2024 Finance Key Issues Research – Transcript

John O’Mahony:

Progress has been made, but there’s still a lot of work to do. We still have, in 2024, 53% of organizations that still operate as administrators. The administrators, they’re doing what is necessary – keeping the lights on, doing the core transactional work – but not necessarily liberating true value ­– doing things such as providing insight, influencing performance and driving bottom-line returns across the balance sheet to ensure that they’re maximizing shareholder returns.

Announcer:

Welcome to The Hackett Group’s “Business Excelleration Podcast.” Week after week, you’ll hear from top experts on how to avoid obstacles, manage detours and celebrate milestones on the journey to Digital World Class^® performance.

Shawn Fitzgerald:

In 2024, finance organizations will need to do more with less, with cost containment and cash flow optimization back at the top of the priority list. I’m Shawn Fitzgerald, senior research director here at The Hackett Group. On today’s “Business Excelleration Podcast,” we’ll discuss findings from our 2024 Finance Key Issues research. In addition to myself, I’m joined by Tom Willman, a principle in our Finance Executive Advisory practice, and John O’Mahony, a principle with our Enterprise Performance Management practice in Europe. Gentlemen, welcome to the podcast.

Before we get into today’s question and answer session, I just want to give a little overview of our Finance Key Issues Study. This is an annual effort that we perform here at The Hackett Group, asking various CFOs and finance executives things like, “What are your top priorities and resource needs for 2024? What are your top 10 finance objectives?” We also ask about initiatives, expected disruptions, and where finance sees technology adoption and value, including generative AI, which is a very hot topic.

Getting into today’s podcast session, I’m going to start with a question for you, John. Can you please tell us a little bit about the Finance Key Issues Study organizational maturity for 2024, and what we’re seeing companies organizing themselves around?

John O’Mahony:

Thank you, Shawn. If we look at 2024 in terms of finance maturity, I think we can see year on year that progress has been made, but there’s still a lot of work to do. If you consider, let’s say finance organizations – where they are – we still have, in 2024, 53% of organizations that still believe are challenged with adding value in that they still operate as administrators or indeed efficient operators. If I compare and contrast that with those leading organizations in the globe that are driving maximum value out of finance, that equates to 6%.

Now, if we compare and contrast both – the administrators and the efficient operators – they’re doing what I would say is necessary. In other words, keeping the lights on, doing the core transactional work, but not necessarily liberating true value on behalf of the organization. What I mean by that is doing things such as embedded in the organization as core members of the decision-making units, providing insight, influencing performance and driving bottom-line returns – not just in term of P&L, but across the balance sheet as well, to ensure that they’re maximizing total shareholder returns. They’re doing that through investment in better forecasting, better reporting tools, having the right skills and having the right structures to drive accountability, to drive insight, and to be able to drive forward-looking data in a way whereby it’s unlocking value.

Shawn Fitzgerald:

Thank you, John. Following on that, for many years, we see that finance has perennially been challenged and asked to do more with less. What does the 2024 research show – with regards to that trend – given our current economic environment and the challenges that companies are facing today?

John O’Mahony:

If we look at overall, in terms of year-on-year movements between 2023 and 2024, the expectation is that, in reality, that there will be increases clearly – expected increases on average of about 2% in enterprise revenue. That, in its own, leads to more activity around transactions that are forced onto finance. That leads to a position whereby you compare that with transactional activity in terms of associated with revenue, consequences, as well on other core processes such as procure-to-pay and record-to-report. What that is essentially driving is a 5% uplift in activities within finance.

Now, there’s a constant challenge around driving productivity when in finance. We’ve seen over the last number of years, the adoption of technology to drive lower costs around finance transactions, around finance operations side of finance, and also investing in technology to unlock value around the EPM stack to enable FP&A to do a better job. The net effect of all of this, in reality, is an expectation that finance will do more for less. That’s clearly the trend that we’ve seen still continue year on year.

Now, they’re unlocking that through better productivity – as a result of the continued investment in technology – to be able to provide better insights and to be able to automate the transaction processes in a much more comprehensive way, so that they can absorb that activity going forward. Therefore, release from nonvalue-adding activities, resources to reinvest and drive them toward the value-added side of the house, around business partnering, and FP&A.

