The Future of Finance: How Accounting Is Going to Be Different
If the COVID-19 pandemic has a silver lining from a professional perspective, it’s that accountants have been pushed faster and further along the road of progress than we would have thought possible just a year ago. As the great economist Milton Friedman said “Only a crisis, actual or perceived, produces real change.”
For years, people in finance have been hearing about the digital transformation coming our way, and the need to adopt an agile mindset. When the pandemic hit, companies that had been contemplating offering remote work over the next five years did so overnight. Organizations that already had moved to the cloud adjusted more easily to the new normal. Those that had been dragging their feet had a harder time.
What will the future of finance be? Finance will be taking on a bigger role across companies. Tech and automation will be key to that expanded responsibility. Successful deployment of that tech means your team will need different skills. Let’s take a look at these three areas.
The Expanding Role of Finance
As I wrote in Controller’s Code, “The complexity and fast pace of today’s world combined with access to a flood of data and technology tools means that strategic work is being pushed down.” Not to toot my own horn, but this is particularly relevant today. Finance will be doing more than just keeping the books and cutting costs, but will have an increasing role to play in strategic direction for organizations.
Those strategic roles will include “…Identifying new revenue streams, conserving cash, mitigating operational risks, and maintaining compliance with new regulations…” According to a report in a new series from the AICPA and CIMA, Agile Finance Reimagined: Reimagining and Reforming the Business.
Since the pandemic, finance has grown in importance. In the summer of 2020, Netsuite surveyed 130 executives, and 45% of them said the role of finance in business has increased since January. At the top in significance is FP&A, with 72% saying it was more important than before.
Forecasting and projections have become more crucial than ever in the COVID-19 era, and will be for some time. The old methods with Excel can’t keep up with the rapid changes or the levels of uncertainty. Real-time simulations and tools that leverage machine learning and AI will help finance leaders identify opportunities and threats while there’s time to act on them.
Data analysis will become a vital tool, and that data won’t be just financial, but will come from all parts of the organization. We’ll be using operational data like customer usage and behaviors to spot trends. Tools that automate the collection, verification, and analysis of that data will be key. As the authors of a new report by KPMG, The Future of Finance say, “analytics capabilities will shift from descriptive (analysis of past data to find out what happened) and diagnostic (analysis of why it happened) to predictive (what will happen in the future) and prescriptive (what we should do about it).”
Embrace All the Technology You Can
I feel like I’ve been beating this drum steadily for years, but there are still companies out there that aren’t using all the automation they can. Just before the pandemic, Deloitte surveyed 800 finance and accounting professionals, and found that 42.9% still have largely manual processes for their accounting. Only 1.4% were fully automated. Wow.
There is simply no way that finance teams of the future will be able to provide all the additional services that organizations will need without technology. The complex forecasting, projections, and data analysis are way beyond the abilities of Excel, even with all the cool new features Microsoft keeps adding. The foundational issue is that someone has to build the spreadsheet, and by the time you’ve got all the formulas working and the data imports feeding in correctly, it’s too late.
Companies that don’t innovate in their technology get passed up by the startups that do. That means the only option your company will have is to innovate by acquisition.
Finance Skills Beyond the Debits and Credit
A new survey by the AICPA and KPMG focuses on the human part of digital transformation. That project was inspired by a finding in a previous survey: Only 10% of CFOs believe their finance teams have the needed skills to execute on digital transformation. In the current survey, only 3% of respondents said the finance function has the needed skills.
What are these new skills? According to the survey authors, the “top skills gaps for finance relate to digital infrastructure, digital implementation, leadership, and people skills.” Additional skills I can think of include creative problem solving and strategic thinking.
While these skills do map nicely to CGMA’s Competency Framework, and are also part of the AICPA’s CPA Evolution for a new licensure model, organizations will be the ones ultimately responsible for upskilling and retraining people. Accounting curriculum in universities is tied tightly to CPA exam content, so it will take some time for the changes in the CPA Evolution project to trickle down to the course level.
According to KPMG’s Future of Finance report, automation has the potential to decrease headcount in accounting and finance by 70%. Most of that reduction will be on the bottom layer of the traditional pyramid-shaped org chart, as we shift to organization structures that are more diamond-shaped, with a fat layer in the middle.
The trick will be populating that fat middle layer. We’ll have to develop new career paths that don’t rely on an upward ladder of succession. As the KPMG report notes, some leading companies are already breaking down the silo of finance and putting a finance person on every team. Every organization has people who have no leadership ambition, but maybe would like to float through an organization, to be embedded in sales for a quarter or a year, then in operations or HR. Or maybe they’ll acquire a new skill, like data analytics or forecasting, that will make them a crucial resource for the whole organization.
Move Ahead or Get Left Behind
Some of the technologies that finance teams still struggle with — like paperless workflow, for example — have been around for nearly two decades. But imagine how far along the trajectory of transformation your team would be if your predecessors had experimented with tech back then. And imagine the competitive edge your company will have when finance moves from counting beans to growing beans, and you’ve built a team of tech experts and strategic thinkers.
Now go out and make the magic happen!