12 minute read 10 Feb 2021
A close up of a printing factory management team holding a meeting and looking at data on digital tablets.

Is digital culture the key to unlocking finance transformation?

By Ronald Wong

Financial Accounting Advisory Services Leader and Partner, Ernst & Young LLP

Financial accounting advisory professional with deep accounting and reporting knowledge in SFRS, IFRS and US GAAP. Vast finance and accounting transformation consulting experience.

12 minute read 10 Feb 2021

Finance leaders need to build a robust digital culture to realize a shift toward a more strategic finance function.

In brief

  • Finance leaders can help to elevate the finance function to a more strategic role by building a strong digital culture.
  • Strengthening the four elements of a digital culture based on an understanding of their interdependence is crucial.
  • A clear data strategy, supported by analytics, allows finance leaders to transform the finance function into one that guides the business strategy.

With access to many functions within an organization and end-to-end views of the business, the finance function has a strategic, unique role of a business partner and advisor. It needs to be agile, intelligent and future-ready. In the digital age, finance leaders often have the responsibility to foster conducive conditions that facilitate the use of technology at work.

The modern workforce has access to technological tools, but the availability of technology alone does not necessarily translate to organizational benefits. Resistance to change and other cultural barriers entrenched in the organization are major impediments to innovation.

With emerging digital technologies allowing organizations to innovate quickly and at scale, those that do not have a strong digital culture risk losing the agility to capitalize on transformative and growth opportunities. An impactful digital transformation is never simply about adopting the latest and best technologies. Other critical factors, such as people and the organization’s policies and processes, also come into play and this is where organizational culture plays a part.

To ensure that technology truly empowers people to find new and better ways of doing things to deliver greater value, every finance function needs a strong digital culture.

Digital culture has four main elements: organizational structure; people; strategy, processes and policies; and technology. When all these elements are in place and working successfully in tandem, it actuates a strong digital culture. Employees feel productive because conducive conditions exist to help them understand technologies and acquire the relevant skills to use solutions that enhance work effectiveness and efficiency. The right digital culture can also nurture employee engagement, leading to higher-quality work, more satisfied employees and generally better business outcomes.

A study, Is digital culture the key to unlocking finance transformation?, by EY and ACCA in Singapore, found that despite the importance of a digital culture in the finance function, more than half of the finance leaders surveyed recognize that there is still a considerable gap between their current digital culture state and the desired one for driving digital innovation. Finance leaders should therefore take a structured and balanced approach to bridge this gap and improve the digital culture in their finance function by driving change in the four elements that constitute culture.

The right digital culture can also nurture employee engagement, leading to higher-quality work, more satisfied employees and generally better business outcomes.
Ronald Wong
Financial Accounting Advisory Services Leader and Partner, Ernst & Young LLP
Two designers sit at meeting table working on digital tablet
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Chapter 1

Digital culture: a key driver of transformation

A strong digital culture with clear strategies sets successful digital transformations apart from failed ones.

The COVID-19 pandemic has changed how finance functions operate. While new technologies bring new opportunities, not all finance digital transformations succeed.

Many organizations do not fully recognize that digital success is not just about technology, which is merely an enabler. When it comes to adopting digital transformation, the organization’s digital culture — which encompasses the abovementioned elements of organizational structure; people; strategy, processes and policies; and technology — is the critical precursor to a successful digital transformation. Seventy-eight percent of respondents in the ACCA-EY survey agreed that successful digital innovation should not focus solely on the technology deployed.

Why a strong digital culture is important

Research by Gartner found that over 70% of finance transformation initiatives fail to deliver the expected benefits.1 A key factor is the leadership’s inability to foster a culture that supports the organization’s digital strategy and aligns that with the overall corporate strategy. Building and sustaining a culture is an enduring and continuous endeavor, and it takes time to shift an existing value system toward a new or improved one.

The ACCA-EY survey found that 94% of finance leaders agreed that having a strong digital culture with clear strategies is what sets successful digital transformations apart from failed ones. This reflects their awareness that a strong digital culture is instrumental in unlocking and protecting the value of innovation and transformation.

In addition, 93% of respondents agreed that a digital transformation strategy without a strong culture to support it is a significant threat to the value of the transformation strategy.

