This is the first of three posts reflecting thoughts on the role of Financial Process Automation in Digital Transformation. Yes, you read that right, and I realize it could be argued that this is one of the great oxymorons ever, combing "Financial Process Automation" and "Digital Transformation" in the same sentence. But stick with me.
Every business operates on a pretty thin line between success and failure, and technology disruption is making this line sharper every day.
We all know the survival challenges faced by new companies. According to the US Bureau of Labor Statistics, only about 50% of all new businesses survive 5 years or more, and about one-third survive 10-years or more.
But even when a business gets past the initial survival threshold, it must still constantly look for sources of advantage and efficiency. According to the Yahoo! Finance database for 212 different industries, the median profit margin for US public companies was 6.5% for the most recent quarter.
6.5%. That certainly isn’t a very large margin between success and failure.
So the question for any business executive is whether you want to operate as a bottom tier company barely scraping by or as a top tier company, generating profits and investing for the future.
So, of course, the answer is “Duh!” Alex Trebek, I will choose “Success” for $20.
How can you lay a solid foundation for digital transformation? How do you systemically get to be a top tier company? How can you push your median profit margin well above the 6.5% survival level of the typical US company?
According to the American Productivity and Quality Center -- an awesome organization, BTW— an amazing 74% of organizations are currently engaged in a finance process improvement initiative. Why are they doing this? And how does this tie to broader Digital Transformation initiatives?
APQC notes that cost reduction is the key business driver for 43% of these initiatives. Financial process automation -- and particularly automating invoice processing -- has been one of the bread and butter content management applications for years. But I think these initiatives need to be viewed not only through the prism of cost reduction, but also in terms of how back-end process automation and efficiency are now Digital Transformation table stakes. In a world in which customers and suppliers are being drawn further and further into our organizations, no smooth and beautiful front end customer experience can compensate for weak supporting processes that are inevitably the next step in customer experience. Finance Directors need to understand this critical linkage and use it to "manage up" in their organizations in making a case for resources to drive financial process automation.
The same APQC survey also notes an even more important business driver for finance process improvement initiatives. They note that 50% of these initiatives are being driven by “the realization of the need for better business analytics.”
Ding, ding, ding, we have a winner in the Digital Transformation sweepstakes.
C-Suites need to drive finance improvement initiatives down through their organization, not just because they can save money and not just because customer needs require it, but because financial processes are a rich and untapped source of the data and analytics that is needed to fuel Digital Transformation.