Across industries, corporate finance departments are reaching maximum efficiency, but in 2020, they may have to prepare to maintain momentum with fewer resources; finance team budgets are expected to drop to less than 1% of annual revenue this year.
Yet with this smaller budget, finance teams are expected to invest heavily in technology, new research from The Hackett Group has found in its 2020 Finance Key Issues study, titled "Balancing Cost Reduction with Adding Value." The research is based on results gathered from nearly 200 executives in finance, HR, IT, and procurement at a global set of companies.
"By accelerating cloud migration and the adoption of RPA, data visualization and advanced analytics solutions, finance is seeking to optimize cost efficiency while driving enterprise growth," study authors wrote, confirming that most finance executives expect to see a 10% percent increase in the portion of their operating budget going to technology this year, despite a projected 3.4% overall budgetary decline.
Even when resources are stretched thin across an enterprise, investment in new technology remains paramount, particularly for finance teams, the Hackett study concluded. This is largely due to the proven cost-efficiency of RPA adoption and cloud integration.
Technology spend as a percentage of the finance budget has been flat or declining since 2009, the study found. But the rise of digital transformation has spurred a reallocation of funds back to finance.
Study respondents projected a 26% funding increase for the adoption of data visualization tools, 24% for RPA implementations, 20% for migration to next-gen cloud-based core finance applications and an 18% increase for adopting advanced analytics solutions.
The Wall Street Journal identified Life Link III, a Minneapolis-based air medical transportation company, that has increased its budget for finance information technology 50% from last year. In 2019, Life Link began automating certain finance processes, including accounts payable and expense reporting.
RPA adoption reduced the need for the company to hire more finance staff, CFO Robert Sannerud told the Journal. "Automating these processes allowed us to keep the same level of staffing in certain areas, [allowing] Life Link to hire in other areas [like] data analytics," he said.
This aligns neatly with The Hackett Group’s findings. The two biggest objectives for finance teams in 2020, the study found, were, firstly, to optimize cost structure to become more agile in preparation for economic volatility, and secondly, to continue investing in product and services innovation to maintain competitive advantage.
"Finance has an aggressive agenda for 2020, with analytics and technological advancement as the top two transformation priorities," said Jim O’Connor, North American Practice Leader at The Hackett Group. "[They] realize that in the intensely competitive digital economy, companies cannot arbitrarily cut cost at the expense of sustainability."
"Without advanced analytics, management cannot make fully informed decisions, or make them quickly," Nilly Essaides, senior finance research director at Hackett said. "There’s a tremendous need for finance to improve its data and analytics competencies, adopt new tools, and enhance the business value it provides directly."
Full financial transformation, however, will require companies to overcome obstacles such as overcommitment, skills deficiencies, capacity constraints, and technology and process complexity, the study said.
Looking ahead, The Hackett Group recommends that finance departments keep a keen focus on optimizing service delivery and addressing any skills gaps in order to support the team and the whole enterprise.