Five Steps and Eight Factors for Agile Finance Transformation in the Digital Age (Part 1)

Source: FreePik

Financial risks in the "new normal"

Businesses are not new to change, but the changes they are experiencing today are unprecedented, both in terms of the extent and speed of change. It can be said that the biggest changes are the emergence of disruptive technologies and the new business models that have been derived from them, and these are rewriting the rules of competition in many industries. The ability of innovation and speed of execution has become the most essential requirements to keep the business evolving.

Market and geopolitical conditions have also become more volatile, while globalization and M&A activity have been steadily increasing. As a result, companies are facing greater risks and stakeholder demands are increasing.

In addition, talent is becoming increasingly dispersed and diverse, and it is increasingly difficult to find and retain the talent that is right for the job. All of this, coupled with the changing organizational model, the increased complexity of business processes, and the proliferation of data, have made it harder than ever to manage the business.

In this context, “how to help companies cope with the 'new normal' ”places increasing demands on finance departments. Boards want to maximize shareholder value and minimize corporate risk, while investors want to get predictable and sustainable earnings growth. Regulators expect companies to comply with changes in rules in a timely and effective manner. Moreover, business leaders need to know the state of the business in real-time to make better and more timely business decisions accordingly, as well as develop cost structures that are appropriate to the business and enable it to better respond to the changing market environment. The role of finance is evolving, and new mindsets are needed to change the finance function.

The shift to Agile finance

In order for businesses to survive and thrive in the new normal, finance needs to embrace a new future, a future known as agile finance (as shown in the picture below).

Source: CFO Convergence Media

As markets continue to change and the world becomes more digital, business demands and regulatory requirements increase. Financial planning and forecasting are good examples of this. Nowadays, once-a-year financial planning usually takes several months to complete. By the time the final plan is produced, the market has changed and the plan then fails to reflect the current reality. It then takes even more time to update the forecasts, so planning is always behind the market, which is very detrimental to the business. In an agile finance model, this is coupled with drive-based planning, real-time data, and the availability of new technologies that can provide real-time information for business decisions. On this basis, planning and forecasting can only keep pace with what is happening in the market.

The Agile Finance function enables business stakeholders to access the information they need from anywhere by using modern technology. They can generate self-reports from their smartphone or tablet and thus get the financial information they need without waiting for the finance department to communicate it. For example, the head of a business line can monitor the progress of the business in his section at any time, and correct and adjust it if needed. The reality is that everyone has to wait until the month-end reports are available to them, which can be too late to get the data.

Source: FreePik

In agile finance, the use of multiple technologies automates financial processes, reduces manual and repetitive work, and makes skilled people to focus on high-value tasks, thereby reducing costs and improving the quality of service delivery.

For world-class players, they have to be flexible and able to react to all sorts of variables during the game: the condition of the pitch, the weather, the skill and speed of the opposing players, and the tactical changes made by the opposing coach throughout the match. If a player is not agile, he cannot be expected to perform well. The same goes for finance. Agile finance is ready to respond to any competitive environment and business requirements -- expected or unexpected.

The auto industry is a case in point. Carmakers' business model has long been to make and sell cars. However, in the future, sharing economy will become the trend. A typical family may have only one car, but there is more demand for shared rides. Automakers are aware of the shift and impact on major revenue sources, therefore, they are looking for ways to become a "mobile" company that, in addition to manufacturing cars, can benefit from the provision of transport services as well.

This change puts new requirements on the finance department, such as the ability to issue tickets based on ride records, accept electronic micro-payments and so on. An agile finance department can successfully complete this transformation, support the new business model of the enterprise, and adapt to new changes that are currently unpredictable.