Digital transformation changes the business landscape in an accelerating speed. It is on everyone’s agenda. However, even though the pressure is on, organisations rarely meet objectives as planned. Research has shown that only half of executives think that they are executing well on their strategies (Wipro Digital 2017).
Too many executives believe that the essence of transformation is yet another software solution. Or even better, a completely new system. Even though new software might be promising, new ERP implementations fail alarmingly often. It takes too long. It is too costly. ROI is uncertain.
CFO as the new CDO?
Despite promises – and indeed also challenges – it is hard to determine exactly how to kick off the transformative journey.
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What is the right approach, if new software isn’t the right starting-point? Is it business modelling? Internal operations? Infrastructure?
As digitisation at its core is a matter of adequately managing data aligned with business goals, few others have a better starting point than the true champion on processing, analysing and reporting on data – the CFO. As the enabler of sales and purchase transactions, the bloodstream of any organisation, the finance team must be regarded as the natural starting point.
However, too few CFOs are in the lead of this transition in a survey by IFS Digital Transformation only 35% state that they are in the driver seat.
To fundamentally be able to change operations within any organisation, this has to change. For those bold CFOs that are ready to take the leap right now, much can be gained by attacking it with the right approach.
Data first management
Digital transformation isn’t primarily about technology. It is about data. For CFOs, this implies that change should begin with the one aspect that runs through all vital parts of the business – your transactions.
Transactions come in many forms, but they are united by the fact that it is ultimately about data management. In a digital world, data thrives in the form of ones and zeros. It is the first milestone in any digitisation journey. With truly digitised transactions, end-to-end whether it’s within sales or procurement, you’ll start your transformative venture in the right end.
Here is perhaps where you will object – “Hey, we’re digitised already! Every invoice ends up in our workflow eventually, right here on the screen”.
Unfortunately, this is in almost all cases not true. Digitised processes are about have completely digital input and output data.
Scanned PDF documents and indeed paper formats are automatically disqualified. PDFs are images, and both formats waste continuously significant resources and require costly manual touchpoints.
With fully digitised transactions you will not only reduce errors and manual touchpoints, but you’ll also unlock the long-term potential of automation.
Automated financial processes realise the concept of the 21th-century knowledge worker – finance teams will be able to focus entirely on control, assessment and process development, rather than constituting the process itself.
So what is digitised transactions? Well, you have probably guessed it. Take control and digitise the primary carrier of B2B transactions – the invoice.
It is the true key to financial process automation.
Deviations, manual work, and errors derive from improper data management which in turn is made very complicated by the vast number of formats.
Today’s massive process hurdles like scanning and OCR technology and conversions require manual work. RPA, Robotic Process Automation, technologies have enabled many organisations to automate processes to a varying degree. The problem is the unavoidable deviations that come as a consequence.
In other words, these deviations create all the work. Even within the organisations that are investing heavily in RPA technology. The Pareto principle is still applicable; 20 per cent of the transactions create 80 per cent of the workload. Artificial intelligence isn’t part of the core solution. You can apply as much AI as possible, but it won’t do your organisation any good if the data quality is poor.
So, the sooner your organisation can adopt e-invoices in all transactions, the better.
If your systems and processes aren’t able to intelligently manage all the data yet, it doesn’t matter. Critical data won’t get lost anymore. You won’t need to recreate information in every step of your process, from purchase to pay to accounting.
So if you do it right, within your reach will also be the holy grail of accounting automation – the line-item information.
Know your supplier
Bringing your master data – the supplier registry – to the next level is another critical piece of the digitisation puzzle. Your supplier registry is the master data of all the relations that are tied to your organisation.
In parallel to transforming sales and purchase transactions, it is vital for any organisation to maintain an active and continuously updated supplier registry. It often includes thousands of companies.
If managed incorrectly, it is a source for costly errors such as wrong payments when addresses and bank account numbers aren’t updated or get mixed up. However, even more worrying is the risks of fraud or processing payments to bankrupt suppliers.
- Determine your digital transaction ratio
What is the ration between analogue vs digital input data? How many supplier invoices are e-invoices? How many come as paper or PDF? Establish a plan to force or incentivise your suppliers to adopt e-invoices. By determining your ratio, you will get an indication of your efficiency potential.
- Map your process
Who does actually what in your workflow? Map your process from beginning to end. How does actually what? What does the workflow look like? Which systems are involved? This mapping provides an overview of the complexity, potential bottlenecks and costs associated. It also indicates weaknesses, as data flows through integrated systems, data loss is inevitable.
- Wash your supplier registry
Which systems, software, documents, and processes are involved in managing and updating your supplier registry? What characterises an active supplier for your organisation? Are there financial risks related to your suppliers? Define criteria for deadlines and make sure your systems are set to support. With an active supplier registry, your organisation will reduce risks such as errors in accounts payable and fraud.
- Perform a risk assessment
Are you compliant to SOX and VAT regulations? How transparent and traceable is your audit log? How likely is it that your invoices are paid to the wrong recipient? List your organisation’s risk factors and assess importance.