Tunnel Vision and Unreliable Data Derail Financial  Transformation Ambitions

By Michael Creeden, Manager, Solutions Consulting, Tradeshift

Get more insights on what finance leaders are doing to take their department to the next level in our report: Building for Change; How CFO Priorities Are Shifting From Efficiency To Value Creation

You would struggle to find a business right now that isn’t grappling with some kind of drive toward digital transformation  for their business. And the finance department is no exception. According to Gartner, 85% of finance teams today are in the midst of a financial transformation initiative. The rationale behind this move is clear. Events of the past two years have bestowed new importance on accurate, real-time data for critical decision-making, bringing it to companies’ attention like never before.

CFOs Think They’re Digital Transformation-ready

Research conducted by Tradeshift in partnership with CFO Dive suggests finance leaders are relatively satisfied with the progress they have made in modernizing core elements of the finance process. 70% of finance leaders say they’ve mostly centralized their financial data with few siloes remaining. Around 80% believe they’re performing at a decent level in core finance areas such as working capital optimization.

For CFOs and finance leaders, addressing these challenges is not the end game; instead, it is a stepping stone to the real prize; data and insights that can be shared, analyzed, and discussed between departments to inform strategic decision-making across the wider business. Asked how they envisioned the future for their function, 91% of CFOs said that increasing data transparency and collaboration between departments was a key objective in their overall finance transformation strategy.

For all that, respondents were clear on the direction of travel; however, it’s clear that many are hitting problems. Our research revealed that 41% of finance leaders cannot share data and collaborate with other departments, including shared services. A third said that data siloes are the most significant barrier preventing them from increasing team performance levels.

Financial Transformation Tunnel Vision

According to McKinsey, financial transformation projects that look cross-departmentally are 1.5x more likely to succeed than those that are narrower in scope. Finance transformation goes much deeper and broader than the confines of the finance department itself and ultimately requires different departments and functions to work together towards a common digital goal.

Instead, what we often see is that businesses have taken a kind of ‘whack-a-mole’ approach to digital transformation across different areas that will ultimately be expected to collaborate. Departmental leaders might think they’re digitizing by moving systems to the cloud, but they’re actually shifting on-premise siloes to SaaS-based solutions.

If you look at how organizations are typically structured today, there’s a real disconnect between the different functions, particularly when you’re talking about procurement and accounts payable. On paper, it’s easy to see why they’ve traditionally been kept separate. Procurement is entirely focused on buying the right quality product at the right price for the organization, while accounts payable focuses on taking care of invoices.

Anyone who has worked in either department knows the problems that can surface when those two departments are stuck in siloes, whether that’s mismatched orders, poor audit trails, double payments, or any number of missed opportunities to build value through early payment discounts or dynamic financing.

As organizations move to a future where everything is digital as a default, you need to flip that mindset and start thinking about platforms that can integrate with a variety of discrete and legacy systems you already have in place, connecting that whole set of departments end to end. CFOs have an important role in galvanizing different stakeholders around a common vision.

Building on Bad Data

Taking a more holistic view is a key part of the financial transformation puzzle. But that rigor also needs to extend into the quality of the data on top of which CFOs are looking to build.  Here too, problems are bubbling close to the surface.

One of the most telling areas of our research came when we asked finance leaders to evaluate the quality of their financial data. Whilst a majority say they’ve done a good job centralizing core finance information, 73% admitted to problems in their data. Some of the most common issues included missing or outdated information and an inability to pull insights from data. That’s a clear red flag, as it suggests finance leaders are attempting to layer technologies like AI and automation over rocky foundations. No wonder they’re struggling.

The genius of technologies like AI comes from its ability to ingest, sort, present, and interpret a variety of sources of information to approach problems from fresh angles and deliver a different kind of outcome. Try doing that on inaccurate or outdated data; at best, the AI won’t work. At worst, it will magnify and compound problems further down the road.

Fake Digitalization

Whenever we speak to enterprise leaders, it’s obvious that there is still a fair amount of education to be done regarding what ‘digital by default’ really means. Senior leaders and department heads often tell us we’re wasting our time as they are already ‘100% digital.’ What they mean is that they’re using OCR to turn paper documents into electronic proxies. These scanned documents might be ‘electronic,’ but they’re really just reams of unstructured data that negate the effectiveness of automation and AI.

This false sense of security is not limited to finance leaders, however.

AP teams are also getting ahead of themselves. Ardent Partners’ latest AP Metrics that Matter report showed AP teams eager to step up and become a more strategic data-led function. But when you dig down a little, the majority still rely heavily on document scanning as the primary means of centralizing their data. A much smaller percentage have embraced fully digital e-invoicing capabilities.

Out-of-date or inaccurate vendor master data is also a massive problem for AP teams that can quickly derail a broader transformation. It is not uncommon for a business to hold 20 or more different records that point to a particular company. Low master data quality and decentralized master data management across different systems, departments, branches or locations complicate the central optimization and automation of purchasing and financial processes.

Data Cleansing: The Devil Is in the Details

Some of the specific examples I’ve provided may seem like small beer, but if finance leaders  are serious about building from a single source of truth across their entire department, then maintaining an accurate and consistent digital source of truth for every supplier interaction sounds pretty fundamental.

At Tradeshift, we put a great deal of emphasis on helping organizations to ‘clean up’ vendor information, using machine learning to clean data by recognizing duplicates and identifying missing or erroneous data. And because the connection we establish between buyers and suppliers is 100% digital, onboarded suppliers can more easily take on the responsibility for managing their own information, reducing the burden on AP teams to keep this information up to date.

Digital by Default

We’re not saying we have all the answers. What we are good at is creating a starting point for businesses to become ‘digital by default.’ Once you have that foundation in place, you can start doing some really interesting things.

Let’s be under no illusions. Financial digital transformation is hard. On current evidence, finance leaders may need to slow down and re-examine the foundations they’re building on to speed up later in their transformation journey. This burden should not rest entirely on the shoulders of senior leaders. If AP is eyeing a more strategic role, then it needs to get serious about showing its value in establishing a digital core across a vital component of your overall financial data.