Shawn Fitzgerald:

Thank you, John. Those are some great tee ups getting into our key issues for finance in 2024. Flipping over to you, Tom, obviously we have a top 10 list of finance key objectives for the year. Can you please take us through what those are for 2024?

Tom Willman: 

Sure. Thank you, Shawn. I’m excited to have the opportunity to do this today because there’s actually been some pretty significant shifts in the top 10 objectives relative to 2023 and even 2022.

If I start at the top, the two that have really jumped to the top of the list are cost management and optimization, and to John’s points in talking about finance doing more with less, there is continued pressure there – not just in finance, but in the rest of the organization as well. I think we’ve all seen continued evidence of that, even since the beginning of the year, with the number of layoff announcements that have hit the press. But it’s going to be important for finance organizations to take an informed and intelligent approach to how they optimize their cost structure and do so in a way where they change the nature of the work – they change how they’re using technology to make some of those cost reduction actions sustainable into the future.

The second on the list is cash flow, liquidity and working capital performance. In today’s interest rate environment and some of the macroeconomic conditions we’re facing, there is a renewed focus on cash flow and working capital. Again, here the challenge is to ensure that we’re taking the actions required from a policy, a process, and even an education perspective, to ensure that improvements that we make in working capital today aren’t temporary, and that we’re able to stabilize and sustain those as conditions improve.

No. 3 – the timeliness and reliability of data and actionable insight – has perennially been a top five priority for finance organizations. In fact, is a very important enabler of the first two items. We’ve got to have good insight if we’re going to make the required changes necessary to achieve our cost and cash flow goals.

No. 4 is profitability goals, including margin expansion. It can’t all be about cost. We do have to support the organization and their growth objectives, providing insight into where the best opportunities for growth are, being able to fund the investments necessary to achieve those growth goals. You can hear from just three out of the top four, the top priorities are focused on business performance.

Then, No. 5 is digital transformation and technology modernization. This actually, for the past couple of years, has been No. 1. I don’t mean to suggest that digital transformation is not important. It is still a very high priority for organizations. We believe it’s one of the primary drivers of some of the business performance improvements that organizations are going to be able to achieve, including through emerging technologies, such as generative AI, which we’ll talk about more later in the podcast.

If we move to the bottom half of the list, reliable forecasting continues to be a priority and a challenge for many organizations given the economic and the geopolitical environment that we’re in, and the volatility that we’re in. There’s still challenges in delivering reliable forecasting. We see finance organizations continue to focus on the process, technology and even people changes required to improve their forecasting.

There’s definitely a priority on upskilling existing talent. With the continued progress that organizations intend to make around their digital transformation, there is a necessary upskilling that has to take place to ensure that our resources understand how to operate in the new environment – take advantage of the new technology and capabilities that are being implemented – and to ensure that the capabilities and the services that we offer are aligned to what the businesses need in the future.

No. 8 is business partnering. Again, a perennial top 10. As John mentioned earlier, organizations are still challenged to enhance their role as a business partner to the organization, and improve their ability to provide strategic guidance and decision support to help their business’ objectives.

Then, No. 9 and No. 10 are both new entrants to the top 10. No. 9, we’ve been waiting on for a while, around regulator compliance, including preparation for ESG reporting. Organizations are starting, and I would say European organizations tend to be further down this path than those in North America, but organizations are starting to take concrete actions to prepare themselves for the reporting requirements that we know are coming. It might not be 100% clear exactly what those are, but they are starting to get their arms around sources of data, what’s going to be required, and even starting to build controls around collecting and sourcing that data.

Then, No. 10 around capital investment allocation and deployment. Again, given the economical environment that we’re in, organizations are going to have to be more deliberate in what they invest in, when they invest in, and how they deploy their capital resources to the opportunities that are going to drive the most growth, or perhaps contribute to some of the costs and cash flow objectives that I mentioned earlier.

That’s a summary of the top 10, Shawn.