Importance of a strong digital culture

94%

of respondents agreed that having a strong digital culture with clear strategies is what sets successful digital transformations apart from failed ones.

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Chapter 2

Addressing the challenges of fostering a digital culture

Shifting toward a digital culture will require changes to existing organizational frameworks, policies, practices, attitudes, and behaviors.

While finance leaders in the ACCA-EY survey agreed that culture plays an imperative role in encouraging innovation and driving digital transformation, having a strong digital culture within finance teams is currently not the norm.

Seventy-eight percent of the respondents agreed that the culture of their finance teams needs to change for them to continually engage in digital innovation and consistently seek process improvements through technology.

Culture of finance team

78%

of finance leaders agreed that the culture of their finance teams needs to change for them to continually engage in digital innovation and consistently seek process improvements through technology.

More than half of the respondents saw a digital culture gap between their finance teams and those of other organizations with very mature digital technologies and capabilities. The lack of a strong digital culture can be attributed to a resistance to change within finance teams that prefer the predictability of the status quo as well as a low risk appetite and fear of failure.

A full shift in culture will also require changes to mindsets, attitudes, values and behaviors. The survey affirms this, with more than 90% of respondents agreeing that all the elements of digital culture need to be considered when embarking on new digital initiatives. Among the four, people as well as strategy, processes and policies are viewed to be more important in enabling their success.

Respondents also cited the existence of too many competing priorities as the top barrier to building a strong digital culture, as shown in the following diagram. This impacts all elements of the culture as finance leaders struggle to divert the necessary resources, efforts and time to nurture the right culture holistically.

Barriers to fostering a conducive digital culture within the finance team

With competing priorities, technology investments tend to be focused on other functions that have a direct impact on growth and revenue. Finance leaders should articulate how middle and back-end digitalization initiatives are needed to execute a coherent strategy.

With more frequent disruption from digital innovation, data proliferation, a volatile risk environment, increasing regulations, and growing stakeholder expectations, organizations will look to finance leaders — who have a unique vantage point over the whole business — to provide strategic advice and innovative solutions. This also offers finance leaders an opportunity to position themselves as a strategic advisor.

There may also be competing priorities within finance itself. Occupied with their daily work, finance teams may not have the additional time, capacity and impetus to explore innovative digital solutions and take the necessary risks.

Overcoming barriers to a digital culture

Overcoming the barriers to a digital culture requires multipronged, consistent and concerted efforts. The most common initiative undertaken by the respondents is clear communication from the top management on the importance of innovation, including the definition of a digital vision, which will provide a common ambition and focus for efforts and investment decisions. When communicating the digital transformation strategy to other stakeholders, finance leaders should help them to understand its significance and impact on them to secure their buy-in and commitment.

Other steps taken by finance leaders include conducting workshops and training sessions to raise awareness and enhance the digital skills of finance staff so that they can take on more proactive roles in the organization and contribute to key business decisions.

The lack of frameworks and metrics to assess the digital culture is a key barrier cited — and not comprehensively addressed — by the respondents. This is likely due to various challenges that stand in the way of producing relevant, credible and trusted culture reporting.

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Chapter 3

Building a strong digital culture

Building a strong digital culture calls for an understanding of its elements, assessment of current gaps and enhancements to each element.

The four elements of a digital culture: organizational structure; people; strategy, processes and policies; and technology are not only individually important but also interdependent. Finance leaders seeking to build a strong digital culture need to understand each element, assess current gaps in their organization and consider the following ways to strengthen each element.

Organizational structure

How organizations are structured can enable or hinder collaboration, agility and innovation. To be adaptable, people across different functions need to be empowered in decision-making to quickly execute change. This starts with inclusive leadership, which delegates rather than controls, actively invites inputs from all organizational levels and changes accordingly. It is also important for business units to share data to provide a complete view of information for sound decision-making.

