Can agile finance provide the fuel to drive your business ...FILE/ey... · Can agile finance provide the fuel to drive ... 2 Can agile nance provide the fuel to drive your business

Can agile finance provide the fuel to drive your business forward?

Disruption and volatility are the hallmarks of today’s global business and economic landscape, and no company is immune. To survive and thrive in this “new normal”, enterprises must think and act differently in all areas of the business. And, that includes finance. With the pace and extent of change that companies now face, they’re looking for more than business as usual from the finance function. Finance must become much more agile to help the enterprise respond to new demands on the business — quickly, efficiently, and with deep, relevant and timely insights. Answering that call will require fresh thinking, new approaches and more powerful technologies — in other words, a complete transformation of the finance function as we know it today.

2 Can agile finance provide the fuel to drive your business forward?

Constant change and disruption are the “new normal”, and the finance function is feeling the heat.

Companies aren’t strangers to change, but the level and pace of change that they experience today is unprecedented.

Arguably, the biggest change is one that has been building momentum for several years: disruptive technologies and the new business models based on them, are rewriting the rules of competition in many industries. Innovation and speed of execution have now become a basic requirement to simply remain in business.

Markets and geopolitical conditions also have become more volatile, while globalization and M&A continue to increase. As a result, companies face far greater risks and more demands from stakeholders.

And, talent is becoming more globally dispersed and diverse, as well as increasingly difficult to find and keep. This, combined with shifting organizational models, growing business process complexity and an explosion in data volumes, makes managing the business more difficult than ever.

Against this backdrop, a lot more is being asked of the finance function to help companies deal with the “new normal”. The board wants to maximize shareholder value and minimize enterprise risks, while investors are looking for predictable, sustainable profitable growth. Regulators expect timely and effective compliance with changing regulations. And, company leaders need real-time insights on the state of the business to help them make better and more timely business decisions, as well as a cost structure that flexes with the business and helps the company perform better in the face of changing market conditions.

The upshot

The role of finance is evolving and new thinking is required to transform the finance function.

3Can agile finance provide the fuel to drive your business forward?

The future is Agile Finance

To survive and thrive in the new normal, companies can no longer rely on business as usual from the finance function. They need to embrace a new future and that future is called Agile Finance (Figure 1). An Agile Finance function is characterized by three elements.

Figure 1: The Agile Finance function in a digital world

It’s responsive to changing market dynamics, business needs and regulatory requirements as the world becomes more digital.

The planning and forecasting process is a great example. Today, the annual planning exercise typically takes months to complete. By the time the final plan is produced, the market has changed and the plan doesn’t reflect current realities. And, then updating the forecast takes many weeks more, so the plan always lags the market — to the company’s detriment. With Agile Finance, driver-based planning, the availability of real-time data and new technologies provide real-time information that fuels decision-making. As a result, planning and forecasting are in tune with what’s happening in the market.

Consider a Fortune 100 firm, whose actual performance fell significantly short of its guidance to Wall Street over several quarters — largely because of an inefficient planning and forecasting process in which unnecessary details were prepared for every plan or forecast. By transforming its forecasting capabilities with a driver-based solution enabled by SAP Business Planning and Consolidation (BPC) technology, the company was able to reduce the cycle time and improve the accuracy of its forecasts.

It’s insightful, providing accurate, timely and actionable information to stakeholders.

An Agile Finance function enables stakeholders in the business to get the information that they need, anytime from anywhere,

New normal

Agile Finance

Responsive ... to changing market dynamics, business needs and regulatory requirements

Insightful ... providing accurate, timely and actionable information to stakeholders

Efficient ... delivering quality service at a competitive cost, while being flexible to demand


using modern-day technologies. With self-reporting capabilities they access via their smartphone or tablet, stakeholders can tap into what they want without waiting for finance to deliver it. Thus, for instance, the head of a business line can see how his area is performing at any time and correct course, if necessary. It’s a far cry from today, when users have to wait until the month-end reporting to get the numbers. By then, it could be too little, too late.

Take the case of a Fortune 50 firm, which designed a near-real-time closing and reporting process. The process is enabled by SAP S/4 Central Finance, which accesses multiple-source applications to help business leaders make more timely business decisions. The new design not only improved visibility, but also made the entire closing process more efficient by automating certain activities and eliminating data duplication. And, it did so without interrupting the businesses that use the source applications.

And it’s efficient. It delivers quality service at a competitive cost, while remaining flexible to changes in demand.

