Why innovation in finance starts in the back office

Even in the world’s largest businesses, it’s not unusual for the finance department to still lean on spreadsheets and manual technology. Finance departments have long since relied on set processes that can make it difficult to innovate – there could be too many ERPs or not enough time or resources to try new, innovative methods. It’s time for the back office to grasp innovation by the horns and to understand how to best streamline processes and use technology to boost efficiency.

Innovation in finance has predominately focused on the end user. Take smart apps for banking, although customers use them every day and they’re undeniably an innovation in how we interact with our banks, this level of disruptive innovation has not been embraced in the workings of the back-office.

Going digital is more than just introducing apps and using Slack. It means making all the processes in the finance department digital, from moving core processes to the cloud to encouraging the back office to use enterprise resource planning (ERP) software rather than spreadsheets.

One thing’s for certain. It’s not lack of will that’s holding the back office from digitising and becoming truly innovative. FSN’s Innovation in the Finance Function Survey 2018 found that 88% of CFOs say they would relish the opportunity to lead a truly innovative project. Yet only 12% of innovation has been in back-office finance processes first with the majority of focus being on customer-facing processes.

Ultimately, not pushing for innovation makes no sense. By making the back office more efficient, costs can be reduced, resources freed up and risks mitigated. CFOs are being encouraged to transform finance and accounting departments from the back-office to a key player in the business, driving strategy and delivering results. By using real-time information, CFOs are being encouraged to take a firm step forward and use innovative tech to make strategic business decisions.

Silos

One of the biggest blockers to innovation is integrating processes when there are siloed legacy systems. If back office processes work, it’s understandable that those running them may be resistant to change, even if there’s proof that shaking up the way they’re done means the processes could become more efficient.

Gaps in financial processes are also a blocker, as many tasks are done manually. For example, spreadsheets are not only being used for recording and managing transactions, they are also misguidedly being used to control the process itself.

Task lists to control the process or guide the steps of a reconciliation are relatively commonplace, but do not support collaborative working across functions and processes. In some cases, departments may have a lack of IT expertise, especially when F&A and IT departments operate separately. In these situations, the question is who makes the case for the adoption of digital solutions in the back office, the CFO or CTO.

It’s also true that those working in the back-office may be risk averse when it comes to digitising large amounts of information and may have questions regarding the privacy of storing data online.

 

Time and resources

Despite innovative tech promising greater security when it comes to Big Data, lack of time and resources may also be a constraint to back office innovation. The recent Finance Function Survey 2018 found that 11% of respondents “rarely if ever discussed innovation and don’t have the time to devote to it”, while 54% openly admit they are uncommitted innovators who don’t have time or funding to dedicate time to it.” With these figures, it’s easy to see why it can be hard to get innovative processes off the ground.

However, the back office can certainly act as an innovation hub, and once disrupting technology has been adopted innovation may filter through to the rest of the company.

Such innovation may appear in the form of advanced analytics, intelligent processing, using AI, and using business process management software rather than relying on spreadsheets and paper timesheets. Such tools require more than just a steady and knowing pair of hands. They also require a CFO with a drive for change, and an understanding of why the change is critical and timely. First steps of digital innovation include the harmonisation of processes and automation. It’s important also to consider who has visibility over what processes – this doesn’t just apply to data, but looking at who does what, when.

Innovation can also be introduced in the form of using real-time data. This means mistakes and errors can be spotted much more easily which avoids future repercussions if a mistake found its way into financial reports for example.

Until now, innovation in finance has been too customer-focused. While this is evidently an important component, more focus needs to be placed on the back-office. Ultimately, closing the books faster results in competitive advantage, cut costs and a more agile business.

 

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