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Coronavirus Impact to Finance Operations: The End of the Line for Traditional Finance

5/20/20 5:08 PM / by Eric Liebross

Eric Liebross

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Coronavirus Impact on Finance Operations in a city

The train had already left the station, but it was a local, with many stops along the way. Now with COVID-19, the train has changed to an express, and the end of the line is in sight.

We’re talking about the Finance Operations Digital Transformation train, of course. Before the pandemic, F&A departments had already begun to make changes in their operations, slowly bringing in technologies such as RPA and other automation tools, advanced analytics, cloud applications, etc. to enable Finance to provide higher value, with less effort and focus on the traditional transactional tasks. All of these trends that were “nice to have” have become imperative in the post-COVID world.

Based on recent survey results, organizations seem to understand how automation and digital technologies can help them weather this period. At a time of extreme cost-cutting (80% of CFOs are implementing cost containment initiatives and 58% plan to cancel or defer investments), only 20% of companies are planning to cut digital transformation investments (e.g., automation, AI and the industrial IoT), according to the latest PwC’s COVID-19 CFO Pulse Survey from May 2020.

"At a time of extreme cost-cutting, only 20% of companies are planning to cut digital transformation investments (e.g., automation, AI and the industrial IoT)"

The digital revolution is about more than robots, but RPA adoption is a great bellwether for the overall advance in automation and technology in business operations. For example, while 53% of respondents to Deloitte’s Third Annual Global RPA Survey in 2019 (and doesn’t that seem like a long time ago!) said that they have already begun their RPA journey, the same survey pointed out that just 3% of companies have been able to scale their digital workforce.

Gartner’s IT Key Metrics Data 2019 estimated that more than 70% of technology spending is going toward running the business, So we know the interest is there, the spending and focus are there, but the adoption levels still seem to lag. 

The resistance to technology adoption is more cultural than it is operational. Many Finance organizations seem to perceive these technology advancements as “losing control” or “too expensive.” Having Sally in AP to code invoices, manage exceptions and process payments; and Joe in Accounting to post journal entries to balance those sub-ledgers, seemed to provide a sense of comfort to many Finance executives. And their annual, recurring and increasing cost was something you just lived with (until they left and you had to start over with someone new, and probably pay more for the new person).

Then came COVID-19

Now, businesses are facing an uncertain future. A booming economy, with revenues, unemployment and market capitalizations reaching levels never before seen, has disappeared in an instant. You can no longer count on consumers spending at the levels that they recently have, nor can you rely on them spending in the same manner that they did before. And Sally and Joe, they may no longer be “down the hall,” instead working remotely with poor internet connections and weak collaboration tools. Or they may not be there at all.

Businesses need to adapt, and they have to do it quickly

Having a “real-time handle” on the state of your business is no longer a “nice to have.” Traditional Financial reporting, explaining what happened last month, needs to be replaced with real-time data that is much more detailed than the typical financial numbers. Correlating sales, inventory and sourcing information; understanding customer buying patterns and supplier sourcing challenges, all needs to be available in an instant. Explaining “What happened?” needs to be replaced by “What will happen?”, and just as importantly, “What do I need to do next?”

Finance departments are at the center of a maelstrom of data flowing through the business. Traditionally, this data was “owned” by the various departments that were directly impacted by it, and access to the data was difficult to navigate. Much of the data was disconnected and/or unstructured. It appeared that access to the information was controlled by “the troll under the bridge”, and it was left to Finance to come up with the “magic words” to make sense of it all.

Read about COVID-19 early observations on business operations

Finance needs to move from the role of “interpreter” to that of “strategic advisor”. All of that data that is flowing through Finance needs to be captured in real-time, analyzed and reported back to the business with meaningful insights and guidance. This has been made crystal clear with COVID-19, as consumer spending and buying patterns literally changed overnight, and many organizations were not ready to pivot their strategy as quickly as they needed to as “stay at home” orders were implemented across the country. 

The role of Finance is changing, dramatically and immediately, and several key steps need to be completed in order to support this change:

1. Fully Automate Manual Processes to Free Up Resources, Time and Focus

Automate and standardize your processes to reduce or eliminate manual activities and high levels of exception handling as much as you can. According to the same COVID-19 CFO Pulse Survey from May 2020, 40% of CFOs plan to accelerate automation and new ways of working once they start to transition back to on-site work.