Shawn Fitzgerald:

No, that’s great. What’s interesting is, as part of our preparation for 2024 Key Issues, just for the audience, please know we have a body of related research on each of those 10 items, which is certainly something that’s available to our membership.

While having a set of things that you’re focused on as objectives for the coming year and the current year is important, how do you get there? Tom, what are some of the top projects and programs that we’re seeing being undertaken that are aligned to these initiatives? How confident are companies in achieving them? And, are there any surprises around what we saw in terms of where people were going to undertake programs and projects to support key issues?

Tom Willman: 

Sure. No, it’s a great question. When we look at some of the top initiatives, there are some that are getting back to basics in all design to support some of the productivity improvements – cost optimization objectives that we’ve talked about. There’s definitely a focus on simplifying, standardizing and automating processes – so your classic process transformation.

Oftentimes, organizations overlook … they’re so enamored with technology and the desire to automate, that they forget about where can we potentially eliminate work? How can we simplify and standardize what we do? The benefits that we achieve through automation, that we maximize those. There’s still a heavy focus on either establishing or expanding on our global business services and center of excellence footprint. Another important enabler to cost optimization, service quality improvement, and actually these global business services organizations are playing a very important digital transformation role for the organization as well. There’s a focus on expanding use of self-service tools, optimizing the close and consolidation process, improving analytical modeling and reporting capabilities, and forecasting capabilities. For those initiatives, organizations reported that they’re pretty confident in their ability to deliver on those.

Having said that, there are a number of initiatives where organizations aren’t quite as confident in their ability to pull these off successfully, including – and this is a really important one for many of the objectives I mentioned before – improving our master data management and governance capabilities. If you think about it, that has implications on reporting, analysis, forecasting, our ability to operate as an effective business partner, and allocating more of our time to that business partnership activity. It’s going to play a huge role in our ability to take advantage of emerging technologies, like generative AI, because if you don’t have good quality data – accurate data going in – the outcomes aren’t going to be as accurate as you need them to be.

Optimizing the integrated planning process – again, an area that organizations, quite frankly, have been struggling with, to ensure that finance, sales, operations are all on the same page. Another one, while very important, companies are struggling a bit and aren’t as confident in their ability to deliver.

The other one I would mention is around working capital performance. Again, it seems like every time there’s a crisis, the focus on working capital amps up and companies will focus on, “OK, let’s have our collectors double down and beat up on our customers, and we’ll do the same to our suppliers,” without really thinking through formal approaches to making changes to policy, making changes to underlying processes, to educating our sales and our procurement professionals around the impact that their decisions have on our working capital.

Again, those would be some that I would highlight for you, where there is limited confidence in our ability to effectively pull those off. As Shawn mentioned before, we have a wealth of research and insight into how to go about executing those initiatives so you can increase your chances for success there.

Shawn Fitzgerald:

Yeah. No, that’s great, Tom. Thanks for that perspective on those projects and programs, and where they are relative to probable outcomes. As all companies struggle with, we’ve got a lot of things on our plate. Digital transformation we know is a five- to 10-year journey that all these organizations have been undertaking for quite some time. We know it’s a big resource commitment.

John, for you, what are some of the top digital transformation challenges or hurdles that finance specifically sees itself struggling with in 2024?

John O’Mahony:

If we look at the challenges that finance as a function is facing around transformation journeys, first of all, just as a backdrop what you’re seeing is, is that clearly there’s a changing regulatory environment around disclosure, which is consuming time in its own right. In addition to that, what you’re finding is that against the transformation journeys themselves, we’ve got a number of key challenges that organizations are coming up against.

Firstly, in terms of if you take the economic environment – budget constraints around what is affordable to be able to invest – that’s certainly one of the key challenges. A second one is that journey from legacy technologies to modern technologies, managing that change – having the skill sets available because if you take anybody that’s on an SAP S4 journey at the moment, for example, trying to actually get skills into your organization to effect that transformation ­– is proving to be a critical bottleneck where organizations are having to look elsewhere. They’re having to look at how they get those skills in place. Then, once they’ve actually got that capability on board, enabling the actual technology itself through the investment in analytics capability to be able to have the skill sets to be able to support that. Having the ability to be able to implement continuous improvement, by having process skills, having design thinking skills, and most importantly as I mentioned before, the change management skills, getting adoption of new ways of working.

