Finance automation and value creation: A new nexus

Artificial intelligence (AI) is capturing more attention among CFOs, but allocating funds is only the first step in successfully adopting the technology. To reap the highest benefits from AI, finance heads must tailor their strategies around four key behaviors, a Wednesday Gartner release advised.

AI remains in its infancy inside financial departments. Gartner, in surveying 103 finance leaders across multiple industries, found that of those who have deployed AI in finance, 75% report having done so within the past two years. Finding AI-specific talent, incorporating software with embedded AI capabilities, experimenting broadly with pilots and designating an analytical AI implementation leader are all critical actions CFOs can take in order to support and foster AI deployment, according to the report.

The most challenging of these actions appears to be finding AI-specific talent outside of one’s organization that can bring in key skills and experience, said Jacob Joseph-David, director, research for the Gartner Finance practice.

It can be confusing for finance heads determining where to find this talent, he said, with some looking to their IT departments or others seeking to train some of their existing analytics staff to fill these key roles. Looking outside of one’s organization for fresh blood may increase the likelihood of finding the talent needed to enhance AI deployment, however, Joseph-David said.

“What we saw was that when you went outside of your finance organization to hire, there's a higher propensity of being a leader in AI,” he said.  

Available budgets and time constraints are critical factors when it comes to where organizations may be able to hunt for the AI-specific talent they need, however, he said.

“Not every organization has the funds to say, ‘Hey, let’s go out and find new data engineers, new data scientists, and put a new leader of AI in charge of this,” he pointed out. “That seems like one of the hardest things to overcome.”

Setting realistic expectations for stakeholders

AI deployment is increasing, notably, with more finance leaders able to overcome these challenges. McKinsey’s 2021 State of AI survey found 56% of respondents noted AI adoption was up by at least one function, compared to the 50% who said the same in 2020.

Accounting processes, financial analysis and back-office processing tend to be the three “heavy hitters” of current AI implementation in finance departments, or those that tend to be the most popular applications of the technology at present. Gartner sees an average of four AI use cases implemented by organizations within the first year, Joseph-David said.

Successfully moving AI into new uses cases also requires finance leaders to set realistic expectations and targets with their stakeholders, he noted.

“One of the big things that we’re seeing is level setting expectations with the benefits of AI,” Joseph-David said. “One of the barriers we’re seeing a lot is that stakeholder expectations are often too lofty.”

Stakeholders may expect to be able to monetize that data immediately, Joseph-David explained, which is unlikely given the nascency of AI within finance. Setting clear guidelines for implementing AI within one’s organizations and positing a realistic timeline of when to expect process automation to become really valuable is therefore key.

CFOs in recent decades have faced several actual or possible nightmare scenarios — the collapse of mortgage finance, a once-in-a-century global pandemic, a sudden worldwide shortage of life-sustaining grains and the risk of the first nuclear weapons attack since 1945.

Most CFOs did not, or would not, predict such crises and the harm to their companies’ revenue and operations, according to Gartner. But by using artificial intelligence (AI) in scenario planning soon after a crisis erupts, a CFO can quickly estimate the business impact and act to limit losses.

“We’re not making a magical prediction about dark horizons,” Mark McDonald, a Gartner senior director analyst, said Monday in an interview. Instead, a CFO using AI can “navigate that horizon.”

By using AI in scenario planning, CFOs can evaluate a much broader range of possible risks and business outcomes and gain greater insights on the probability of occurrence and when and how to respond, McDonald said at the Gartner CFO and Finance Executive Conference.

“AI introduces a very compelling alternative to our traditional scenario planning process,” McDonald said during a presentation at the conference at National Harbor, Maryland. “It’s not going to eliminate your worst case scenario, but it’s maybe going to mitigate a worst-case scenario.”

CFOs tend to shy from gathering a broad range of data when attempting to limit risk through traditional scenario planning, McDonald said. “We’re averse to it in finance because it drives up the complexity and we’ve got to analyze all this new stuff.”

“There’s a need for finance to stop being data-averse and become active about looking for data, not just tolerating it,” he said.