In Agile Finance, a variety of technologies automate finance processes to relieve manual and repetitive work, thereby reducing costs and improving service delivery quality. That’s what the global business services (GBS) organization of a Fortune 100 consumer packaged goods company found. The company is implementing a robotic process automation (RPA) solution as part of a program designed to reduce work efforts by up to 20% and free up skilled talent to focus on higher-value tasks.

Think of it in terms of an elite soccer player. To be world class, the player has to be agile — prepared to respond to all kinds of variables in a game: condition of the pitch, weather, skill and speed of opposing players, and tactical adjustments that the opposition’s coach makes throughout the contest. Without that agility, he will be simply a one-dimensional player who can’t be relied on to perform at a high level all the time.

It’s the same with finance. An Agile Finance function is prepared to respond to whatever the competitive environment and business asks of it — both the expected and unexpected.

The automotive industry is a great example. Car makers’ long-standing business model has been manufacturing and selling cars. However, in the future, people expect to share driving and assets more. So, instead of having three cars in the garage, a typical family may have only one and rely more on ride sharing to get from point A to B. Recognizing this shift and its impact on their primary revenue streams, car makers are looking for ways to become more of a mobility company-generating revenue and profitability from providing transportation services — as well as making cars.

This change will require different finance-function capabilities such as being able to bill by ride, accept electronic micropayments, and account for an owned asset in the field. An Agile Finance function will be able to smoothly make this transition to support car companies’ new business models, as well as accommodate future changes to its capabilities mix that the companies may not even be anticipating today.


Becoming more agile: eight key enablers

The fact is that finance has no choice but to become more agile. It’s essential to the function’s ability to keep pace with the business. The good news is that there are eight key enablers — comprising a broad assortment of emerging technologies and leading practices — that can help finance develop the new or enhanced capabilities that it needs (Figure 2). Importantly, these enablers are a mix of technologies and talent — both of which, EY research has found, the CFOs deem critical to reinventing the finance function (see box).

Figure 2: The eight enablers of Agile Finance

Talent management and organization design

Finance has to equip its current and next generation of leaders with skills and capabilities to excel in an agile, digital future. This is especially critical given how difficult it is today to attract and retain talent. A formal approach to leadership development that includes continuous assessment, a motivating culture and a personalized development plan can boost the finance function’s leadership “bench strength.”

Finance also must organize its resources more effectively to deliver what the business needs. One way to do so is to take advantage of a GBS model. A GBS model is a multi-functional organization with a diverse set of service offerings or solutions that’s managed through a global governance structure. Leveraging a mix of delivery options — including a center of excellence, a shared service center and business process outsourcing — and enabled by the latest state-of-the-art technology, a GBS organization can help make finance a trusted partner of the enterprise and increase finance’s value to the business.

Talent management and organization design

Intelligent automation (RPA, machine learning and artificial intelligence (AI))

Digital processes and cybersecurity

Cloud and software-as-a-service (SaaS)

Next generation of enterprise resource planning (ERPs)

Blockchain and distributed ledger

Internet of Things (IoT)

Big data and advanced analytics


CFOs say that technology and talent are both critical to transforming finance

EY’s The DNA of the CFO survey polled 769 global finance leaders for their thoughts on the biggest priorities for building the finance function of the future. And, the results show that technology and people are equally important:

• Sixty-five percent of respondents said that standardizing and automating processes, and building agility and quality into processes will be a significant priority for tomorrow’s finance function.

• Additionally, over half (58%) indicated that driving process improvement with state-of-the-art technology will be a major focus.

• CFOs place slightly more importance on the people dimension, with 67% reporting that improving how finance partners with the business will be a top priority.

• And, with new technology comes a need for new skills—particularly, in analytics. Fifty-seven percent of CFOs believe that building skills in predictive and prescriptive analytics is critical to finance’s future effectiveness.

Intelligent automation (RPA, machine learning, and AI)

A variety of new technologies can help finance automate activities and processes to save time and money. One such technology is RPA. RPA is a software solution that works unattended, like a virtual employee, with legacy applications, by automating basic repetitive tasks reliably at the user interface level. RPA can handle such activities as composing and sending emails, entering data into a system, and reading, copying and aggregating data.

More-sophisticated automation comes in the form of AI and machine learning. AI is software-driven intelligence that mimics human cognition, behavior and thought processing to replicate more complex tasks that include professional judgment and historical knowledge. AI can improve strategic insight by analyzing unstructured data and providing predictions that improve over time through machine learning.

Other complementary technologies, tools and architectures —including sensors, conversational agents (i.e., chatbots) and drones — can be combined with RPA and AI to further automate a business process or human experience.

