Automation of finance function – do it right

Syed Md Enamul Kabir

Digital transformation or digitization or technology driven transformation are some of the widely used phrases in business language and digital transformation, or whatever you call it, is one of the top priorities of business leaders across the functions and industries. Finance leaders are not an exception and after exhausting the power of outsourcing and centralization as efficiency levers over the years, they now see automation as the next big lever for efficiency. Despite time and efforts and buy-in from the top, automation or digitization programs in most organizations fail to bear fruits and the reasons for failures are many. My jobs gave me opportunities to experience finance automation programs first-hand and I identified two main reasons for failure: targeting wrong processes and technologies for automation, which partly stems from misconception about digital transformation, and ignoring the most important element of any transformation programs, people and their psychological states during transformation period.

Transformation means ‘change in a larger scale’ and the ultimate purpose of any change program, in the business context, should be to increase economic profit in the long run. Transformation is not a new phenomenon and businesses have been transforming since the dawn of trade and commerce in the world, the tools for transformation though have changed from generation to generation. Ford transformed production line using the tools of scientific management and Japanese companies transformed their businesses by using tools and techniques inspired by Total Quality Management (TQM) philosophy. In this so called fourth industrial revolution, digital technology is seen as the enabler of business transformation. Since, the concept of digital transformation is still taking shape, it is of no surprise that several myths are associated with this concept; and the dangerous side-effects of misconception are poor planning and execution.  As Professor Stephen J. Andriole puts it, ‘If you want to lead your organization’s technology transition, the first step is grasping the realities of digital transformation — rather than getting seduced by the hype.’ One of the important myths about digital transformation, Professor Stephen J. Andriole comments, is the belief that ‘every company should digitally transform’ though the reality is ‘every company, process, or business model does not require digital transformation and even if they do require, such transformation may not be profitable and hence may not be desirable’.  Another myth that Professor Stephen J. Andriole mentions is the belief that ‘digital transformation requires emerging and disruptive technologies’, though the reality is that ‘the transformational impact comes from proper adoption of conventional and existing technologies’. Many of you who are reading this article can relate these two myths to your experience as I can.

Finance in any organization performs a wide range of activities: from transaction processing to unstructured data collection and analysis for decision making. Not all activities require digital transformation and, most importantly, transformation of all activities does not make business sense. Finance leaders should reimagine the finance function in the light of existing and emerging technologies and should steer their departments gradually to the desired target. According to a Mckinsey’s report, 42% of the finance activities can be fully automated using currently demonstrated technologies. Routine and standard transactional activities are the easiest and profitable targets for automation, but even financial planning and analysis activities can be automated to some extent. It is also important to remember that sometimes it is not possible to automate an entire process end-to-end, but that should not prevent the finance leaders from automating a part of the process, if that can be done easily and meaningfully.

Automation of some processes certainly will reduce the number of people required to run those processes, but I don’t think leaders should take a worldview where technologies will replace human beings and thus will make human beings redundant. The danger of this worldview is that leaders then ignore the very important element of transformation: people. How can a transformation program be successful if leaders ignore the very same people who will plan and execute the transformation program? Human beings, including the leaders who are championing changes in organizations, by their very nature resist change though the extent and circumstances may differ. Research, as cited in Oreg (2003), has identified six sources of resistance to change: 1. reluctance to lose control, 2. cognitive rigidity, 3. lack of psychological resilience, 4. intolerance to adjustment period involved in change, 5. preference for low levels of stimulation and novelty and 6. reluctance to give up old habits. What is important for leaders to remember is that resistance to change is a normal human reaction and leaders should try to identify the root causes of the resistance so as to address it better rather than trying to ignore or suppress it; and , since different transformation programs are expected to trigger different set of these sources, a single recipe does not suffice to deal with resistance in all cases. Open and personalized communication plays a very important role in addressing the concerns that people have and thus in minimizing their resistance to change. One or two townhall meetings might be suitable to explain the context and contents of a change program, but there is no substitute for one-to-one meetings and meetings in small group that give people an opportunity to speak up and give leaders an opportunity to show that they care about their people by addressing the issues at more personal level.

Businesses that do not transform will be extinct, because transformation for business is what adaptive evolution is for species of animals and plants. But it is important to choose the right pace, scale and tools for transformation, otherwise, no matter how much money and time you spend, transformation programs are doomed to failure.

References

Andriole, S.J.2017. Five Myths About Digital Transformation. MIT Sloan Management Review. 58 (3), pp. 20-22.

Mckinsey,2018. Bots, algorithms, and the future of the finance function. https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/bots-algorithms-and-the-future-of-the-finance-function

Oreg, S.2003. Resistance to Change: Developing an individual differences measure. Journal of Applied Psychology.88(4), pp.680-693.


About the author

Syed Md Enamul Kabir, MBA, FCA is the Managing Partner of ESS & Partners.

1 thought on “Automation of finance function – do it right”

  1. Muhammad Arifur Rahman

    Regarding people aspect of automation, from my little experience, I have observed, the goals are unreasonable biased against human part in the organization.

    First of all, in many organizations, the decision makers (top management) often overgeneralize head-count based KPIs (e.g. revenue per FTE, or customer per FTE) without applying right multipliers for human capital cost, particularly for emerging economies with cheap labor cost advantage. [Naturally and at the same time dangerously enough, this bias often leads to underestimation of both implementation and post implementation cost by the project team just to establish a viable future of the project.]

    Secondly, but most importantly, the need for capacity development of the people surviving the automation test (and still continuing to serve) are hardly recognized. Funny enough, an organization spending millions of dollars on implementation project is hardly willing to pay thousands for training the people, who will operate the system. I suppose, in almost all cases, in a pure financial decision involving comparison between $50k for software vs. $50k on training or bonus based on implementation success, the inanimate software will win.

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