2024 FP&A Trends Survey. Empowering Decisions with Data: How FP&A Supports Organizations in Uncertainty
Click here to read the report
2024 FP&A Trends Survey. Empowering Decisions with Data: How FP&A Supports Organizations in Uncertainty
Click here to read the report
How do we fail at digital transformation? You may be wondering, “Did I read this right?” Is the author providing me insights on failing in my multimillion-dollar transformation project? Yes, you are reading it right. Charlie Munger, the wise Business Partner of Warren Buffett, had a golden rule about strategy and life in general – “Invert, always, invert”. What he meant was to turn the problem upside down and think backwards. If you want to succeed in digital transformation, focus on what factors may cause its failure. Have a laser focus on the shortcomings and implement strategies to avoid those failures.
This article aims to share some insights on why digital transformation in finance has failed in other companies and which important lessons we can learn from those experiences.
Digital transformation became a buzzword during the COVID-19 pandemic. Finance departments are generally slow to adapt to change. That is why many companies still have old legacy finance systems which are not well integrated with other systems. The resistance to change for financial and other considerations exists in many companies. But COVID changed all that – it forced us to quickly adapt to work remotely – tasks that were thought impossible to do outside offices had to and were done from home. In one of the companies that I worked for, it was inconceivable that Account Payable (A/P) activities could be done remotely. However, during the pandemic, all A/P activities were done efficiently and accurately. The pandemic also helped senior finance leadership realise that digital transformation could provide efficiencies and cost savings.
Digital transformation provides many benefits: data-driven insights, it encourages collaboration, drives efficiencies, and enables the finance function to focus more on value-adding activities. While the benefits are great, a few recent research provide some stunning statistics outlined below.
The above surveys highlight the need to study why digital transformations have failed and how to avoid those mistakes. So, let’s look at some of the most common mistakes.
This is a sure short way to fail at transforming the FP&A function. According to KPMG, many technology initiatives are largely driven by a reaction to hype rather than a clear business strategy, ultimately resulting in wasted spending. The most important element in any transformation project should be clear business objectives. These objectives can vary depending on the size, the company’s maturity and experience with transformation initiatives. For instance, I worked in a business with an inefficient A/P process, but the CFO of this company had a clear idea of transforming it to allow the A/P team to focus on more value-added activities. The CFO was very clear in his vision for the A/P team and the business objective for the digital transformation.
Digital transformation can be time-consuming and expensive. Thus, it is imperative to get top management buy-in. Practically speaking, many companies are hesitant to invest heavily in the FP&A function. Since there is no direct ROI, companies would prefer to invest in marketing or sales where the return is faster and more tangible. It is necessary for the CFO to drive the business case for a digital transformation, and some of the key questions to answer are as follows:
By quantifying the benefits and linking transformation to the business strategy, it will be easier to convince top management.
Per the KPMG 2023 survey, the top factors to fail digital transformation were a lack of skills within the organisation, a risk-averse culture that is slow to embrace change and a lack of coordination. I would broadly categorise these as the people factor. A few relevant questions to consider before embarking on a transformation program are:
Finally, a digital transformation program can be successful only when the team buys in, commits to the project and works collaboratively with each other. Almost all programs face headwinds during implementation, and that is normal. However, if the roles and their accountability are clear and if there is a focused effort to see through the transformation, then it will be a success.
The market is flooded with so many different technologies and vendors. Which one is the right for your company? There is no easy answer, but there are some good questions that can help you reach the right decision.
One can hardly overstress the importance of this factor. A lot of companies use legacy systems and many finance processes are linked with these systems.
Today, data is like gold, and organisations are spending millions of dollars to protect their data.
As a finance leader, you may think, “Wow, that is a lot to consider”, and it definitely is. Finance transformation is a huge project. With a 70-80% failure rate, it is a very high-risk project. Having the right tools and frameworks can help us mitigate these risks. To conclude, I would like to outline a few ways to ensure a successful finance transformation:
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