Digital processes

By leveraging new technologies, such as TrustPortal and optical character recognition (OCR), finance can digitalize its processes and documents. This makes it easier for finance to then standardize those processes across the organization through centralization and to apply automated controls and cybersecurity. A digital process that combines the power of standardization and automation will improve accuracy and reduce cost, and will free up critical talent to work on high-value tasks.


1. A disrupted reporting environment: technological, political and social risks are on the rise

Next-generation ERP

The finance function has long been powered by ERP applications. But, while extremely powerful, traditional ERPs aren’t flexible and functional enough to enable Agile Finance. Next-generation ERPs change all that.

Based on new in-memory technology, next-generation ERPs can store and process large volumes of data in ways that they couldn’t in the past. They support advanced analytics by providing a gold-standard source of data and standardized master data, and can drive down information technology (IT) costs by reducing the number of systems and interfaces. And, they streamline closing processes and enhance reporting capabilities through drill downs and integrated finance applications.

One example of a next-generation ERP is SAP’s S/4 Finance, which is the most significant redesign of SAP’s finance solution in more than two decades. SAP has completely re-architected the inner workings and database structure of the core finance modules on a simpler, faster and more integrated platform called HANA. These changes dramatically simplify the entire data model, and how data is stored and accessed while enabling greater finance process flexibility and, most important, innovation in how finance works. S/4 Finance can help finance functions reduce their overall costs, provide better business insights, execute acquisition integration and divestitures more quickly and effectively, improve risk management and compliance, and accelerate the deployment of common processes and shared services (Figure 3). When combined with SAP’s Leonardo — a framework for harnessing the latest digital breakthroughs — S/4 Finance can further transform finance’s innovation capabilities (see box). For more on S/4 Finance, see the sidebar on page 13.



SAP Leonardo: a new platform to benefit the Agile Finance function

Leonardo is a new digital innovation system from SAP. It delivers software and services that enable companies to use a single system to take advantage of myriad new technologies, such as machine learning, blockchain, IoT and advanced analytics. It’s a cloud-based solution that integrates with ERP as well as non-ERP applications, and works with a company’s existing IT landscape. Many use cases for Leonardo exist already, such as a cash application using machine learning, that can take companies into the next wave of digital technologies.

IoT

The IoT has experienced astronomical growth in the past few years, driven initially by manufacturers that saw the IoT as a boon to keeping tabs on costly assets. Today, the IoT has penetrated many industries and processes, and is expected to have a profound impact on the world in the next two decades.

For finance, the IoT will unleash a massive, real-time flow of data from across the enterprise into financial systems — thus, giving the finance function greater visibility into what the business is doing on a daily basis, financially and operationally. With this data, finance can make business decisions much more quickly, procure parts before they are needed, automate goods receipts, create automated invoices, update forecasts in real time, identify risk more effectively and detect fraud, among other things.

The IoT also can automate inventory tracking and monitoring through smart sensors and radio-frequency identification (RFID), which significantly reduces effort and costs. And, it can create new revenue streams, pricing and discounting models — something that future finance functions have to plan and design for.

Reduce the cost of finance

Provide better business insights with improved reporting and analytics

Enable effective and quicker acquisition integration and divestitures

Improve risk management and compliance

Accelerate deployment of common processes and shared services

1

2

3

4

5

Agility

Figure 3: The five key benefits of SAP S/4 Finance



Cloud and SaaS

Cloud and SaaS applications are redefining business processes and functions in companies everywhere. Recently, the cloud has been dominated by numerous customer-facing solutions as well as those supporting HR — such as Salesforce, Successfactors, and Workday. Now it’s finance’s turn. New, cloud-based billing systems, and reconciliation and reporting platforms can further improve finance’s capabilities and all of the new ERP solutions — including SAP S/4, Oracle ERP and Microsoft Dynamics — are available in cloud form.

Cloud and SaaS can reduce finance costs by enabling the function to only pay for IT architecture as needed and used. They also provide greater flexibility. This enables the finance function to scale up and down on the basis of the demand for its services, and the IT organization to meet the changing demands for IT capabilities, while freeing up internal IT resources to focus on other critical organization needs.

Another key advantage of the cloud: cloud and SasS providers have far more robust security tools and technologies than the typical company has in-house, which makes them better equipped to manage cyber and disaster risks.

Blockchain

One of the hottest buzzwords today is blockchain. But, it’s not just hype. Blockchain is a distributed infrastructure technology held collaboratively, which facilitates the decentralized exchange of trusted data. Via cryptography, it allows each participant on the network to manipulate the ledger in a secure way without the need for a central authority. And, it has significant potential to dramatically improve numerous areas within finance.