Anchor the finance function’s influence

Finance leaders are ideally positioned to define a role for themselves and a finance function that goes beyond pure compliance and reporting of finance-related data. In many cases, the CFO acts as a superconnector, drawing together the strands of activities across the entity. Financial and other data are key inputs to many other processes that require business decisions, such as procurement, supply chain, operations or risk management. Finance leaders should take a holistic view of transformation beyond finance by helping to drive digital technologies in other business processes. They should also demonstrate their value as a business partner and in turn, secure the resources and buy-in to drive a stronger digital finance function.

Simplify structure for agility

To promote agility, finance leaders can consider flattening the finance function’s hierarchy to facilitate more direct and faster feedback from employees on ways to innovate and enhance finance processes. A flatter structure and a collaborative mindset will help to foster a stronger digital culture.

People

Finance leaders need to recruit, harness and retain talent with the skills and motivation to complement technological innovations as well as the agility to embrace rapid change, evolving roles and new approaches.

Design a future-fit operating model

The finance function of the future is expected to evolve into a data-driven decision center. Finance professionals should focus less on generating reports and information, and more on using the available data to help support decision-making. The ideal future finance operating model should be smarter, better aligned to the business and more forward-looking and resilient. To realize its promise, finance leaders will need to rethink their talent management strategy and establish the right people management approach.

The ability to leverage data as a strategic asset is key to driving better insights for the organization. Data gurus, such as statisticians, data scientists and even behavioral scientists, will be invaluable in helping the finance function of the future to turn data into fresh perspectives and strategic insights. So is talent steeped in finance knowledge and literate in technologies, such as blockchain, artificial intelligence (AI) and predictive analytics, with prior experience in using or implementing them. To be effective business partners, finance talent must have the communication skills to convey pertinent insights to other internal stakeholders and help address strategic challenges faced by the business.

By drawing on market workforce trends and the organization’s forward-looking business plans, finance leaders can more accurately forecast the finance and digital skill sets that will be required, major gaps and how these can be addressed.

Strategy, processes and policies

Having a clear organizational strategy, followed by digital and data strategies underpinned by enhanced processes and policies, is imperative in ensuring that from the vision to execution, finance teams understand the digital transformation road map.

It is important for finance processes to be modernized for agility. Lean, effective and efficient finance processes are crucial to ensure that finance teams can continually extract value from new technologies adopted. Finance leaders can consider various levers to reengineer finance processes to fully capitalize on technological benefits: standardization, centralization, digitization, and elimination of redundant activities.

Technology

Finance leaders need to assess their organization’s current digital maturity and understand its key priorities and enterprise-wide digital budget and investments. This will ensure that the finance function helps to make coordinated and focused investments in technology that creates value.

Relatively new technologies, such as in-memory and cloud computing, analytics, mobility, AI, blockchain and robotic process automation, offer finance leaders an exciting opportunity to reimagine what the finance function could look like.

Beyond understanding the key emerging technologies, finance leaders should make pragmatic decisions about the optimum time to invest, as well as when to run pilots or test new innovations, and determine the people skills and capabilities that they will require. To make the most of new technologies, finance leaders must challenge assumptions and encourage experimentation, while managing the risks inherent in each technological innovation.

The use of data and analytics can support finance leaders in transforming the finance function from a reporting entity to one that guides strategy through business intelligence. Finance leaders should have a clear data strategy and architecture, enhance capacity to extract insights from data and establish a data governance framework.

How businesses create and protect value is changing. For business transformation to succeed, having the right culture is instrumental. Culture is manifested in how people decide, speak and behave every day.

Ultimately, finance leaders should be mindful that the success of any technology depends greatly on the skills and willingness of the people using it. By placing humans at the center, while leveraging technology at speed and enabling innovation at scale, finance leaders can truly reshape their function to create value for themselves and the whole business.

Summary

Building a strong digital culture is key to driving a more strategic finance function that enhances business value.

The four main elements of digital culture are organizational structure; people; strategy, processes and policies; and technology. Finance leaders will need to take a structured and balanced approach that covers all these elements and be mindful that the success of building a robust digital culture greatly depends on the skills and willingness of the people using technological solutions.

About this article

By Ronald Wong

Financial Accounting Advisory Services Leader and Partner, Ernst & Young LLP

Financial accounting advisory professional with deep accounting and reporting knowledge in SFRS, IFRS and US GAAP. Vast finance and accounting transformation consulting experience.