Robert Kugel's Analyst Perspectives

Ventana Research recently announced its 2021 market agenda for the Office of Finance, continuing the guidance we’ve offered since 2003 on the practical use of technology for the finance and accounting department. Our insights and best practices aim to enable organizations to operate with agility and resiliency, improving performance and delivering greater value as a strategic partner. We craft our annual market agenda using our firm’s expertise in business requirements, especially the complexities of accounting, tax and capital markets, combined with our knowledge of technology vendors and products. As a result of our market research, we are able to offer insights and best practices to both the lines of business and IT as well as across industry verticals, providing guidance that will help every organization reach its maximum potential. The long-awaited accelerated adoption of digital technology by the office of finance began in 2020 as organizations had to adapt to a remote working environment. “Virtual” is now the adjective of choice describing almost all core finance and accounting processes. Yet, despite the recent encouraging signs of faster technology adoption, transforming department processes and practices is likely to evolve slowly. Nine of 10 executives say they want their finance organization to be a strategic partner to their company, but by 2025 fewer than one-third will evolve into this role, limiting their company’s performance. We are witnessing an accelerated conversion from manual processes to applications that enable finance and accounting professionals to eliminate rote, repetitive work and reallocate that time to projects requiring their knowledge and experience. In the coming decade, technology will transform how the finance and accounting department operates - more so than over the past 50 years. Artificial intelligence, machine learning, bots, robotic process automation, enterprise data management, blockchain distributed ledgers, cloud computing and restructured architecture… These technologies will bring us closer to that longed-for state where computers adapt to the individual rather than requiring the individual to adapt to the shortcomings of computers. Technology will finally be able to transform all aspects of the office of finance, including accounting, planning and analytics, budgeting and closing. Our Finance practice has six focus areas: Business Planning, Enterprise Resource Planning and Continuous Accounting, Financial Performance Management, Profitability Management, Robotic Finance, and Revenue, Lease and Tax Accounting. Business Planning Ventana Research coined the term “integrated business planning” more than a decade ago to describe a process that supports enterprise-wide, high-participation, rapid-planning cycles. These cycles provide detailed answers to “what-if” questions in seconds or minutes, not hours or days. Budgeting and planning are simplified for business unit managers, and finance departments gain a detailed, forward-looking view of the income statement, balance sheet and cash flows. IBP employs technology such as in-memory computing, advanced analytics and interactive planning to make planning and budgeting processes more agile and easier. Our 2021 Business Planning Value Index and Benchmark Research will focus on how financial planning and analysis groups can finally make planning and budgeting easier for budget owners, significantly enhancing the business value of these processes. ERP and Continuous Accounting Our 2021 research will highlight the transformational role of modern ERPs and other maturing technologies. Continuous accounting is a technology-driven approach to managing transaction recording and accounting that takes advantage of current technology to streamline and restructure workloads. Continuous accounting can provide organizations with more real-time information and insight. It also helps CFOs address two key challenges: cutting administrative overhead and attracting and retaining the best talent by eliminating unproductive and soul-deadening accounting chores. We will also cover how companies are adopting a “virtual audit,” a transformation of the now-accepted remote audit that provides external auditors with limited, read-only access to key systems, significantly reducing staff workloads. We assert that by 2025, two-thirds of organizations will have applied continuous accounting principles to close the books within one business week, up from 50% today. Financial Performance Management Financial Performance Management applies technology to the full cycle of departmental functions — corporate and strategic finance, planning, forecasting, analysis, closing and reporting. Our research in 2021 will spotlight the evolving role and mission of the finance, performance and accounting group and the importance of technology to support that evolution. We also will investigate the extent to which organizations are employing advanced analytics. Our research found that one-half of finance organizations fail to utilize technologies that would enable a faster accounting close and more accurate planning, providing executives and managers with important information sooner. We will pursue additional research on this issue in 2021. Profitability Management Profitability Management is a cross-functional effort that integrates finance and sales to achieve an optimal balance of revenue and margin objectives. This is an effective performance management tool because it is a data- and analytics-based approach, designed to consistently achieve higher sales and fatter margins. Ventana Research asserts that by 2024, just 35% of FP&A organizations will be able to deliver actionable customer and product profitability analysis. Departments that deploy this technology become a strategic asset. We assert that by 2024, one-third of organizations will have implemented a profitability management initiative. In addition, we assert that by 2024, just 35% of FP&A teams in organizations will be able to deliver actionable customer and product profitability analysis. Finance departments that do will be a strategic asset. Digital Finance Our research on this topic in 2021 will explore how digital finance can shift the balance of the department’s work from transaction processing and reporting to forward-looking operational and financial analyses. Digital finance utilizes technology to eliminate rote, repetitive work and increase the quality of financial processes and financial statements. These technologies, including AI and machine learning, robotic process automation and blockchain distributed ledgers, will support a profound change in the office of finance’s role, enabling a more substantial challenge to “we’ve always done it this way” inertia. Revenue, Lease and Tax Accounting Managing taxes challenges CFOs because statutory accounting and tax authority reporting requirements have become more demanding, increasing workloads. Rising tax rates and more rigorous enforcement makes more effective tax management necessary. Using dedicated tax applications enables tax and accounting departments to operate more efficiently, giving them more time for tax analysis and planning to minimize tax expense as well as providing executives and boards greater transparency in tax provision and tax positions. Organizations will also accelerate adoption of software to reduce the burden of recent revenue and lease accounting standards. The new standards are more principles-based, requiring effective process control and comprehensive disclosures. Organizations that haven’t yet adopted this technology must accelerate efforts to implement software that more effectively manages these functions. We assert that by 2025, two-thirds of product companies with multinational operations will use software to manage transfer pricing to manage compliance consistently and reduce risk. Finance and accounting organizations turned a corner in 2020, increasingly embracing digital technologies. Subscribe to our Ventana Research community to stay up-to-date on our 2021 research efforts. Visit the Office of Finance page and topic areas for more research facts and best practices. Regards, Rob

The Office of Finance Market Agenda for 2021: Accelerating Adoption of Digital Technology

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