For instance, a company could transform corporate treasury by implementing a blockchain-based clearing and settlement function within the company’s financial network. The immutable nature of such a network lends considerable credibility to financial risk management, while effectively managing cash flow on the basis of up-to-date financial numbers.

The intercompany billing and reconciliation process also can benefit from the technology. With blockchain’s built-in smart contracts capability, financial applications can execute intercompany transactions on a real-time basis. This eliminates the current long, manual and error-ridden process, thus improving efficiency and greatly reducing the overall finance function’s cost.



And, property and asset management could be dramatically enhanced. By transacting a digital token through the blockchain system, finance can strengthen and simplify the tracking of a property’s provenance. This will eliminate provenance checks and the chances of corruption in the transaction trail, establish the authenticity of the certificates, and boost buyer trust.

Advanced analytics

Analytics is no longer considered an emerging technology. Companies are now using analytics across the business to gain insight into operational performance and improve decision-making.

Most companies use descriptive analytics, which involves mining past data to report, visualize and understand what has already happened, after the fact or in real time. A number of companies have taken the next step to embrace predictive analytics, which leverages past data to uncover the underlying relationship between data inputs and outputs to understand why something happened or to predict what will happen in the future across various scenarios. A comparatively small group of companies are using the most advanced type of analytics — prescriptive — the helps determine which decision or action that will produce the most effective result against a specific set of objectives and constraints.

Finance can benefit from analytics in many ways. For example, analytics can spur revenue growth by helping a company identify high-growth and profitable products and customers, improve visibility into the business’s true growth drivers, and determine the effectiveness of sales and marketing programs. Similarly, it can boost margins by uncovering customer and product profitability, illuminating the impact of specific spend (e.g., marketing or IT) on financial results, and performing root-cause analysis (such as fixed versus variable costs).

Analytics also can drive operational excellence by providing predictive modeling for improved forecasting, increasing the automation of such activities as accounts payable and routine journal entries, and more easily navigating systems complexity and data infrastructure challenges to enhance reporting. And, it can improve risk management and controls by feeding into machine learning to identify risky transactions, customers or vendors, and by conducting risk sensitivity analysis and risk event modeling.


2. Preparing financial statements: smart reporting data and innovative finance technologyMaking the move: getting started down the road to agility

There’s no doubt the world is changing and the pace of change quickens every year. Finance faces an urgent need to transform — to become far more agile — to keep up with those changes and what the business expects from the function. The eight enablers just discussed will be key to that transformation.

How can a finance function get started? Figure 4 illustrates five main steps of the journey.

Figure 4: The journey toward Agile Finance in a digital world

First, understand your business and vision, and define the core capabilities that you’ll need in the future. Finance leaders have to identify the new and enhanced capabilities required to support the company’s emerging business and operating models, and deliver value.

Second, assess the finance function’s current capabilities against the Agile Finance criteria of responsive, insightful and efficient. Doing so will reveal the gaps between where those capabilities are today and where they need to be. You’ll likely find you’re further along in some areas than others, so it’s important to prioritize the capabilities that urgently need attention versus those that can wait. The key is to focus on capabilities and, not technologies.

Third, identify the key enablers you’ll need to close the capabilities gaps. For example, you might recognize that several activities are ripe for RPA to automate or your current ERP applications need upgrading, which would significantly boost your efficiency. Or you could determine that moving from descriptive to predictive analytics could make finance far more insightful.

Finally, develop a detailed road map for implementing the enablers that you’ve chosen. The road map will cover all finance capabilities — including financial planning and analysis (FP&A), tax, risk and controls, corporate development, accounting, and transaction processing. It will also help align and streamline, on the basis of business value and priorities, all finance projects designed to improve the finance operating model.

1 2 3 4 5

Define vision and business problem

and, scope capabilities

Assess the current state against Agile

Finance criteria

Assess the capability gap

Identify enablers Create road map to close the

capability gap by leveraging

enablers


2. Preparing financial statements: smart reporting data and innovative finance technology

SAP S/4 HANA Finance: leading the charge into the next generation of finance applications The technological backbone of finance has long been the ERP system — and, for many organizations, that has meant SAP. SAP’s most recent innovation, S/4 HANA Finance, has been designed to continue to support the needs of finance as the function evolves along with the enterprise. A variety of new features in S/4 HANA Finance can help finance enhance its capabilities across the three dimensions of agility and, thus, remain a valued partner to the business in the years to come.

