Why Finance is Instrumental in business model Disruption!

Today's article brings to light the limitless potential of new technology to disrupt traditional ways of doing business, analyzing performance & human structures supporting it, along with the key role Finance can play & a special flavor from O2C.

by Evelyne Legaux on 16-11-2022

The past few years have clearly evidenced that, to be financially healthy & thrive through uncertain times, companies need to develop a mature & sustainable Working Capital management (WCM) strategy across the entire Cash Conversion Cycle (CCC).

Doing so however comes with a diverse set of challenges among which getting the many functional groups involved to understand their respective impact on Working Capital & cooperate together, or indeed accessing real-time data visibility consistently across business streams & geographies, are not the least!

Yet, companies want their typical key pain points (disconnected systems, inefficient processes, broken workflows, etc…..) addressed, to gain that visibility throughout the CCC.

 

So, how can Finance be instrumental here?

• Truth is the Finance function at large:

. sits at the confluence of business critical data from various functional silos,

. faces ever-increasing regulatory & compliance requirements,

. and in essence, encompasses a significant amount of repetitive or rule-based activities.

As such, Finance finds itself in a unique position to see the benefits that AI, ML & RPA based innovation can bring to the business.

This actually applies to the entire Finance function, inclusive of Operational Finance which companies overlooked for much too long. In the present uncertain times however, leveraging WCM enablers to drive efficiency gains, has become crucial if they are to thrive, or even simply survive.

The above is particularly relevant to the Order to Cash (O2C) leg of WC, as optimizing the complex end-to-end process to minimize risk, protect Cash Flow generation & maximize efficiency, is now perceived as critical, if not vital altogether.

As a result, harnessing AI/ML/RPA-based technology supported by effective governance systems, has become a MUST!

Implementing digital technology to manage the O2C process is indeed proving to be a game-changer for companies, to improve cash Collections performance & minimize bad debt losses by way of linking predictive analytics with customer behaviour for instance. The ‘Know Your Customer’ imperative can indeed greatly benefit from embedding multiple layers of data into a ‘payment default & insolvency’ predictive model, or else a more effective ‘risk identification & assessment’ model, resulting in smarter Credit decision-making.

So, clearly, digital adoption has the potential to disrupt the traditional Finance office by helping companies to be Cash-efficient & cost-effective, improve customer satisfaction, boost revenue and free up valuable resources for analytical & other value-add activities.

With many variants driven by industry, product, geography & market segment combinations at play however, streamlining the end-to-end O2C process remains a major challenge, and finding a ‘one size fits all’ technology solution near impossible today. Hence, the need for companies to take the time to genuinely explore the new technology market & benchmark providers, prior to selecting any solutions.

 

• To succeed in moving beyond just a tactical approach to WCM, companies also need to instil a strong Cash culture throughout their organization, and develop a concerted cross-functional strategy.

Such a move should actually lead them towards re-designing aligned & standardized WC operating processes & clear governance rules across the board.

Likewise, in the present business environment, giving third-party customers every reason to be satisfied and remain loyal, is vital. Hence, the growing momentum of companies considering a fully integrated digital solution that unites the various functions involved throughout the O2C process end-to-end, to deliver a better customer experience.

 

• Going one step further… the capabilities of new technology open up the opportunity for companies to move away from traditional organization structures based on product lines, geographies & functional silos.

Instead, integrated digital solutions create a framework for business leaders to re-think their organization structure in a way that puts the customer at the core of a flexible ecosystem, supported with a data-driven infrastructure & digitally-enabled scalable processes.

It is essential for any such O2C solution in particular, to be adaptable, to accommodate ever-changing business requirements and to truly enable the essential holistic ‘Know Your Customer’ view.

Efficiency is not all…

Much focus needs to be placed on transparency & collaboration in the trade transaction experience also, which should ultimately lead to better communication & more satisfied customers.

 

• Going two steps further now… AI, algorithms & API innovations also enable companies to embed B2B trade financing services into their business model, thus encouraging them to evolve from a traditional ‘manufacture & sell’ model in favour of a ‘re-invented’ model that opens up new market segments & revenue streams for them.

The concept here would be to bring the smooth payment & finance experience that individuals experience in their personal life, into the B2B trading world for instance.

So, yes the power of digital technology to advance the way business operates is massive… and Finance can play a central role in making it happen!

Beyond the release of Cash trapped in WC & liquidity improvement or indeed the increase in Supply Chain resilience, new technology can also facilitate access to capital or funding to many businesses currently deprived of it…thus unlocking new opportunities for trade & digital commerce.

 

And there are more surprising benefits…

When AI is at the heart of business strategy, companies achieve significant rewards beyond operational efficiency & financial value:

. they create opportunities to learn as organizations, by bringing together human judgment & AI,

. they recognize the strengths & weaknesses of each resource, so that humans & machines can play the roles they are respectively best at going forward,

. they harvest tangible cultural gains such as better role clarity and enhanced trust, collaboration & team morale.

Such rewards though are not limited to a particular team, but can extend across the entire organization instead, thus sustaining the foundation of smarter business operations & strategic goals.

BUT… to succeed on that journey, companies MUST move past process automation itself, to adopt a truly innovative mindset and embrace change.

 

Closing energising thoughts

While the recent crisis prompted Finance at large to act as a strategic partner to the CEO & other Leadership Executives going forward, such a profound change requires a radical shift in the way Finance looks at the business.

Looking forward instead of just analysing past performance is now becoming the new norm, not only through usual planning, budgeting & forecasting activities, but most importantly by providing deeper & wider insights into where the business should be going!

If Finance as a function is to play that more analytical, agile & strategic role, then the technology in use ought to provide the right data, and must do so with accuracy, flexibility & real-time insights.

Likewise, for the focus to be on value creation as opposed to just budget control, technology must enable CFOs & other leaders to put down functional barriers & re-imagine the business organization structure in a truly customer-centric way.

The disruption potential brought by digital technologies creates the perfect opportunity for the Finance function to re-invent itself in a way that matches the evolving requirements of being a successful business in today’s world!

Progressive CFOs will always invest where they see benefits & value to the business…

 

As for the world of O2C itself, the ultimate goal of implementing an integrated digital solution for companies, should be to turn an administrative process into a business driver, by creating visibility end-to-end, providing much needed new insights into the customer portfolio & freeing up resources for strategic business support.

No matter how sophisticated that new technology might be, the human factor in the world of O2C will always remain the key enabler to navigate & thrive through challenging times!

So, rather than being transformed as such, the role of the O2C function is getting catapulted upwards by the digital era & given a historical opportunity to shine its critical business value-add! This should come a long way in having Credit organizations eventually represented at Board level!

 

Do let us know about your thoughts or questions by email on info@financeotcconsulting.com or indeed through our Contact page.