AI-driven scenario planning starts with distinguishing between external influences outside a CFO’s control — such as inflation, unemployment, economic growth and market size — and controllable “internal drivers,” such as staff and inventory levels and spending on advertising, technology and marketing.

A CFO uses AI to analyze data on the external and internal factors that shape an outcome essential to business strategy, such as the future size of a market for a product or service, McDonald said.

The software engages in random sampling, combining the many factors that determine market size into thousands of possible combinations, he said. Within a few hours, AI provides a statistical distribution showing the full range and probability of various outcomes for market size. It does not make a single prediction.

“This computer works nights and weekends, doesn’t take vacation, doesn’t catch COVID,” McDonald said. “We’re talking about seconds, minutes, maybe hours — not days and weeks” as with traditional scenario planning.

CFOs who know the range of highest probability outcomes have essential insights for valuable forecasting and decision-making, he said.

CFOs can use AI “to tell us which decisions to make to pick the best values for those internal drivers that maximize” revenue, he said. “Let the computer tell you exactly which values in which decisions to make, and then continuously monitor your results so that you know exactly when to respond.”

Technology has transitioned from a cost play to a survival play because of the pandemic and that transition isn’t over even though companies have largely completed the migration to the cloud, the vice chair of PwC’s U.S. and global advisory practice, Mohamed Kande, told CFO Dive.

Late-stage pandemic technology is focused on front-office operations like customer engagement rather than the back-office functions that were crucial for staying afloat at the onset of the pandemic, Kande said.

“Earlier pandemic investment has been done,” he said. “Now there’s a different level of expectation.” 

AI-powered bots that handle first-tier customer contact, whether over the phone or on a website, represent the kind of front-office tech investment that companies will feel compelled to adopt even after the pandemic recedes. 

“When people call, their first-level of interaction might not be with people,” he said. “You see that in many different companies. When you call in and you get ‘Press one, press two,’ it’s a different way of navigating. When you’re on a website, you start chatting with a rep, and the rep is not a person. It’s AI.”

The goal behind the technology isn’t to replace employees who handle that type of work but to free them up to do more value-added work.

“It’s creating more capacity, so people can actually work other roles where we need their brains and their skill sets,” he said. “In the past, there was a fear that automation was going to remove jobs. Today, the narrative is that technology and automation create capacity for companies.”

Customer expectations

Payment and other technology to enable online transactions are also part of late-stage digital transformation because of changing business needs and customer expectations. 

“Before, for restaurants to make money, you and I had to show up,” he said. “Now, [many] of the orders are online. It’s what we call the no-regrets move that companies have to make, because it’s more about survival of the business than saying, ‘If I do this, I will get more return on my investment.’”

Pre-pandemic, this level of automation was limited mainly to large enterprises but it’s becoming essential from a productivity and customer-expectation standpoint for businesses of all sizes

“We’re now seeing it at scale because it’s coming down to middle market,” he said. “So, whether you’re talking about restaurant chains, medium-sized businesses, everybody is now pushing to adopt technology because it’s a different way of running the business and also interacting with customers.”

Employee leverage

The war for talent is accelerating the trend because employers, struggling to fill front-line positions, are turning to automation as a lifeline.

“The attrition rate for people at warehouses is 80-90%,” he said. “The key trend is a shift of power from the employer to the employee. That’s what happened during COVID-19. It’s manifesting itself across the whole country and in other countries.”

The war for talent for remote workers is also driving adoption of late-stage technology because sought-after employees won’t settle for companies that can’t give them the technology they want.

“Companies now have to provide technology to people to give them maximum flexibility to do their jobs as they choose to do them,” he said. “First, they have to be on the cloud. Second, they have to give them information technology, collaboration tools, so they have 24-7 access to the corporate systems. So, a lot of the technology we’re seeing is around human capital transformation.”

That transformation requires a rethinking of policies. A mistake many companies made as the pandemic appeared to ease last year was linking people’s return to the workplace based on the job they did. That created push-back. Since then, companies have taken a different approach: linking return to where the employees are in their life stage. 

