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The Changing Shape of the Finance Function

December 18, 2018
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The Changing Shape of the Finance Function

By Venkkat Ramanan

Digital technologies threaten and transform business models and they will radically change the world of work. This applies as much to the finance function as it does anywhere else. As organisations come under pressure to adapt and respond to a fast-paced environment, they expect their finance professionals to support them by taking on a more strategic role. This means management accountants must be more strategically aware, make use of new technological tools, learn new skills, and organise themselves in new and more effective ways to deliver insights and solutions to the challenges ahead.

Inevitably, the shape of the finance function must evolve to meet these expectations. So it is moving away from a traditional hierarchical triangle, where broad populations of workers report directly upwards through a series of ever-narrower management bands, towards a more hexagonal structure where professional experts collaborate with business managers to achieve shared corporate objectives. For finance professionals themselves, the implications of this migration are wide-ranging. There are impacts on their individual career paths and on succession planning within the finance function more broadly. The migration also requires them to become more commercially and strategically aware and to acquire new skills that go far beyond the traditional accountant’s skillset.

A traditional finance function, organised according to a triangle structure, would have had a broad base of people carrying out transaction processing and basic accounting activities and fewer roles at each rung higher up the career ladder. Technological change has eroded the base to create the more hexagonal structure of today. The automation of repetitive rules-based tasks, such as steps in the accounts payable and accounts receivable processes or even in the assembly of management information, means that fewer people are needed to perform entry-level roles. This will present challenges for succession planning since these positions have previously served as a training ground for the senior finance professionals of the future.  On the other hand, more people are needed to generate insight from digital data and to partner with other colleagues across the business to help the organisation create and preserve value. Finance leaders are still required, of course, but they lead with a collaborative, rather than top-down, approach.

There are three main reasons why the shape of the finance function is changing.

Venkkat Ramanan

The first is that organisations continue to invest in technology to make the finance function ever more efficient and improve its capabilities. For example, using robotic process automation to improve the efficiency and consistency of transaction processing. Another example, is the emerging use of cognitive computing (artificial intelligence, machine learning and natural language processing) to automate report writing and give advice to business managers.

The second is due to the need to be able to access and analyse the vast amount of data generated by digital technologies throughout the business. Performance must be managed keenly in an increasingly competitive environment where intangibles are likely to be the drivers of value. Analysis of this data can provide solutions.  Descriptive analytics improves understanding of how the business has performed. Predictive analytics improves understanding of how the business will perform. Prescriptive analytics helps to determine what the business should do. These all depend on advanced analytical techniques such as data mining, multivariate analysis and sentiment analysis which require the expertise of ‘data scientists’. There is also an important role for finance professionals who can ask the right questions and who can help to translate analytical insights into commercial insights and ensure these are applied to improve the business’ performance.

The third is the shift in emphasis in the role of the management accountant from accounting towards management; from working mostly within the finance function to working more alongside the business. With the CFO increasingly viewed as the co-pilot of the organisation, the finance function is called upon to cascade the CFO’s influence through the business as a finance business partner in its truest sense – using its unique, end-to-end view of the organisation and professional objectivity to act as a guardian of the business model and to apply the discipline of commercial finance to decision-making and value creation.

As the mandate of finance changes, and new technology puts more emphasis on finance as a discipline right across the business, the finance function is undergoing fusion. Different finance specialisms are coming closer together, while the function is also fusing more broadly with the rest of the business. Examples of fusion include: shared service centres offering higher value services to the financial planning and analysis (FP&A) team; finance professionals working alongside business unit managers or as part of a multidisciplinary team in a centre of expertise; and the full integration of cloud-based IT systems to reduce the function’s reliance on spreadsheets and legacy platforms. Fundamentally, accounting operations, finance subject matter expertise, the production of management information, FP&A, and data analytics, are all being more thoroughly combined with decision support and performance management to enable the finance function to better integrate with the rest of the business.

The shape of the finance function is evolving and it will evolve further as the emphasis of professional-level roles continues to shift from the production of accounts, management information and analysis towards decision support and performance management. Furthermore, increased demand for specialist expertise in certain areas of business operations, such as fighting cybercrime, will lead to multidisciplinary teams being formed. The result will be that experts in data analytics, IT and logistics will become members of the finance function; finance will no longer be the preserve of accountants alone.

Ultimately, all organisations face the same challenges. So how can they best accommodate the changing shape of finance to build a function that is ready to face the journey to the future? Our own research has found that organisations’ top priorities for transforming the finance function should include making use of the latest technologies to release the full capacity of the finance function; widening the remit of finance to cover a broader range of management information, which generates new insights and business solutions; and empowering finance professionals with new competencies and growth mind-sets. It is through the application of these strategies that we will see the emergence of an agile, informed and proactive finance function that has the skills and knowledge to help the organisation create and preserve value over the short, medium and long-term.

Venkkat Ramanan FCMA, CGMA is the Regional Vice-President – Asia Pacific at the Association of International Certified Professional Accountants.

Further insight based on extensive research by the Association of International Certified Professional Accountants on the changing shape of finance can be found at https://www.cgma.org/resources/reports/changing-shape-of-the-finance-function.html