With all eyes on artificial intelligence, corporate investments in automation and AI are running up some eye popping numbers this year: big names like Microsoft are reportedly planning to invest $10 billion in the creator of the AI tool ChatGPT, for example.
But for finance leaders beset by pricing pressures, waning customer demand, and shifting workforce trends, cutting through the AI hype is more critical than ever. CFOs are under increasing pressure to weigh the value of the technologies not only for their future potential, but as ways to help them bring costs down in a rocky economic environment.
It’s hard to generalize the cost of digital transformation to companies using technologies developed by big name companies pouring billions of dollars into the products — the price tag varies greatly depending on industry, company size, and a company’s unique business needs.
Technology spending can be hefty, however: Integrating heavy, mission-critical software like Oracle NetSuite can be a six-figure expense for certain companies, according to Alex Song, head of finance and capital markets for Ramp, a New York, NY-based spend management platform. Integrating smaller, more tailored tools such as close automation software can easily add up to potentially a $30,000-$50,000 bill, he said.
Given all of the costs, opportunities and trade-offs that must be assessed, it’s critical that finance leaders take on more of a deciding role when it comes to this type of spending and make sure it represent tangible gains for their organizations, experts say. “They should definitely have some visibility into the decision,” Song said.
The true cost of transformation
For finance leaders, the prime draw of these tools are their cost benefits — which is why interest in automation and like tools has surged even as CFOs stare down the barrel into an encroaching recession. Indeed, a majority of CFOs (98%) signaled they were moving to protect tech investments even as they planned to slash other spending, according to a Gartner study last summer.
That may be because tools like automation can help reduce the time it takes to conduct time-sucking tasks, paring down costs. Plus, investing now can set up companies for greater growth in the long-run, Patrick Villanova, chief accounting officer for Woodland Hills, Calif.-based close automation software provider Blackline said.
“If you’re a financial leader right now this is a good opportunity to look inward and invest,” he said in an interview.
But while shiny new technologies like ChatGPT offer potential, for CFOs, newness is not necessarily a virtue. New offerings proliferate in this space, Song said, and CFOs need to do their due diligence to make sure technology vendors are actually delivering on the promises they are making about their solutions.
“I think one thing that finance leaders should keep in mind is just the track record in terms of delivering on these promises,” Song said.
Financial leaders need to be part of the vetting process to ensure their firms are putting new technologies where they will have the greatest impact.
“We know where the friction points are...and therefore we’re the best (executives) to make those investments,” Villanova said in a recent interview.
It helps that financial leaders have a “very granular” understanding of these types of technologies, therefore, said Song.
Preparing for the automation to AI shift
It’s important for CFOs to have an open mind when it comes to automation and AI, but especially when it comes to newer, more unproven technologies like AI, “don’t get too excited,” advised Luyi Yang, assistant professor in the operations and information technology management group for Berkeley’s Haas School of Business at the University of California.
CFOs should not be aiming to invest too much or too quickly especially in the current economic environment where most companies are cinching their budgets, trying to cut costs and implementing hiring freezes, he said. Rather, they need to take a close look at their own business needs and be “cautious about what's the best course of action when it comes to investment,” Yang said.
“Against the backdrop of this macro economic environment, you should be particularly careful about your investments, given that your budget is already quite limited,” he said. “Just because your data scientists ask you to purchase this new piece of software doesn't mean that you necessarily have to follow their recommendation.”
On the other hand, it’s also important to keep the dialogue open, he said. The team can help CFOs to determine what software or tools are really needed at the business, especially if one does not have a strong technical background, he said.
Furthermore, while automation is becoming increasingly common within the finance space, AI is more of an unknown. The inherent sensitivity and critical nature of financial reporting means CFOs are still approaching these solutions cautiously. Strategy development remains largely a people-dependent task skill, for example. A minority (7%) of survey respondents said they were using such tools for strategy or financial planning, compared to a quarter or more who said the same for areas like marketing, supply chain or service operations, according to a recent McKinsey report.
CFOs should therefore also develop basic AI literacy skills to help them both better understand what their teams need and how such tools work, Yang advised. For example, it’s critical for CFOs to have an understanding of how AI develops its predictions or forecasts, which are typically based on historical data — meaning, such tools could miss upcoming trends if history decides not to repeat itself, he said.
“AI can be a very valuable decision support tool for CFOs, but you should not just blindly follow the outlook the AI generates,” Yang said.