How should finance functions operate in the future?
Anders Liu-Lindberg
Leading advisor to senior Finance and FP&A leaders on creating impact through business partnering | Interim | VP Finance | Business Finance
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How does an AI-first finance function operate? This is THE critical question to answer when predicting how the finance function will look in 2035. Recently, we shared a vision for this future and discussed how you can develop a strategy to get there. We will start populating these with more granular elements to draw a concrete picture of how we see the finance function operating in 2035.?
We break down the Finance function into three parts: Operational Finance, Specialized Finance, and Business Finance. This is how Deloitte typically divides the finance function. We shared a high-level take on how these three parts should operate and, not least, how the division of work between AI and humans should be. This week, we will deep-dive further into each part and share a concrete view of how each part works. You can use this as a benchmark for how these parts work in your finance function today and create a concrete roadmap to bridge the gaps in the coming decade. Let’s start the deep dive.?
How the finance function delivers value?
There’s only one viable answer to the question of how finance can remain relevant in the future: improving decisions and performance. Producing high-quality data can only do this, driving clearer, faster, and richer insights used with business leaders through Generative AI and human influencing. That’s why we are starting our deep dive into Operational Finance.?
Operational Finance?
The ambition is for this part to be fully automated. That means a seamless flow of transactions between the company and its customers and suppliers and the processing of internal work orders such as salary and various requisitions. Most of these workflows start outside Finance, i.e., Sales landing a deal, HR hiring and employee, etc. That means that the automation needs inbuilt controls at the source, restricting any data input from other internal or external parties.?
Today, this brings significant challenges to the finance function. Many of the data quality issues we face occur because of errors at the source. It could be a sales rep who finds proper lead and deal management unnecessary bureaucracy. Often, this is caused by the need to enter the same information many times during the workflow as data is not necessarily seamlessly transferred from one system to another, i.e., CRM to ERP, etc. Hence, to fulfill the 100% automation ambition, it requires the following:?
The technology to automate operational finance is available today, and while it will improve, there’s no reason to dismiss the idea of going for 100% automation even today. Still, it’s probably na?ve to think that errors won’t occur despite having the best possible control and software. In addition, situations may arise that haven’t been incurred so far and will need special treatment. Finally, new rules and regulations are enacted continuously and must be implemented into work processes and software.
For all these reasons, humans are still needed in Operational Finance. However, it’s important to note that they’re not there to make the process run. They’re there to fix the process if it breaks or improve it through new technology or new rules and regulations. The production of high-quality data is an absolute requirement for the other parts of the finance function to operate as intended.
Specialized Finance
The ambition is to enable Specialized Finance with artificial intelligence rather than replace or augment it. These teams, e.g., tax, treasury, FP&A, etc., should operate strategically and drive policy deployment throughout the organization to AI and human workers. Today, the teams still have many more mundane and operational tasks, where the most significant potential for leveraging AI lies. Let’s review examples of how AI can take over these tasks and what it frees the teams to do.
Tax
Treasury
FP&A
These are not the only teams in Specialized Finance; however, you will get the idea and principles for splitting work between AI and humans by extrapolating these examples to other teams. It’s only a few companies where these teams can genuinely claim they’re delivering strategic value; hence, there’s a significant opportunity here.?
Business Finance?
As with Specialized Finance, the ambition is to enable Business Finance with AI. Today, too much time is spent analyzing numbers and doing simple performance management. Much of this should be centralized in a center of excellence run mainly by AI. This can feed finance business partners insights in real-time and in an event- rather than calendar-driven manner. This frees FBPs to spend their time with their business stakeholders solving their most pressing challenges. We could put their new way of working in a simple process flow.?
1.?Agree on strategic and tactical priorities with business stakeholders
2.?Operationalize these priorities into a set of concrete actions
3.?Lead or drive these initiatives and stay close to execution
4. Measure and monitor progress at a granular level and in real-time
5.?Provide continuous feedback to execution teams on effectiveness
6.?On-going evaluation of performance and target fulfillment with business stakeholders
7.?Change course? as needed and provide structured feedback to Specialized Finance
AI can enable many of these steps, and 4) and 6) in particular; however, it cannot perform these tasks fully. FBPs must apply creativity and problem-solving to drive the agenda of their business stakeholders. They must also use their relationship-building skills to support execution teams in a caring yet firm way to ensure progress. Finally, they must be resilient and work well under pressure since reality is bound to change priorities frequently, meaning that what’s essential rarely stays the same.?
