Digital transformation is revolutionising the roles of CFOs and their teams. Swept to the forefront of strategic planning and policy making, they are offered new opportunities but, warns transformation expert Marco Schilder, there are a number of pitfalls that CFOs have to be aware of.
Digitalisation is something no company that wishes to be taken seriously, now and in the future, can afford to ignore. But what does it mean for CFOs and their departments? It is obvious already that the traditional finance function – recording and reporting financial and other data – is rapidly making way for such tasks as forecasting trends and signalling strategic business decisions. Changing from budgeting to forecasting and from book-keeper to strategic partner means digital choices have to be made. Algorithmisation, robotisation, AI, big data, data analysis and machine learning are just some of the many options available - but which is the right one? And how can finance staff be motivated to support the change? BDO’s financial operations adviser Marco Schilder supports CFOs and their departments in the transition to digital and explains how it is done.
What does digital transformation mean for the CFO and the way a finance department functions?
‘Finance is finding itself at the centre of a rapidly changing environment of business models that come and go, as well as increasing demands on its services. Tasks such as risk assessment and impact analyses for strategic choices mean finance is being given a great opportunity to expand its role. Digital transformation helps to make financial processes more efficient and robust and that means the department is freed up to advise colleagues in business and other staff services. Tools such as continuous control dashboards also allow it to monitor and better control the internal processes.’
Marco Schilder is partner at BDO CFO Services. His speciality is in financial function advice and coaching CFOs during the digital finance transformation process. Former employers include Arthur Andersen and EY where he worked as an accountant and management consultant.
What does this mean for the role of finance departments with the boardroom?
‘They will move toward reporting and analysing will happen in the future, based on past and current events. The trend is moving away from providing a financial account towards delivering management data that gives business the insights that are going to influence the initial decision-making process. A company may want to know whether it has got the product market fit right, for instance, or if better investment opportunities could present themselves. They want to know what changes may affect how they are currently making their money. Performance and portfolio management software will make it easier to generate this type of information and visualise it clearly via dashboards. That will put finance in a much better position to advise other departments within the company.’
How does this work in practice? The building industry is often faced with extra post-project depreciation costs, for instance.
‘Building firms work on a project basis. To prevent any nasty financial surprises they would do well to include someone from finance in the project team from the word go, not to check the invoices but to use digital means to see if things are ticking over correctly and if progress and budget are in line every step of the way. You can do this by having contractors keep proper digital reports on-site, so that any budget overruns can be spotted, and tackled, in time. In short, finance should be more involved in the business side of things.’
Be as compliant as necessary,
as efficient as possible’
How can you prevent people from becoming overwhelmed?
‘We advise CFOs to start small, for instance by organising a workshop to explore what the digital strategy of their department is, or should be. Where are you now and what is ‘the dot on the horizon’? Then, by means of process mining, the processes best suited to digitalisation are brought into view – think of purchasing, invoicing or reporting. Breaking up the process into small steps gives CFOs a chance to experience quick wins brought on by digitalisation and so build a basis for a large-scale transformation project.’
What are the leading principles when you are coaching CFOs?
‘Our motto is be as compliant and as efficient as possible. Don’t be fooled into thinking that’s a simple balance to achieve. More rules and regulations mean you might give too much weight to compliance and then you will lose on the efficiency side. Compliance is an absolute must but should be balanced by efficiency and the ability to act decisively.’
What are the pitfalls CFOs should take into account?
‘They must take care not to drown in a sea of data. Collecting and analysing data requires the ability to separate the relevant from the non-relevant and for that finance must knock on their business colleagues’ door. Another risk is that a few former IT workers become the designated finance IT specialists while the rest of the staff watch from the sidelines and continue as before. That is not going to achieve anything. The digital transformation of the finance department role needs a multidisciplinary approach.’
‘Finance is moving from operational work and reporting towards providing
direction to business’
Is the human factor the greatest hurdle to a seamless digital transformation?
Schilder: ‘Absolutely, and that is why it is essential to involve staff as early in the process as possible through consultation and training. Many people underestimate the importance of staff involvement. It really is the key to success. And don’t forget that, apart from staff, many executives are also sceptical about big IT projects, and rightly so. Many of these projects did not deliver in the past so why would this one be any different? So seeing is believing. Otherwise they will regard this as yet another hype and dig in their heels.’
Any other important hurdles?
‘Finance departments must be able to work closely with the IT department. We sometimes find that finance is eager to forge ahead but that IT is dragging its feet. I was recently told about a big financial services company where the CFO wanted to calculate a number of assumptions because of new rules and regulations. The IT department refused, saying ‘it would take up too much of our platform’s computing capacity’. A number of finance staff subsequently went to a computer shop, bought a couple of heavy duty computers and servers and did the job themselves… To prevent this type of friction from occurring, it’s vital that a digital finance department project such as an ERP implementation is not led by either IT or finance but by an independent change manager. He or she can be the link between the two departments and create the integrated approach that is indispensable for a successful digital transformation process.’
Where do you start?
‘We use the BDO framework for Integral Digital Transformation. The framework provides insights into what is happening inside the organisation and the internal processes which are needed. We distinguish three dimensions to the digital transformation process. The first dimension is made up of the five aspects of digitalisation, i.e. clients, staff, finance, IT and the portfolio of services and products. The second dimension is the digital maturity of these five aspects – this . The final dimension is the right execution level, in other words who will be doing what. The starting point is a strategy for digital transformation initiated by the top management, which is then translated into tactical terms by the middle management. This is followed by the operational execution and the implementation of systems.’
Finance is increasing using robots to take over certain tasks. Apart from fewer human mistakes, will this not also lead to fewer FTEs?
‘It will in principle because for some tasks, such as old-fashioned accounting, fewer people would be needed. But more often than not those people are offered another, more rewarding financial role, such as providing analyses, controls and advising business. That usually means adopting a different attitude and acquiring new competences, including both technical and soft skills. Very often staff are really put through their paces to make the grade. Digitalisation very definitely has a big impact on certain roles and functions within finance (see box), with the main trend being the move away from operational work focused on reporting to providing direction to business. There will always be a die-hard admin worker who will check the output of the robots and hang on to his trusted Excel-sheets but if the process is managed properly most people will make the digital transition successfully in the end.’
on digital transformation
Resist the urge to start on the operational side straight away and focus on setting out a digital strategy first.
Start small and, depending on the results, continue to make small and time-limited steps in order to gain some quick wins and keep things manageable.
When collecting and analysing data make sure you are not overwhelmed by the huge volume of data. Prioritise.
Involve finance as well as IT in the transformation project but appoint an independent manager as project leader.
Involve staff as early as possible in the digital transformation process. Consultation will create a basis for cooperation. Start the appropriate additional training on time.
Bring in the right talents, who fit in with the new digital culture. That will become easier as you become future proof in terms of digital operations.
Read more inspirational cases in our special THE DIGITAL CFO
The CFO's of ground-breaking corporates such as KPN, NS, Ordina, Randstad and Wolters Kluwer give insights into their own, unique approach to digitalisation. And discover how BDO's integrated approach makes the most of the opportunities which digital transformation can bring.