Then, if I compare that again, let’s say, some of the other challenges whereby process complexity proves to be quite burdensome for organizations, whereby unlocking and understanding what’s important, in other words, what components or process add value? What are we doing that essentially is nonvalue-adding or indeed unnecessary? Or, whether the organization itself, because of the complex structures, are preventing us from transforming in a way that is optimum. So, therefore, taking on board those resistant to change, I mentioned about the change management aspect – really, really important. We see that time and time again, where there are failed transformation programs that are as a direct consequence of not the designer processes, not the climate of technology, but the adoption of new ways of working and embedding those into the organization. Not just within finance, but outside of finance.

Two other things that I’d flag up. If we take basically on the whole issue of resources, either where you’re losing or staff churn so that there is experience that is walking out the door, and therefore you’re having to reskill the allocation of resources to affect the transformation, i.e., under investing and not realizing the extent of what they need to do. Last but not least then, ensuring that as we develop the business case, that we structure it in a way whereby stakeholders understand what’s coming when – that there are key milestones that can be hit. As a consequence, they understand that the in-state design will be the journey to get there, and that they recognize the ladder that will get them to that in-state design, and therefore be a successful transformation, managing through that journey by strong guidance and by strong support.

Shawn Fitzgerald:       

That’s great, John. Thanks for that perspective on transformation challenges. We know that transformation is obviously a very technology-centric initiative, and it’s required because companies are struggling with having to do more with less, reducing staffing levels, having inadequate skills that are geared toward working in this modern, transformed world.

With regards to technology, we know generative AI, or Gen AI, is getting a lot of press these days, and people are touting its transformational potential. Are we seeing, in our research, is finance evaluating and exploring Gen AI? If it is, what parts of finance do they see some potential use cases?

John O’Mahony:

Interesting enough, Shawn, in terms of let’s say Gen AI, we’re seeing roughly about one-third of all organizations that are focusing in on the opportunity that it presents to them. I’m expecting that will change quite rapidly in terms of more and more organizations, as they see what I’d regard as pragmatic outcomes from the lot of market attention focused on Gen AI.

Now, organizations that have looked at it, what they’re identifying is opportunities around core transactional activities. If we take, for example, the whole area around customer-to-cash, they’re looking at liberating opportunities to make that transactional side smoother, bringing together different sources of data to be able to provide cleaner transactional outcomes that manage the journey associated with a transaction from source to completion. Not only are they looking within their own organizations, but they’re looking to their customer eco base to be able to adopt a new way associated with the adoption of Gen AI to give them a better outcome that is both enhancing customer experience, and in addition to that, driving much cleaner transactional activity.

If we look at procure-to-pay in terms of merging a combination of their external suppliers and organizations internally, being able to, again, smoothen that transaction through looking at areas where there are error rates to be able to address those. To be able to do investigative activities, using Gen AI, to be able to provide outcomes associated with it. If we look at areas such as account-to-report, again, smoothing out intercompany processes, smoothing out reconciliation processes. The close process itself, in making that much more seamless and much more what we’d regard as faster, more insightful, more integrity, putting controls in place that are essentially supported through the adoption of Gen AI.

Then moving beyond that into the areas around FP&A in terms of better forecasting, whereby the seamless blend of financial and nonfinancial data provide more accurate forecasts to provide better budgets to be able to support better insight.

In addition to that, if we look at a couple of other areas – if we look at the adoption of ESG, which is quite a complex activity and process to embed within organizations through the collation of data to be able to support the external reporting that you have to do associated with ESG; to be able to embed accountability within the organization; and the ability to be able to provide around likely outcomes to be able to support the promise that you make externally, that’s a difficult task because it’s introducing auditability and traceability around nonfinancial data that sits in operations, HR, procurement, supply chain, etc., that previously wouldn’t have come under that level of rigor, are indeed driving accountability into the organization much more than before. Gen AI has a significant role to play in supporting that.

