How do we measure innovation's impact in our fast-paced reality? The answer might just surprise you!
As change speeds up every day, we're left wondering how we can really measure the impact of innovation.
McKinsey’s study called Finance 2030: Four Imperatives for the Next Decade dives into the changing world of finance. It shares some key strategies to help organizations stay competitive and effective beyond just the obvious results of innovative practices. The report highlights four important things that finance teams need to embrace to succeed in the next decade.
1) Advanced Capabilities to Redefine Finance Team Operations
Finance organizations are shifting towards a more dynamic operating model that allows staff to pivot quickly and tackle top priorities. This transformation involves restructuring work processes and redefining the role of finance professionals.
The updated model highlights a streamlined core with stricter data standards, cutting-edge data management, increased automation, and seamless integration with digital tools. Notable changes involve transitioning from traditional hierarchies to flat team structures, utilizing agile teams for deeper business insights, and infusing digital expertise across the board.
According to Harvard Business Review, this structure could mainly focus on two dynamics: people dynamics and structural dynamics.
Structural Dynamics
Structural Dynamics refers to challenges organizations face when transitioning to a flatter structure, such as maintaining agility and empowerment. It also indicates old hierarchical habits often persist, termed "zombie structures." These manifest in lingering top-down decision processes and bottlenecked communication flows, stifling change efforts.
People Dynamics
The concept of this People Dynamics underscores the significant human aspects that drive organizational change. It highlights the roles of communication, training, and leadership in shaping a company’s culture and influencing its personnel.
Effective People Dynamics also involves the integration of external ideas with internal values, clear terminology to facilitate collaboration, continuous reskilling, and a balanced pace of change to ensure both immediate and long-term success.
2) Leverage Advance Technologies
Many organizations have greatly improved efficiency in transactional functions such as accounts payable and receivable, achieving up to a 39% increase. However, as these cost bases shrink, future gains will likely be smaller.
On the contrary, strategic finance areas like FP&A, tax planning, and financial risk management have seen fewer efficiency improvements. This may primarily be caused by spending more time on value-added activities based on a study by McKinsey.
This is set to change with advancements in computing power, machine learning, and artificial intelligence (AI). Technologies that began with robotic process automation are now tackling more complex tasks. The rise in big data has spiked demand for analytical skills, leading to a growing pool of qualified professionals.
CFOs can capitalize on these trends by focusing on advanced automation, making better use of staff time, aligning with enterprise-wide AI strategies, and developing staff capabilities to maximize efficiency in finance.
3) Advanced Analytics for Improved Financial Strategies
The increasing integration of advanced analytics to address critical business challenges is becoming essential for finance departments.
Recently, more than half of CFOs expressed the desire to use advanced analytics to enhance cash-flow prediction accuracy. A study by Deloitte reveals that 47% of CFOs enhance their predictive analytics capabilities as a key component of finance transformation.
Beyond data analysis, finance teams are also important in guiding discussions on company performance and necessary actions. To be effective, they need to provide clearer, faster, and richer insights by communicating performance clearly, delivering timely information for swift decision-making, and leveraging extensive datasets. This comprehensive approach helps businesses anticipate performance outcomes realistically and mitigate unexpected disruptions.
Investing in training for analytical skills and increasing the quality of senior finance roles can significantly enhance decision-making processes.
4) Finance Leadership in Data Governance
Data continues to grow at an unprecedented rate. It is anticipated to reach 175 zettabytes by 2025, with a 66% annual growth rate compared to 2018. Finance departments, in particular, face the formidable task of managing this expanding amount of data to gain competitive advantages and stay compliant.
That’s why it’s important for finance teams to establish a solid master data-management strategy. This strategy will guide how data is collected, stored, and analyzed, ensuring it supports new technologies like generative AI, which depend on high-quality data.
In a recent McKinsey study titled "The Data-Driven Enterprise of 2025," those capable of making swift advancements are poised to gain the utmost value from data-driven capabilities. Companies that already have AI contributing to 20% of their earnings before interest and taxes (EBIT) are more inclined to adopt data practices that support these attributes.
Final Thoughts
Finance departments are in a unique position to spearhead this effort due to their role in data consolidation and management. They can upraise data quality standards, drive data governance, and align data standards across departments. Given this, CFOs can advocate for a flexible, tech-enabled data infrastructure and allocate staff to ensure data accuracy from the outset. By doing so, finance can foster cross-departmental collaboration and lead enterprise-wide transformation efforts to harness the power of data.