4 Finance Trends to Consider in 2017
From the Editor
CFO and finance roles are evolving at a rapid pace due to the speed of technological advancements and ever shifting market conditions. So, want to keep up with the times and stay ahead of the curve? We’ve put together some ideas for you to consider implementing in your corporate strategy for 2017 so you can stay competitive and help increase business performance in the New Year.
Zero-Based Budgeting (ZBB)
Although this method was originated in the 1970’s, McKinsey and Company’s research shows that within the last few years some of the world’s largest organizations such as B&G Foods, KraftHeinz, Boston Scientific and Quiksilver have adopted this technique and reported significant cost reductions.
ZBB is a method of budgeting in which all expenses must be justified for each new period. ZBB starts from scratch, and every function within an organization is analyzed for its needs and costs and forces managers to think about how every dollar is spent, every year. This method allows more flexibility in budgets by freeing up unproductive costs and realigning them to either another department or the bottom-line.
According to McKinsey & Company, a well-implemented zero-based budget can save large corporations 10-25%, sometimes as early as six months of implementation.
Artificial Intelligence (AI)
Legacy enterprise systems are having a hard time keeping up with the speed of data and corporate reporting requirements set forth from the board, leaving CFOs and their teams with a boat load of manual work and questionable numbers. Leading-edge CFOs are looking at advanced technology such as Artificial Intelligence (AI) to help with these challenges and more, including audits, compliance and transactional tasks.
Narrative Science recently surveyed 235 business executives and saw that 38% of enterprises are already using AI technologies and 62% will use AI technologies by 2018. One benefit of AI for an organization is ultimate automation. AI can analyze thousands of data points to uncover hidden patterns and anomalies. It can also breakdown historical data to extract powerful insights that impact corporate valuations, growth prospects and market perception.
CFOs implementing AI into corporate strategies could very concretely achieve more for less, bring real transparency to their analysis, and maintain their competitive edge.
Rolling forecasting is the new annual budgeting and we are seeing more companies hop on board with this methodology to better predict the future and increase agility. Business Review magazine cited Kaufman Hall’s recent survey and, 38% of respondents said their companies now use rolling forecasts. As companies realize the benefits, popularity could grow substantially due to the economic uncertainty that lies ahead. Aberdeen Group saw “71% of top-performing organizations eliminate the risk of inaccuracy by continuously updating (rolling) their forecasts to better reflect current business conditions.”
In order to adapt to constant market changes, instead of looking back, rolling forecasts look forward as living documents. As Aberdeen puts it, “companies that make use of rolling forecasts are 4.5 times as likely to perform ‘what if’ scenarios, allowing them to plan for unpredictable external changes.”
Evolution of Finance Roles
According to a December 2016 McKinsey & Company report, 4 in 10 CFOs reported that they spent the majority of their time on roles besides traditional finance over the past 12 months. The remit of the CFO role has expanded to include strategic leadership, organizational transformation, performance management, and capital allocation among other responsibilities. And by 2020, Accenture predicts that productivity in finance will increase by a factor of 2 to 3 times, with organizational costs declining by 40% over the same time.
Modern technology has played a big hand if not the entire hand. Cloud-based finance systems are becoming the norm, predictive analytics are being built at the heart of these systems and AI is being baked in. Naturally, existing CFO and finance roles augment and new skills are required.
For instance, gone are the days of manual entry, formulated spreadsheets and historical data decision making. Due to automation transactional tasks are reduced, which means Daily Bookkeepers are becoming Digital Consultants. As technology crunches numbers and scans relevant information to display in intuitive dashboards, Financial Analysts are evolving into Digital Predictors - enabling them to make better decisions, support ‘rolling forecasts,’ and become more agile. The Director of Finance roles are transformed into reporters, engaging and collaborating with teams in cloud-based, interactive systems to roll up the best information to the CFO for accurate, timely and confident reports to the board.
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