The last area that we should focus and discuss is around data – the Holy Grail. Lots of organizations on a transformation journey need to spend significant time focused on the quality of data, getting that right. And also building sustainability into processes and ways of working, so that when you do baseline it and get it right, that you also ensure that you have put the right structures in place around data management, around data security, data governance, and quality. That requires processes, controls to be adopted, so it’s well in invested time to ensure that you continue success. From a transformation perspective, that can be very consuming, both in terms of base lining and cleansing the data, but also putting the structures in place to ensure that you’re driving sustainability of quality and integrity of data going forward.

In particular, against the backdrop of finance requiring the need to blend financial and nonfinancial data across multiple spectrums, that requires fastidious focus during the transformation in getting that right. Those organizations that have focused on that have liberated success. They have turned data into an asset, and as a consequence, are providing insight that is driving value across the enterprise.

Shawn Fitzgerald:

Thank you, John. We’ve covered a lot of material today, with regards to objectives, the finance landscape that those objectives are sitting around, what types of programs and transformation challenges that companies are facing. Then, John, obviously just talking now about generative AI and its applicability in finance.

As we’re wrapping up today’s session, Tom, what should the finance area be focused on in 2024, moving forward? Obviously, we have a lot more research and insight on these key issues and related areas. But if you were to just give some high-level advice to our audience today so they can start moving forward in 2024, what would that be?

Tom Willman:

Sure. I can highlight a handful of items that as organizations are thinking through their agendas and road maps for 2024, that we would recommend to make them successful. I would say the first would be around prioritization and ensuring that your organizations aren’t over-committing to the initiatives that they’re going to undertake and to be able to resource effectively. That is going to create some hard trade-off decisions. But in today’s economic environment, with limited resources and budget constraints, that prioritization is going to be key. So you can ensure that, again, you’ve got the best chance to successfully execute those initiatives.

But then, once doing that, we talked about cost optimization being the top priority for 2024. We would just advise organizations to take a data-driven or informed approach, or an intelligent approach, to optimizing those costs so that you’re targeting the places. You’re not just, across the board, making cuts. But you’re doing so in a way that is going to have the greatest impact, but that is also going to be sustainable into the future.

Second, we would encourage you to do everything possible to protect your ability to invest – or to continue to invest – in your digital transformation. It could be very tempting when you’re being asked to reduce costs to look at do I pause transformation initiatives? Do I halt them altogether? But to the extent that you can protect your ability to invest in those digital initiatives, those are going to be the very capabilities that create the ability to reduce costs or to improve cash flow to be a better business partner.

Third, continue to focus on data and your ability to deliver insight, and to really enable your business partners to be as successful as they can. That’s also going to contribute to your ability to take advantage of things like generative AI. I would start now in thinking about your generative AI road map, even though the capabilities specifically designed for finance organizations may be a ways off. There is a lot of work to be done to identify the use cases with the most potential – to ensure that our processes and our data are fit for purpose and ready to enable generative AI when the time is right. It could be easy to say, “Gosh, I’m not going to jump on the bandwagon right out of the gate,” and that’s OK. But you should at least start to prepare now and be thinking about the best ways to leverage it in your organization so you’re prepared when you believe the time is right for your organization.

Then, finally, we would challenge all organizations to think about as much change that has taken place in the last several years in how we do work and how we use technology. It’s important to revisit your finance operating model. Are we doing work in the right places and taking advantage of global business services to the extent that we can? Have we focused our business unit or functional finance organizations on the things that are going to deliver most value to their stakeholders? As part of that operating model, relook. It’s important to think about the talent and the people strategy to enable that.

Those would be the handful of things, Shawn, that I would recommend that organizations ensure are somewhere on their agenda and road map for the year.

Shawn Fitzgerald:

Thank you, Tom. And thank you, John. Great insights and perspective from both of you today. We very much appreciate that.

For our listeners, you can download a complimentary version of the research we’ve discussed here today from The Hackett Group’s Finance Insights page on our website. We’ll also include a link in the show notes of today’s podcast. Thank you all for your time, and again, thanks to my co-presenters Tom Willman and John O’Mahony.

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