Why the finance function is integral to digital transformation #TMUguru
This article is a free resource from the TechMeetups Guru Program where Maggie Buggie is participating as our Digital Transformation Guru to assist founders of startups and business leaders though practical workshops and mentoring.
As Vice President for Digital Transformation at Capgemini Consulting, Maggie is focused on innovative, agile business and enterprise alignment to the pace of change leveraging digital technologies and perspectives. In this blog post Maggie shares her thoughts and experience on the way that organisations can make the adoption of digital technologies profitable and sustainable. This way is also a fantastic way for cutting edge technology companies to understand how they can make the best long term difference to large organisation.
Why the finance function is integral to digital transformation
“Digital transformation” is the adoption of digital tools and technologies to streamline an organisation’s interactions with customers, employees and suppliers and to improve its business performance fundamentally. This article explains why the finance function, itself an early adopter of digital technologies, has a pivotal role to play in digital transformation.
In this new industrial revolution, those who seize the transformative potential of digital technology can gain a considerable “digital advantage”. Together with the MIT Centre for Digital Business, we recently published a global research study into the impact of digital technologies on organisations, The Digital Advantage: How digital leaders outperform their peers in every industry. The study confirms that the companies which have succeeded in fundamentally transforming their business through technology are achieving superior financial performance, with digitally mature firms reporting on average a 26% higher profitability than others.
The use and impact of digital tools in the enterprise are not, of course, new phenomena. Nonetheless, we believe that the digital economy is entering a new age, with an associated paradigm shift that is reshaping society. What has changed in recent years is that the capabilities of the tools have increased and the pace of adoption by customers, employees and organisations alike has accelerated.
This is why the potential benefits of digital transformation are so enormous. It has the power radically to improve corporate performance and reach, leading, as we have seen, to demonstrably better financial performance. Digital transformation can help organisations address their most significant business priorities in areas such as innovation, customer experience, efficiency and productivity. It allows universal access to data to allow informed decision-making.
Despite the name, this is primarily a business transformation, not a technological one. Like other business transformations, digitisation can only succeed if it is guided by clear managerial goals – with a well-defined vision and roadmap – and by realisable business benefits and the right governance model.
The finance function can play a critical part in making sure those preconditions are satisfied. Finance is already critical to the monitoring of profitability, reporting and cost control, and it must now monitor the profitability of each new digital channel. More sophisticated ABC techniques will be needed to ensure costs are accurately allocated to each channel.
Finance is also well-positioned to take the lead in a range of corporate activities, such as the analysis of existing internal data combined with rich new customer-centric data from online channels, and the establishment of links between front- and back-office reporting. Financial controls and processes will need to be re-designed to protect the organisation and system boundaries.
Finance functions that embrace these challenges are finding a new role as a “business catalyst” – a shift we are already seeing in leading organisations. As a catalyst, finance constantly challenges the organisation to ensure that technology-enabled change unlocks productivity gains, increased profitability and competitive advantage. It also takes on wider strategic responsibilities, helping the organisation to understand and respond to the possible impact of agile new entrants or new business models.
We believe that an organisation’s success in delivering the huge potential from digital transformation depends crucially on its finance function’s willingness and ability to take on this role of business catalyst.
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