critical to its success, many organizations have outdated and fragmented systems. Cloud and SaaS solutions now offer opportunities to transform system functionality and drive standardization in a faster, smarter way.

    Cloud-based infrastructure and cloud-based SaaS applications can:

    • Streamline operations
      Cloud-based ERP, for example, can allow disparate teams to create and access the same data, which can enable quicker decision-making.
    • Reduce costs
      Because organizations can quickly increase or decrease the number of applications they use, they only pay for what they need, rather than what they thought they would need six months ago. Maintenance costs can also be cut because systems upgrades can happen automatically. Cloud and SaaS solutions may also avoid the need for costly and complex rationalizations of on-premise ERP.
    • Provide greater flexibility
      SaaS can help organizations keep pace with rapid developments in technology, such as new analytics tools, and help the function respond to fluctuations in demand.

    While these tools can provide significant opportunities to improve performance, they will need to be weighed against two key concerns.

    1. Security CFOs will need to proactively manage the associated risks of these tools, particularly in relation to data security and compliance with different regulatory regimes.
    2. Developing the skills to make best use of technologies In our research, 55% of respondents said that “improving digital technology skills in areas such as mobility, the cloud and SaaS” would be a significant people and skills priority for the future finance function. This improvement in digital technology skills is important across many industries, but it is a particularly high priority in the media and entertainment sector, where companies need a scalable infrastructure to manage and monetize all the digital content they produce.

     

    Chart 3: Building cloud and SaaS skills

    EY - Chart 3: Building cloud and SaaS skills EY - Chart 3: Building cloud and SaaS skills
  • Artificial intelligence

    4. Artificial intelligence
    The value to the finance function
    1. Improve strategic insight by analyzing unstructured data and helping business analysts find signals and patterns in large data sets
    2. Improve risk management by identifying patterns in large data sets that are indicative of fraud or other concerns
    Current market take-up Developing – leading organizations are making early investments and developing practical applications

    AI systems are capable of ingesting information and instructions, learning from interactions with human beings and responding to new situations and questions in a human-like way.

    In addition, AI complements technologies such as RPA, as it involves systems that do not just follow rules, but can recognize patterns, learn and adapt to new situations. For example, rules-based automation approaches often run up against exceptions to the defined process, and AI can be used to target those exceptions.

    With these attributes, AI could be used to transform how tomorrow’s finance function provides key services. AI systems could be trained to ingest tax regulations that are relevant to a business, and also to absorb new regulations as they come online, proactively advise the relevant person of the changes, and answer questions that he or she may have about their nature and implications.

    Loren Williams, Chief Data Scientist at EY’s Global Analytics Center of Excellence, believes that although AI will play an increasingly important role, it will not do away with the need for human financial experience and insight.

    “There are many cases where an AI system will augment the intelligence, knowledge and awareness of an expert like a finance executive,” he says. “With routine transactions, the AI system could have the authority to declare something out of bounds or to respond in a particular way to something that’s unusual. But with big, important and complex decisions, you may see AI systems providing advice or recommendations to help the human decision-maker, and back up those recommendations based on its ability to gather, ingest and make sense of vast amounts of structured and unstructured data.”

  • Blockchain

    5. Blockchain
    The value to the finance function
    1. Streamline finance processes, such as contract enforcement, by integrating delivery and payment into the contract itself
    2. Increase IT security, utilizing the unprecedented protection that blockchain offers against fraud and hacking
    3. Improve transparency by accessing accurate transaction data from across your company’s extended value chain
    Current market take-up Exploratory – organizations are researching, assessing potential use and value, and discussing within executive team

    Blockchain has the power to challenge many of the accepted principles and norms of global trade, global financing and global supply chain management. It reinvents that basic building block of commerce, the ledger, for a digital, connected age.

    A blockchain is a digital ledger — a distributed database that can be shared across a network of computers based in different sites and geographies.

    An identical copy of the ledger is held by all of the people participating in a blockchain network. Any changes to the ledger are reflected in just minutes or even seconds, thus providing all involved with real-time information and the capacity to track trends.