Responsive

A fully integrated planning, accounting, and analytics process and application, such as S/4 HANA Finance, can help finance identify external and internal changes in real time. This is a significant change from today’s process that relies on periodic and summarized updates. SAP S/4 provides a single platform for planning, budgeting, accounting, cash management and tax accounting using in-memory technology. Thus, there’s no need to duplicate and summarize data, which eliminates redundancies and unnecessary reconciliations.

S/4 HANA Finance also helps companies grow inorganically by providing the central finance approach to support more effective and faster acquisitions. The solution’s flexible and extensible structure accelerates the transition to the new combined organization and operating model, while its flexible deployment approach enables various levels of integration, depending on the company’s strategy. Furthermore, non-disruptive harmonization supports common data and processes without the need for redeployment. As a result, the business can capitalize on opportunities — and generate value from them — more quickly.

Risk management and compliance also improves with S/4 HANA Finance. By integrating risk management with performance reporting and planning, and providing better visibility and more integrated financial data, the solution helps finance to more proactively manage key business risks and allocate resources. Furthermore, with the improved user interface, audits become more holistic and efficient.

Insightful

S/4 HANA Finance supports real-time analysis and prediction of the future with a shortened planning,

budgeting, and forecasting cycle, as well as on-the-fly segmentation and analysis across multiple dimensions — thus helping the company react more quickly to market conditions. Additionally, it provides instant access to both planning and actual data, with the ability to drill down to the source system at the document level. This virtually eliminates the significant time consumed today in analyzing variances and then following up with various groups to resolve them.

One of the most visible enhancements in S/4 HANA Finance is a new set of visualization tools and embedded analytics, such as Fiori and Lumira, which provide a totally new way to manage by exception. These features empower users to look at and analyze information in a way that, until now, they never could. And, with a universal journal, finance can build a fat ledger, enabling decision-makers to view profitability by any dimension that’s important to a business.

Efficient

Simplicity and speed are two of the hallmarks of S/4 HANA Finance. It simplifies key processes to minimize manual data reconciliations and accelerate execution, while providing real-time reporting and analytics that eliminates data latency. It also provides automated and real-time controls — so there’s no need to manually review controls and audit selected transactions. With its flexible and nondisruptive deployment and upgrade approach, S/4 HANA Finance can help finance more quickly make the transition to a shared services center model, and begin centrally running and managing key shared finance processes.

Beyond these, S/4 HANA Finance delivers significant financial benefits: because it no longer requires a separate database for tax reporting and compliance, the cost of tax compliance goes down. And, with a smaller data footprint and integrated transaction reporting, analysis and planning platforms, S/4 HANA Finance helps reduce the financial system’s total cost of ownership.

S/4 HANA Finance represents a true step-change in ERP — and a springboard that can kick-start the transformation to Agile Finance.

And, with new technology comes a need for new skills — particularly, in analytics. Fifty-seven percent of CFOs believe building skills in predictive and prescriptive analytics is critical to finance’s future effectiveness.

The preceding certainly oversimplifies the magnitude of the effort. But, it’s a useful framework for understanding the work that lies ahead and how to tackle it. And, it’s important to note that this is not a one-time exercise. Because the market and business (and expectations for finance) continually change, and new enablers emerge every year, finance functions need to periodically assess their needs and refine their plan, if necessary, to ensure it remains relevant year after year. If it can do that, the finance function will continue to be a trusted and valued partner to the business, delivering what stakeholders need to position the enterprise for success in a disruptive and volatile landscape.


Contacts

Global Tony Klimas Global PI Finance Leader [email protected] +1 904 607 2313

AmericasTom Cucuzza America’s PI Finance Leader [email protected] +1 216 583 2335

Samir Jaipati Americas Agile Finance Leader [email protected] +1 313 628 8763

Mitch Paull North Americas Agile Finance Leader [email protected] +1 213 977 3743

Renato Kurnik Latin Americas Agile Finance Leader [email protected] +55 11 96900 6931

APAC Catherine McCourt APAC SAP Leader [email protected] +61400560838

Edward Chang APAC PI Finance Leader [email protected] +86 10 58152321

Cameron Berkman APAC Agile Finance Leader [email protected] +61 2 9276 9833

EMEIA Ingmar Christiaens EMEIA Agile Finance Leader [email protected] +32 498 35 37 55

Frank Broetzmann EMEIA PI Finance Leader [email protected] +49 160 939 12350


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Can agile finance provide the fuel to drive your business ...FILE/ey... · Can agile finance provide the fuel to drive ... 2 Can agile nance provide the fuel to drive your business