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 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.
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, RPA can be used to improve corporate reporting 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.
3. Cloud and Software-as-a-service (SaaS)
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 key concerns:
CFOs will need to proactively manage the associated risks of these tools, particularly in relation to data security and compliance with different regulatory regimes.
- 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.
4. Artificial intelligence (AI)
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 persons of the changes, and answer questions that they 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 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, such as a bank, validating transactions, validation for Bitcoin is essentially crowd-sourced.
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 that 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-ihings (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.