The Future of Finance Amidst Digital Transformation

It was an honour to light the lamp of learning at IIMS, Pune and address an audience of 200+ students on the above subject. The Times B School Ranking 2018 places IIMS at 22nd place amongst All India Private B Schools, Business Barons ranks it 23rd. It was also awarded the Best Education Brand 2018 by Economic Times. 

I belong to Generation X, the period just after the Baby Boomers and almost all the students were in the cusp between Gen Y and Gen Z – I would simply call them the millennials. Generation X, to which I belong, has seen the most dramatic technological changes over the past three decades. We came into the workforce where the most basic of desktop computers had just emerged (most of our work including book-keeping was still manual) and have been forced to adapt constantly over the last three decades with the rapid changes in just about everything – workforce mobility, work environment, workforce demographics, multi-cultural workforces, technology, computing, etc.

Most of the Generation X individuals in this subcontinent had to find gainful employment at a difficult time, set up a family, create financial stability, manage personal debt and at the same time care for their parents in a society that had very little social security.  Quintessentially, we value communication and social media almost as much as the millennials do. We understand what it means to be a self-made person, place a high value on individual achievement and therefore empathize with the millennials need for personal and professional growth opportunities. 

There is so much that has changed over the past thirty years and the pace has only accelerated further now.  Immersive experiences have been ushered in through Virtual Reality, Augmented Reality, Connected Homes, 3D printing, etc. Artificial Intelligence (AI) has made an advent through Conversational User Interfaces, Machine Learning, Augmented Data Discovery and Drones. And the new age Digital Platforms have led us to Blockchain Technologies, 5G, Smart Cities, Edge Computing, Neuromorphic Sensing, Digital Twin and of course, the IOT – Internet of Things.

It may sound almost revolutionary, but Blockchain by itself is truly a mechanism to bring everyone to the highest measure of accountability. No more missed transactions, human or machine errors, or an exchange without the explicit consent of the parties involved. The easiest way of understanding this is to use an analogy to a Google Docs spreadsheet, which everyone can simultaneously alter, edit and embellish but cannot destroy and is not stored on a central server. 

In the digital age, led by Artificial Intelligence and automation, cloud computing and robotics to analytics, a new division of digital disruptors is transforming how business gets done. No points for guessing that these disruptors will have a big impact on the future of finance organizations. What exactly would their impact be and what is the future of finance in the midst of these rapid developments?

The role of the CFO itself has undergone so many changes. Whereas the traditional finance activities continue to ask for significant effort, a recent Ernst & Young survey shows that 56% of finance leaders are saying that they cannot focus on strategic priorities because of the time spent on compliance, controls and costs and at the same time, increasing operational responsibilities.

CFOs face additional challenges on many fronts. Reporting complexity and volume have skyrocketed, yet there is a need to increase transparency in financial reporting. The emphasis on risk and compliance has gone up manifold. In the midst of all this, the finance function has to deal with the next phase of digital transformation.

Digital transformation, for the purpose of this article, can simply be defined as the utilisation of technology to bring about improvements in business. For the finance function in particular, we could look at six broad technologies that would have a relevance as to how work gets done in the future.

Cloud computing is a scalable, flexible technology where a bundle of finance functions can be delivered ‘as a service’ without the need of making large investments up front. 

VDI (Virtual Desktop Infrastructure) allows the user to interact with the OS and its applications as if they were running locally and yet this enhances IT security exponentially and one can do away with large investments in obsolete desktops and continual upgradation in office equipment; at the same time providing virtual access to the user 24/7 to his work files.

Robotic Process Automation (RPA) automates transaction processing and communication across multiple technology systems. Robots perform recurring processes just like humans, but with less risk of errors and fatigue.

Visualization refers to the innovative use of images and interactive technology to explore large, high-density data sets. Visualization suites complement business intelligence and analytics platforms, offering rich graphics, interactivity, and usability on par with leading consumer experiences.

Analytics has long been part of the finance arsenal, but new techniques are helping business people tackle the crunchy questions with insightful answers. Often that means combing through big data to see patterns that suggest future opportunities. 

Cognitive computing and artificial intelligence (AI) simulate human thinking. This technology includes machine learning, natural language processing, speech recognition, and computer vision.

In-memory computing refers to storing data in main memory to get faster response times. And because the data is compressed, storage requirements are reduced. The result? Speed and access to quantities of data that were previously unimaginable.

Blockchain is a digital distributed ledger, where transactions are verified and securely stored on a network of distributed and connected nodes, without a governing central authority. I consider this one of the most important pieces of technology to focus upon for the millennials in B-school and shall cover it in greater detail in a subsequent blog post.

THE FUTURE OF FINANCE

CFOs should be able to listen to the market and find incumbent products, evaluate which ones can be utilized efficiently and convince the leadership team to invest time and money vis-à-vis the projected benefits.

Standardizing and automating processes and building agility and quality into processes will be a significant priority for tomorrow’s finance function. This includes improving digital technology skills in areas such as RPAs, mobility, the cloud and SaaS and combining appropriate technology with process improvement.

Driving cost efficiencies in an era of diminishing margins and intense competitiveness is another top priority. This too can only be achieved by embracing the new digital technologies by challenging existing models and encouraging experimentation. At the same time, risk inherent in technological adoptions also have to be managed effectively.

With the huge amounts of data that is now available, finance functions have to get even more effective 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 – and all this needs to be accomplished in real time. This means facilitating analytics as close to the source of the data as possible, drive streaming analytics and keep data relevant to real business problems.

The finance function of the future will also have to drive change management across various functions. Adapting to change is often the main barrier to adopting new technologies. If organizations are to succeed in utilizing large amounts of data for strategic decision-making, business partnering is even more of a priority. The ability to understand the information needs of different stakeholders and communicate clear insights backed by robust analysis is paramount. The work of the analysis teams have to align with the business priorities and help the leaders understanding the implications.

Digital transformation is human-centric because it is about imagining and executing new ways of value creation. For that to happen, the finance function has to be digital enablers as well as users of digital capabilities. The Gen X which most likely heads the function today, will have to engage with the Millennials – giving them an opportunity to learn, grow and innovate. The culture of the future function is more experimentation and innovation, even as the responsibility of risk and compliance rests squarely on the same shoulders. 

Finding, nurturing and grooming the right talent for the function going forward is also not going to be easy. It is no longer about subject matter expertise alone, it is about combining this expertise with the ability to challenge the business unit’s strategies, challenging business models and challenging budgets. It is also about providing real-time, predictive insights to navigate increasingly unpredictable and challenging business environments.

As future leaders in a rapidly changing work environment and fast-paced technological innovations, the millennials have to create their own roadmap, their own path to realize the benefits of digital transformation. Organizations of the future will chart their own courses at varying pace. Irrespective of which future they envision, the CFO of the future will most likely be the one who figures out how to make digital work for finance – and for the whole business. 

For readers who are keen to study this in greater detail, the Columbia Business School (CBS) has published a book based on Rogers's decade of research and teaching and his consulting for businesses around the world. The Digital Transformation Playbook shows how pre-digital-era companies can reinvigorate their game plans and capture the new opportunities of the digital world. You can buy it from Amazon here https://amzn.to/2Qwu5qk