    The security of the information in the ledger, and its accuracy, are protected cryptographically, with the participants in the network agreeing who can do what within the ledger.

    With Bitcoin, for example, individuals within the network (called “miners”) had permission to validate an aggregated group of transactions (a “block”), with these miners rewarded for their efforts with 25 Bitcoins. Once validated, the block was placed in the “chain.” Instead of a central authority like a bank validating transactions, validation for Bitcoin is essentially crowdsourced.

    While blockchain emerged as a technology for Bitcoin, its attraction is more the algorithmic technologies that underpin it. This technology makes it possible to transform the ability of a ledger to record, enable and secure a huge number of transactions, and could be used in multiple sectors, from financial services to tax collection in the public sector.

    In the future finance function, CFOs will use blockchains to:

    • Increase IT security
      Blockchains are considered by commentators to be tamper-proof, providing unprecedented protection against fraud and hacking. There have been incidents where users have entrusted their private keys to exchange operators and the operators have had their security broken, but the blockchain security itself has not been breached. 
    • Manage extended value chains
      Instead of having to reconcile the internal system of record with information from suppliers and partners, CFOs will be able to pull data from multiple blockchains to create their system of record.
    • Streamline contract enforcement
      A smart contract feature means that the delivery and payment relating to a transaction can be integrated into the contract itself. With blockchains, the ledger is programmable and contains logic, so you can have a rule that makes a payment on the completion of a service.

    Paul Brody, EY Americas Technology Strategy Leader, outlines how smart contracts could transform international trade, saying: “Imagine a container ship, carrying cotton from an Australian farmer to a Chinese vendor for processing into clothing, with an Internet-of-Things (IoT) device tracking the ship as it travels across the ocean. The farmer has a contract with the Chinese vendor that states that the farmer gets paid based on the weight of the cotton adjusted for its humidity level when it enters the port of Hong Kong — you could actually write that into the blockchain software code as a smart contract.

    “When the GPS of the container ship enters Hong Kong harbor, and the digitally connected weighing and humidity sensors assess the cotton, then those two pieces of data combine and trigger the smart contract. That then pays the Australian farmer from the Chinese vendor, transfers ownership of the cotton to the Chinese textile mill and automatically pays and files the documentation for customs and duty with the Chinese Government. Smart contracts automate this process that, today, has a lot of manual steps and paperwork involved.”

    However, blockchain is still a new technology that still requires development in areas such as contract dispute management. “What has yet to be fully designed is a mechanism for handling disputes in smart contracts, a topic that I believe will emerge as an important area of blockchain research in the future” says Paul Brody. “Ultimately, I expect to see hybrid contracts that blend the automation of smart contracts with the provisions for dispute resolution that exist in traditional agreements.”

    Blockchain technology is likely to play an important role in the finance function in coming years. CFOs should be anticipating how they are going to build the relevant competencies and skill sets. They also need to start discussing the future of their system of record, given that organizations could move from working with a single, monolithic system of record inside the enterprise to working with many different systems.

    New technology, but old challenges remain

    Before making large investments and diving into major overhauls, CFOs will of course want to build a clear understanding of which new technologies will be most beneficial to their finance function, and they will need to be highly selective.

    Importantly, CFOs must also remember that the success of any technology greatly depends on the skills of the people using it. In our research, CFOs cited “staff capacity to adapt to change” as the main barrier to adopting new technologies. Effective change management — including transparency about the rationale and continuous communication — will be critical for technology transformations to be a success.

    View our latest resources on blockchain.

Contacts

  • Hanne Jesca Bax
    EY EMEIA Managing Partner Markets & Accounts, Ernst & Young Nederland LLP
    Tel: +31 88 40 71325
  • Robert Brand
    EY Global CFO Agenda Leader
    Tel: +1 201 872 5692
  • Rick Fezell
    EY Americas EY Vice Chair — Accounts
    Tel: +1 312 879 6568
  • Annette Kimmitt
    EY Asia-Pacific Accounts Leader
    Tel: +61 3 9288 8141
  • Tony Klimas
    EY Global Finance Performance Improvement
    Advisory Leader
    Tel: +1 212 773 5949