The financial department of any business is critical to operational success, and part of that means adopting new, digital technologies. CFOs, accountants, and finance employees that embrace digital transformation will strengthen their core competencies, create competitive advantages, build a more productive department, and position their business to grow.
We’ll explore the role of digital transformation in the finance department, and how digitization, digitalization, and digital transformation fit together.
Defining Digitization, Digitalization, and Digital Transformation for Finance
These three concepts are closely related, with each building on the previous one as you work towards digital transformation. They’re all necessary to help the finance department align with business strategy and goals.
Digitization for CFOs and Accountants
Digitization is about turning documents and other financial paperwork into a digital form to make it easier to view, share, and process.
You receive a paper invoice from a supplier. Previously, you might have paid the invoice, then stored it in a traditional, hard copy filing system. With digitization, you can scan the invoice, turn it into a PDF, then share it in the accounts payable department through your ERP or other software. This increases operational competence and productivity by making it much easier to tag, share, and process financial documents.
Digitalization for CFOs and Accountants
Digitalization is about automating parts of your financial processes to reduce manual work, eliminate errors, and create more efficient and competent business functions.
Rather than just scanning an invoice, digitalization can actually parse the content of your financial documents. Digitalization software will read and fill in data like the invoice number, amount, invoice date, due date, account information, and more. Because you can apply digitalization to most types of formatted documents, this can automate large parts of your accounts payable, accounts receivable, and other operational processes.
Automation through digitalization delivers significant business benefits, including speed, reduction of manual effort, and avoiding humanerror.
Digital Transformation for CFOs and Accountants
Digital transformation is about updating the financial business model, operational activities, and accounting competencies by implementing new technologies across the whole organization.
Digital transformation is the most complex part of the digital puzzle, so it’s worth breaking down into more detail.
Digital Transformation is Driven by Business Strategy
Transformation must be driven by the highest-level business goals, which are defined as part of the business’s strategy. These goals need to filter down into individual departments and become part of the objectives of executives, senior managers, team leaders, and employees. This means everyone needs to understand the purpose and practice of digital transformation, and what they will need to do as a result.
For finance, this involves translating business goals into financial performance and efficiency, and using technology to achieve those aims. All levels of finance employees must be engaged through incentivized objectives and good communications, including vision, goals, and responsibilities.
Digitization and Digitalization Support Transformation
Digitization and digitalization are both necessary parts of digital transformation, but they are not enough by themselves. Instead, they should take place as part of an overall shift to transformation across the business.
For finance, this means looking at the big picture and understanding the operational changes required to drive transformation across the department.
Bringing Digital Transformation to Life for Finance
One of the best ways to understand digital transformation and potential issues is through sharing real-life experiences. As a financial business consultant, I’ve been involved in multiple aspects and levels of transformation. Here are a couple of examples.
Employee Engagement and Communication is Critical to Digital Success
A company decided to introduce digital technology and invested in new ERP systems for time tracking, salary, and payroll. This included one application for recording daily working hours and another for salary calculations.
One of the challenges was a special overtime payment that involved some complex calculations that were “role-based” and dependent on the branch where an employee worked. Due to the difficulty of these calculations, the business decided to manually retrieve the information from the time tracking app and input it into the payroll one.
Unfortunately, this wasn’t properly communicated to employees, resulting in manual errors, including missed, delayed, or incorrect overtime payments. The issue here was that employees did not understand the benefits or goals of the technology, and didn’t have the necessary training to take advantage.
The solution was for the company to explain to staff the necessity of introducing digital ways to track and calculate work time and payments, including the impact of their roles. The company needed to invest in upskilling their employees and help them to “think digital.” This helped them understand how their roles influenced payments, and also meant the company could reduce the time, effort, and mistakes caused by rekeying manual data.
Employees Need to Think About the Context of a Financial Business Process
Another business invested in a digitalization solution that scanned and registered invoices from suppliers. The software automatically filled in the supplier name, invoice number, date of the invoice, due date, taxes, and the bookkeeping account.
Accounts payable team was taught how the app works, and needed to check that the scanned information was properly parsed from the document and input into AP systems. An employee noticed that the software was putting the invoice date into the invoice number field. They deleted the incorrect information and manually entered invoice numbers for any invoices they received.
Unfortunately, this didn’t solve the wider issue of why the software was parsing the wrong field, and resulted in a fair amount of manual rework. The solution was to properly train employees to correct the software themselves or report issues so that the app could bereconfigured. Because the solution was a machine learning, supervised process, good communications could have informed workers that if they find an error like this, they can have the software choose the correct field instead. This would eliminate the need to rekey data and created a more efficient process.
Although these two examples may seem obvious, finance employees are already very busy and working to tight deadlines. It’s not just about investing in transformation and introducing new technologies. Technology programs need to engage employees through effective training and communications. This will drive up their core competencies and prepare the finance department for digital transformation.