In addition to automation, focus on providing good, real-time visibility into your operational performance to help manage a remote workforce that is likely here to stay (over 43% of CFOs plan to make remote work a permanent option for roles that allow it). Transactional data needs to be available, reviewed and analyzed to understand what is going on in the business. Immediate access to this data is critical.
Reduce coronavirus impact by automating manual activities with RPA

Historically, F&A staff spends 70%+ of their time manually performing transactional work. Leverage the various tools that are available in the market to free up your staff from their traditional focus on transactional work. The biggest “offenders” are across the Finance spectrum, including R2R (Accountants still manually performing reconciliations, calculating and processing journal entries, etc.), P2P (AP clerks still manually processing many vendor invoices because of exceptions and weak coding and approval processes, and issuing checks to pay suppliers), and O2C (AR clerks still generating customer quotes and orders because of unique customer ordering requirements and manual payment processes). There are many tools on the market to automate much of the work being done here. 

But this also requires you to change your processes, and, in some cases, your thinking. Reduce the number of exceptions that you are managing to. Many customers put unique demands on the business, but those demands require more time, effort and, often, people, to process. Where possible, limit these exceptions, explaining to your customers why you both need to adjust, or charge more for them to accommodate the extra work that is required to support them.

Imagine freeing up Accountants to analyze and report on impactful financial data; AP staff to manage suppliers and improve the speed of delivery; and AR staff to actually manage cash. This will allow you to use your best people to focus on these higher value activities, and allow you to….

2. Run Lean, Truly Scalable Operations

According to Gartner, 62% of CFOs are planning to make significant SG&A cuts this year as a result of the Coronavirus crisis. The impact of the pandemic, with its resulting furloughs and/or reduced working hours, has also had an impact on many companies’ back office operations. Those who have taken the lead in adopting digital technologies to support transactional work have managed more effectively; those who haven’t, have struggled.

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Take, for example, the case of a current Auxis client, a multi-billion dollar global manufacturer of consumer goods. Two years ago, they were running on multiple ERP systems, and their operations were heavily manual, lacking basic automation tools such as document imaging, workflow, EDI, automated reconciliations, etc. Most vendor payments were made by check, and most cash was applied manually. Over the past two years, we have helped them standardize on one ERP system and implemented EDI, gone live with a document management system, workflow and “touchless” AP automation, provided real-time operational analytics to increase visibility into and control over AP and AR processes, and automated supplier payments and cash application with RPA UiPath

CFO planning finance operations automation after coronavirus

When COVID-19 hit, because of their large retail customer base, they needed to reduce operations by 20-40% in many areas, including the Finance back office. The change happened quickly, but they were able to operate effectively and efficiently, with no impact to service level performance whatsoever. They were prepared for the change because of the tools that were implemented, and the processes that were revised, accordingly. 

In addition to automation, the client had already implemented a nearshore outsourcing model from Auxis’ BPO Center in Costa Rica. As a result they had already lowered their back office operating cost by more than 40%, and were able to use those cost savings to self-fund their investments in the tools that drove the increased performance and productivity. They truly became a lean, scalable back office operation.

3. Change Your Organization and How You Are Managing It

In the “Brave New World” After COVID-19, a new, more formal management paradigm also needs to take hold, with more structured communication across teams, more granular and targeted operating metrics, with easy-to-digest reporting. Increasing your operational visibility and transparency, providing real-time access and analytics to sales and operational data, and having the agility to respond to changes “on the fly” is an important part of this “brave new world”.

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Your organization needs to adapt to these changes, as well. Sally and Joe, who may have been great in their old, transactionally-focused roles, may not be quite as good at analyzing data and supporting varied business demands. Don’t settle for less performance or effort than is needed. You should push your organization to step up into these more enhanced, higher value jobs, and assess your team realistically and frankly. Provide training to up-skill those people who you feel can make the change, and if necessary, replace those who cannot.
Outsourcing Finance Operations to Costa Rica to reduce coronavirus impact

And, consider outsourcing for the remaining transactional work in your organization. Manual, transactional work will not be 100% eliminated, regardless of how much technology you employ. The key is to reduce the effort required to support that work, and bring down the cost to perform it to its lowest possible level. 

For many businesses, outsourcing has played a significant role, not just in lowering its operating cost, but also in implementing the changes that are needed to drive productivity and performance. Change is hard. Having a partner with the skills, resources, tools and focus can make it easier to accomplish. 

Having the right mix, a hybrid model that incorporates outsourcing to lower your operating cost, tools to drive performance and productivity, and experienced resources to focus on higher value work, can help you to, not just ride the train, but make sure that you get where you need to go, on time, no matter what surprises come your way.

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Eric Liebross

Written by

Eric Liebross

Eric brings more than 30 years of experience and a proven track record of success helping CFOs modernize and achieve peak performance in their back office to become more scalable, innovative and strategic oriented. He joined Auxis in 2002 and serves as Senior Managing Director, overseeing all Finance Transformation, Process Automation and Business Process Outsourcing services at Auxis. His areas of expertise include financial operations performance, shared services strategy, organizational and operating model design, process automation (e.g. RPA), and systems integration.