It's quite a different way of working, and FBPs truly need AI as their co-pilot for it to work. FBPs shouldn’t be concerned about arming their business stakeholders with these co-pilots. It should inform them about what happened and why it happened. This ensures alignment and gets everyone on the same page to discuss what to do about it. This is how FBPs were always supposed to work!?
How to get started today??
The old saying goes, “You can’t manage what you can’t measure.” We should start by measuring our current performance to understand where to move toward this operating model. Here are the five measures that determine the success of the finance function in 2035:?
This should provide a straightforward path to establishing your baseline for each of the three parts of Finance. Let’s summarize the steps to take:
1.?Identify all your core processes
2.?Put a Yes/No flag on each if they’re AI-enabled
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3.?For every “Yes” measure, how large AI runs a part of the process
4.?For every “No,” determine the path toward AI-enablement
5.?For all stakeholder-facing processes, measure the time-to-insight
6.?Determine the path to real-time and self-service (if relevant)
7.?Measure stakeholder satisfaction and ask them for improvement points
8.?Create an action plan to improve satisfaction and close gaps
These are the eight steps to follow. The outcome should be improved business performance. Naturally, your actions should fit into your overall strategic action plan, where you’re likely prioritizing the initiatives. You likely won’t have enough time and resources to address everything. Priority should be given to strengthening Operational Finance since getting quality from this part of the finance function automatically improves the other parts. Still, it’s fair to task Specialized and Business Finance with minor improvements while significant work is ongoing in Operational Finance.?
Much work must be done to operate as the finance function should in 2035. We both must create a strategy for getting there and start taking the first steps. Here, we have outlined the target operating model and how to take those first steps. How far is your finance function from operating in this way? What steps are you taking today to get there? What support would you need to get there successfully?
This was the fourth article in our new series, "Finance 2035 - what Finance will look like a decade from now". Find the previous one(s) below. Remember to subscribe to be notified when we publish future articles.
You can catch our previous series, "Hacking the Annual Wheel in Finance." below.
If you want more trends in finance and accounting, you can read our previous series, "The Top 10 Priorities for CFOs in 2024." This series explored what critical issues CFOs should focus on in 2024.
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Anders Liu-Lindberg is the co-founder and a partner at Business Partnering Institute and the owner of the largest group dedicated to Finance Business Partnering on LinkedIn, which has more than 12,000 members. I have ten years of experience as a business partner at the global transport and logistics company Maersk. I am the co-author of the book “Create Value as a Finance Business Partner”, a long-time Finance Blogger, a LinkedIn Learning instructor, and a Top Voice on LinkedIn with 375,000+ followers.
Team Manager, Financial Analyst @ Financial Sector, Banks | Master's in Economics, Banking Strategy, M&A, Cross-Border Transactions, Corporate Banking, Risk Assessment Expert
1 周The financial function is one of the most significant; without the financial function, the life of any company is impossible. The financial function is the starting point when many owners begin to think about reorganizing and expanding their business and entering new markets. However, the finance function is divided into three parts as suggested by Deloitte. Why exactly this way and not otherwise? What can be done to dispel these doubts? Each of us knows that there are the Big 4 firms - PwC, Deloitte, EY, KPMG. What is the difference between the Big Four firms? I think one of the best answers can be found at the following link: https://managementconsulted.com/big-4-accounting-firms/ But the real question is, why did we choose Deloitte over PwC or KPMG? The answer is not whether any of the Big Four firms are bigger or smaller, or what their judgments are in this area. We don’t know what Deloitte was thinking when they structured the finance function the way they did. But we do see that PwC, the largest of the Big Four, has focused on compliance and risk management, as has KPMG. Incidentally, strategy and workforce are also missing from Deloitte’s split of the finance function. But they are included in the KPMG and PwC frameworks.
OK Bo?tjan Dolin?ek
Founder at Linkmate | Automate LinkedIn Engagement with AI | Boost Your Network & Connect with Industry Leaders Effortlessly
2 周I'm eager to see how this unfolds and learn more!
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2 周Thanks for sharing this! I'm in the process of learning how to integrate AI at the moment.