Future of Finance: What should CFOs focus on?

The digital disruption in Finance has become an inescapable reality. The CFO, who is at the forefront of mastering these changes, is in charge of fostering growth and protecting the company from the uncertainties of a turbulent business environment. About 30 years ago, the goal was to ensure that books of accounts were appropriately presented and investor interactions were useful and constructive as companies went public. A couple of decades ago, computerisation was the focus, with the emphasis being on how to introduce ERPs. What steps can you take to ensure that the books of accounts are timely and efficient? And then, in the last 10 years, finance teams were expected to collaborate and partner with the business stakeholders. Different businesses, organisations, and nations have handled these issues differently and with varying degrees of success. 

So, what does the financial future hold? We know that the finance function will continue to develop but, more than ever, it will have to blend seamlessly with the business it supports. There are five components of finance that I believe will need to undergo a radical transformation to keep up with the business evolution.

Future Of Accounting

There are still numerous legal, ethical, and custodial obligations that finance must take care of. For instance, you will still need to deal with all the ecosystems, suppliers, and investors. Finance will still need to handle cash management and timely payments. These technical details must be implemented seamlessly to reach our end goal. It has taken us a long time, but we have all gotten acclimated to the idea of an ERP. Where do I see the accounting revolution heading in the future?  In my view, there needs to be a concerted effort to move away from the fundamental presumption of being able to close the books of accounts every month from core finance and accounting perspective. Instead, businesses would require or demand that they be aware of their financial performance on a weekly or daily basis in terms of their bottom-line profitability. Extensive automation is a given, ERP is likely to develop further, and the world must move to a touchless transaction delivery solution across levels with human intervention limited to exceptional circumstances.

Capital Investments

Depending on the size and type of the organisation or the investment, every strong finance team has a method of evaluating an investment, i.e., via a business case approach. But for the past 20 years, we have been conducting business cases in the same manner, based on a static business scenario and a post-investment review. Soon, we will have complete access to recommendation engines that can model scenarios and assign probabilities to outcomes based on multiple investment variables. Additionally, an integrated recommendation will enable businesses to track the performance of investments on a real-time basis along with remedial actions. 

Furthermore, these recommendation engines will be based on machine learning-based solutions, thus always learning from the past and helping financial experts, CFOs, and their teams make well-informed choices about which investments to support and what requires corrective action. These will fundamentally alter how firms and companies make investments, which will alter the profile of a diverse organisation. The leading enterprises will be those that transform their capital investment decision & monitoring capabilities.

Cash Management: Treasury, Receivables And Payables

Let's examine the third component of a business - Cash, which is primarily managed by treasury operations. Besides leveraging the GBS and driving operational rigor, managing cash hasn’t fundamentally changed from a business perspective. Treasury functions are efficient and have multiple external interventions that help drive transformation aided by active and effective capital markets. However, there will be a substantial shift in cash management in the future from a business perspective, specifically in the area of working capitals. 

On the Receivable front, most businesses have developed complex rating systems to rate their customers and assign credit before pursuing their suppliers to return the money. In the future, the collection of receivables will be led by behavioral science, that will play a transformative role in predicting when the customer is expected to pay, when & what customers need to be informed & the means to connect, right down to the correct time to reach the customer. This will drive significant unlocking of the receivable Cash.  

On the Payables front, even less change has occurred than in the receivable components. Most businesses utilise an ERP to manage their cash flow, but regrettably, an ERP is woefully insufficient for handling their payables. Most leading businesses pay their suppliers on time; many should be doing that with good GBS capabilities, which can help them get back on track. However, the real transformation in Payables is in the power of interconnected data and analytics-based rules engine that allows unlocking of payable opportunities and aligning to the business growth. 

Working Capital is the biggest area where I expect Intelligent Business Services to evolve, where digitisation, insights, and analytics can make a big difference.

Financial Forecasting

Every organisation makes a financial forecast for future events and determines how to manage its success. The forecasting process is heavily digitised in many areas, yet they take up a lot of business time, ranging from 2 -3 months. If I were to look at the current financial year, most companies would have estimated their budgets by the fourth or third quarter of the previous fiscal year. The leading ones would be leveraging machine learning capabilities to draw correlations among the myriad factors and create a forecasting model.  However, none of them could have foreseen the extreme inflation that led to the rupee depreciation, the sharp increase in oil costs, or the overall inflation. Individually, these factors have an effect. 

Future forecasting capabilities will focus less on accuracy (as it is largely given), and more on the ability to quickly adjust to changing external conditions and, most importantly, on choosing the best course of action to reduce the new risk. Any CFO would undoubtedly adore the ability to state, “I've observed a 10 per cent spike in inflation based on XYZ external causes. It is anticipated that the inflation rate will rise for XX months before declining, and the recommended actions are….”

But in the future, I anticipate that forecasting will be a constant process based on external inputs that occur virtually weekly, if not daily. 

Business Reporting

For corporate reporting, Excel and PowerPoint are still widely used across organisations. Knowing where one stands and where someone else stands at various periods of time is the foundation of reporting. But in a world where everyone is accustomed to getting news at their fingertips there needs to be a change in the approach. Just look at the newspaper industry. How has the core corporate reporting function evolved? 

I expect current business reporting practices to be left in the history books. Instead, business reporting will become highly predictive of what the user wants to see, like the current news aggregators who uses the power of AI/ML. I anticipate a scenario when information, notably financial reporting information, is accessible through cutting-edge technologies like chatbots and voice-activated digital assistants that can comprehend humans, such as Google Mini, Alexa, or even Apple.

People At The Heart 

At the end of the day, finance will always be heavily influenced by people. The future of finance is about how we can empower the finance professional to help co-pilot the business to navigate an increasingly complex world in the most smooth, effective, and efficient ways possible. The conversations will not be about what has happened but what needs to be done and the transformation across these five streams will empower the finance teams to do that.