“Are you a single parent with two kids at home?” he said. “When should you come back? It’s the personal situation, the life cycle of the people. It had nothing to do with the job they were doing. Many corporations made that mistake, creating categories of jobs that need to return to the office without understanding the stage of their employees’ lives.”

Given these trends, companies’ late-stage technology investment can be broken down into a handful of components. The first is automating front-office functions to meet customer expectations – online purchasing, for example – and to achieve productivity outcomes, such as using bots to manage first-level customer engagement.  

The second is using automation to help fill gaps as front-line employees leverage their labor market advantage. And the third is attracting and retaining talent by offering technology that enables people to work when, where and how they want.   

“The company that doesn’t allow that is the company that’s losing people,” he said. “It’s a fundamental shift, because we’re trying to give an answer to a business problem that has nothing to do with business.”

Innovation currency

Once companies' survival needs are met, late-stage technology will be key to future business growth, because new products and services will evolve out of the massive amounts of data the technology generates. 

“One of the largest logistics companies today was not a logistics company five years ago,” he said. “Running logistics has nothing to do with running trucks; it has to do with AI. It’s a pure data play. So now, the currency is data. Many companies are thinking, ‘I have all this data. Where else can I expand my business?’

“So, the No. 1 question we ask clients today is, ‘Do you know who your competitors are going to be five years from today?’ That might not be the ones they’re competing against today. And the second question is, ‘How do you make money in five years?’ Of the CFOs and other executives we ask that question, more than half cannot answer it.”

CFOs moving their finance function to a new cloud enterprise resource planning (ERP) system are better off starting small and taking care of core functionality before trying to tackle more complex tasks, Jason Maynard, Oracle NetSuite’s senior vice president of global field operations, told CFO Dive.

Finance leaders can be tempted to convert a system all at once to something all-encompassing, especially if they have a unique process that requires customization to make work, but taking an iterative approach can help ensure you get a system that better meets your needs, said Maynard, a former Wall Street analyst. 

“You’re going to want to move through the journey to get your wins and get value vs. just hoping two or three years later the system, when you finally get everything built, works perfectly,” he said. “Before trying to throw a bomb down the field, put a drive together and get four first downs first.”

Iterative approach

Like other companies offering ERP systems that moved from on-premises software to the cloud a decade or so ago, NetSuite’s business model has evolved away from trying to optimize for all functionality at the start to an iterative approach, he said. 

Maynard said he worked with a manufacturing company that wanted to link dozens of suppliers together and, because of where some of the suppliers were located, needed to customize some of the code in the ERP system. That’s the kind of thing finance leaders might want to tackle but it’s better to wait until you’ve optimized your core functions, he said.  

“Having uniqueness in your process is something that’s worth customizing,” he said. “Our professional services folks spend 30 or 40 hours to help them write some customizations, so they can do exactly what they need to do.” But not necessarily right away. 

The manufacturing company had multiple third-party logistics (3PLs) that it wanted to consolidate in its supply chain and also address outstanding warehouse management issues, but the better plan, he said, was to let these problems be for a while. 

“Sometimes we’ll say, ‘Hey, let’s not tackle that,’” he said. “‘Leave a couple of those things where you have them for now. We’ll cooperate and integrate with those systems and then we’ll figure out how to automate that better. But let’s get the order of operations in place first so you get the biggest bang for the buck.’”

At the simplest level, you want to make sure you don’t have accounting staff spending time on tasks they don’t need to. 

One mid-sized company Maynard worked with was still mailing out hard-copy invoices to collect on its receivables and cutting checks for its payables, two functions that are routinely automated today. 

“Make your business easier,” he said. “That way, you’ve got digital records and if you use the pay-by-link functionality [in the NetSuite ERP], we send a link out and they pay and you collect it. Somebody doesn’t have to enter that transaction manually.”

Troubleshooting guide

Although ERP providers as a matter of practice work with customers to help design an appropriate system for their processes, NetSuite this year rolled out a formalized way to do that. 

