The business case for change
Race for relevance – a commentary, by Larry White, Executive Director, Resource Consumption Accounting Institute
Technology is transforming businesses and the pace at which organisations need to react if they are to remain relevant to their customers and communities. The Race for Relevance report correctly highlights the nature of the significant opportunity for growth and also the issues arising from the adoption of technology that are faced by the finance function.
Two perspectives for the CFO
For me, there are two perspectives that the CFO needs to consider when it comes to technology investments to maintain and improve relevance.
First, finance evaluates technology projects for investment and capital budgeting by the organisation. This is a traditional budget and financial analysis role, but finance needs to become more adept at factoring in organisational strategy, risk and opportunity, and competitive market analytics. These perspectives are particularly critical for new and rapidly developing technologies that have the potential to create disruptive change in an industry.
Second, finance has its own projects and technology needs. The finance team needs to come forward and place its own projects into the mix in a manner that shows it can contribute to an organisation's strategy and competitive position. A lack of investment in finance, as highlighted in the report, can lead to a technology deficit that it is hard to recover from the longer it persists.
In my experience, finance professionals do not do a good job of promoting their own projects. Finance is either self-conscious about requesting funding when they have an oversight role in the investment analysis process or finance projects have often been 'requirements' to meet financial reporting regulations where there is no option but to invest. To become a strategic partner in the organization, finance must move beyond 'stewardship' and show it has initiatives that will contribute to organisational strategic goals.
Forward thinking finance
Finance has shown some initiative in applying technology to routine financial processes and financial reporting with automation, bots, and outsourcing/off-shoring. However, long term relevance must focus on contributing to improved decision making effectiveness and navigational capability with forward looking financial information that reflect operational and competitive indicators. This requires investment beyond the financial reporting systems into managerial/operational costing and decision support.
Finance needs to focus less on accounting principles and more on causality and causal relationships that can allow all managers and employees to draw clear and actionable insights from operational and market data. Failure to do this will marginalise the relevance of the accounting function.
Utilising data effectively
This may sound like a case for big data and improved data analytics in finance. Those are necessary, but they are not sufficient. New financial data from new models is needed. The ability to do a real-time financial close doesn't enhance finance's relevance to the value creating activities in operations and marketing.
Manufacturing has moved into predictive analytics to dramatically improve quality and efficiency.
Marketing is moving into predictive analytics with customer behaviour and sales forecasting.
In most cases, finance isn't collecting or creating the data to support these innovations. The best finance can offer is a 'special study or analysis' to look at the situation. Financial data is often still coming from the general ledger and financial reporting oriented financial system. There are other ways to model financial data that make it directly relevant to operational data and competitive scenarios.
Many accountants fail to see the opportunities in operational and external data and how connecting these more directly to monetary metrics can enhance organisational performance management. If accounting wishes to thrive in the future, it needs to embrace a new perspective in financial analytics – one governed by causal relationships of operational, resource, and market data – not accounting principles and rules.
Driving the organisation forward
Accounting needs to focus on the factors that will drive the organisation, the industry, and the market and move away its traditional stewardship view. The time has come for finance teams to develop businesses cases, innovations, and technology that move the organisation's strategy forward.