The company created a team to analyze thousands of past implementations of its ERP to devise a list of best practices, organized by solutions, into a kind of troubleshooting guide.  

“We codified leading practices into easy-to-consume packages in which a CFO says, ‘I’ve got this business problem,’ and they can look at the packages and say, ‘Yeah, that’s my problem,’ and here are the six things you need to do to knock it out.”

The packages are the end-result of a trend in which finance leaders were asking the company about leading practices. 

“We saw customers telling us, ‘Hey, show us the leading practice on how we should do certain basic functions’ vs. migrating them [to new applications],” he said. “A lot of what we call more forward-thinking CFOs were saying, ‘Look, we want to get a best practice. We want to have the leading practice. You’ve worked with thousands of software companies, thousands of manufacturers, what’s the best way to do it?’”

Only once you have those questions answered is it advisable to think about new or customized applications, he suggested. 

Don’t be afraid of evolving all or part of your finance tech stack over time with something that scales more effectively as your company grows, Teddy Collins, senior director of corporate finance at SeatGeek, said in a webcast. 

“Every two or so years, our entire financial model infrastructure was totally different, totally unrecognizable from a couple of years prior,” said Collins, who joined SeatGeek in 2015 as a financial operations manager and worked his way to head of financial planning and analysis, investor relations, and other functions. “It’s about not being afraid to throw things away and start from scratch or be beholden to the technical debt of your infrastructure.”

The finance function at the company, which provides live-event ticket pricing and trading, was built around a single, 20-megabyte master model Excel file that became obsolete as the company grew.  

“It did all these fancy things, and then we had to start sharing, get other people involved, so that turned into multiple files,” said Collins, who started his career in investment banking. “Then we transitioned into using dozens and dozens of Google sheets. That got people involved but also respected confidential information — who should have access to what. That was a great stepping stone to really know what we wanted and design a more advanced system.”

Connecting spreadsheets

To add the Google sheets to the mix, he and his team created advanced workflow diagrams of every file, every piece of data that moves between spreadsheets, to know if they needed to retain that data and build it into the next system or get rid of it. 

“That helped us to really understand what’s necessary or whether there are certain things we can cut out of this process,” he said. 

He then transitioned the system to third-party, cloud-based applications that incorporated automation, machine learning and other advanced functionalities. 

“When we started, we had it all mapped out and we understood how we wanted to move the data,” he said. 

In the first phase of the move, his team replaced all but about 10 of the team’s 60 spreadsheets. “Then we kept chipping away at it,” he said. “We started with the highest ROI things and then went to the lower ROI things. We were at the point where, a couple of months ago, we eliminated the last spreadsheet out there, so now we’re able to go from beginning to end, all within our planning tool and other groups can do their own site analyses, other bottom-up things.”

Customer focus

Collins said they designed the planning tool with a customer-focused mindset to feed information to different operational functions based on what they need out of the data. 

“Not everyone wants to learn all these tools that might not be here in a few years,” he said. “We’ve worked with our business systems partners to create automated connections between some spreadsheets and our connected planning tool as well.”

In the early stage of the process, it was important to get the accounting team to redesign the chart of accounts to make sure it supported executives' questions. 

“It’s not just your general ledger accounts, but those other dimensions, whether it’s your department structure or other classes you may need, to understand how the business is operating," he said. "[Those might be] business unit cost centers and so on, and you extract that information in an automated way to produce your reporting.”

One-time expenses is an example. “If we’re running a report that strips out one-time expenses, we know we can filter out certain GL accounts,” he said. “Initially, we’d have a spreadsheet, a transactions report, and look at specific journal entries. We’d put a '1' or a 'true' in some spreadsheet column.”

That all changed when they made the transition to the connected system. “You knew you wanted to filter that out,” he said. “You want to write that formula once in a system and have that permeate through your model infrastructure.”

If you’re preparing to make a similar transition like this, Collins said, your team members' skills don’t necessarily have to change that much. From investment banking, he brought modeling skills, and then later developed Structured Query Language (SQL) skills for manipulating data, but beyond that, it’s more about bringing an analytical approach to the task and knowing what to ask. 

“It’s just about being curious and just trying to solve problems with that data,” he said. “Over the years at SeatGeek, once I learned the typical data sets that I work with, it was less about manipulating data and more about sketching a report or setting data from one system to the other. The most important thing is learning enough about a topic to be able to talk with someone who really knows a lot about that topic.”

When Generis Global Partners Corp. CFO Nadim Allidina started adopting technologies to help him scale the business-summit company he and his partners launched seven years ago, he hoped to create operational efficiencies. He accomplished that goal, but he also found that the technology brought something else to the mix — it made him and his team better at their jobs.

"For a growing company like ours, these technologies help us keep our thinking sharp, because they expose us to best practices," Allidina told CFO Dive. "They check and challenge our processes. Is there a better way we could be doing it? We see how the systems are designed, and that allows me to think about my processes. It helps keep me open-minded."

Generis hosts summits that bring people in industry verticals together to conduct business. ​Allidina uses Quickbooks for accounting, ADP for payroll, and Office 365 for documents and collaboration. About a year ago, he adopted Salesforce to track revenue, and he also recently adopted Invoiced to automate his accounts receivable function. Now he's looking to bring in an enterprise resource planning (ERP) system to replace Quickbooks and connect everything into one integrated system. 

"It won’t just be another system bolted on so we’re spending time reconciling between one and the other," he said. "Everything has to be very tightly integrated."

Imperative for growth 

For a company like his, Allidina said, use of these cloud-based technologies is an imperative for growth, because he relies on them to achieve operational scale. 

"When we started, we didn’t have to spend $50,000 to build a server room," he said. "We couldn’t invest hundreds of thousands of dollars every year maintaining and upgrading IT infrastructure from a hardware perspective."

What’s more, he said, "we knew we were getting the latest and greatest. You can’t even go to market unless your security is top of the line. You expect these companies providing financial automation services will be at the forefront on this."

He also gets more productivity out of his finance and accounting teams because their work is directly related to the company's goals, he says. 

"In this day and age, you’re not looking to just hire an army of people who do data entry," he said. "You want people to come in and add value, to be active thinkers. These kinds of technology projects really help to accelerate that, help drive ROI and keep everyone focused on the mission of growth. If you’re just doing data entry, you don’t really feel that mission."

CFOs see tech need

A survey released jointly in mid-January by CFO Dive and Invoiced reinforces the benefits Allidina sees in technology adoption. 

The survey of more than 450 CFOs and other finance executives found that most of them look to automation of the accounting and finance functions to increase productivity, reduce human error and refocus staff on more strategic work. Other priority goals of automation include improving the customer experience and the work experience of staff.

Another finding: a relatively small percentage of finance executives see automation as a way to save money through staff reductions and fewer new-hires.

For a company like his, Allidina said, staff reductions are beside the point. Not only is his growing company adding staff, but it couldn’t operate effectively without the technology.

"We are coming at it from a different perspective," he said. "We’re not looking at technology as a way of reducing headcount; we’re looking at it as a way to manage growth more efficiently."

In the survey, CFOs said their companies face risks if they fail to automate. Among the top risks they identified: 

• Inability to stay competitive
• Unaffordable labor costs
• Out of step with what consumers and company stakeholders expect
• Overall under-performance
• Unable to execute quickly

CFOs should lead adoption

Allidina says CFOs are in the best position to lead their company’s automation efforts, especially in the finance function, because while IT executives bring the technical know-how, it’s really the CFO who has broad enough visibility into all aspects of business operations to understand what technology is needed and how it should be deployed. ​

"As CFO, you have to [consider the impact on] downstream users and how that will ultimately flow through and impact the P&L process, and all the internal controls surrounding finance. 

"Real leadership is required to make those changes," he said. "The head of IT really understands the technology, so they can think from a logical perspective of how to implement a CFO’s vision, but you need someone in the business who can create that vision."

And that person, he said, is the CFO.