Unlocking Value in Finance: The Power of Automation and Data Literacy
Introduction
Earlier this week, I attended a webinar titled "The Future of Finance: 7 Tips for Navigating Tech Opportunities and Risks". The session underscored the need for financial operations to transition from manual processes to value-added activities for the business at large and even more the analysts involved. As I reflected on the webinar, I wanted to elaborate on the idea of our future through linking the themes to some of the books I've read over the past year.
In the dynamic landscape of today's finance, competitiveness, swift decision-making, and elevated stakeholder expectations are critical. For organizations to succeed, the development of a learning culture as per the concept of systems thinking in Peter Senge’s "The Fifth Discipline" that embraces digital transformation, automation, and data literacy is paramount.
Through this blogpost, I’ll consider the drawbacks of traditional manual processes, and explore how automation and data literacy could pave the way towards greater value added and agility in finance.
I. The Problem: Manual Processes in Finance
Manual processes, despite their long-standing role in finance and in the FP&A function, are increasingly becoming a roadblock in the ever-faster changing environment where speed and agility have become paramount. This issue can be likened to a concept drawn from Meadows' "Thinking in Systems: A Primer" – feedback loops.
In system dynamics, feedback loops provide a way to understand how changes in one component of the system affect the other components. In a positive feedback loop, change in one direction causes further change in the same direction, amplifying the effect. In a negative feedback loop, change in one direction prompts change in the opposite direction, thus creating a stabilizing effect.
Drawing a parallel with finance, manual processes often create a negative feedback loop, constraining the system's potential. These processes slow down response times, hampering the system's ability to adjust swiftly to business needs. As a result, resources that could otherwise be utilized for strategic, value-added work are tied up in labour intensive tasks creating tension between stakeholders.
In the age of digital transformation, these feedback loops underscore how manual processes, like the weakest link in a system, can hold back the entire operation and as such does not allow to gain the needed insights everybody needs. Through this lens, it becomes clear that the transition away from manual processes is not just beneficial – it's essential for survival and growth in today's ever-faster changing environment.
II. The Opportunity: The Rise of Digital Transformation
The emergence of digital transformation promises to be the lifeline to those stuck in the manual processes. Automation and data literacy are two of the oft-mentioned tools in this transformation, even if the pace of adoption and the ability to leverage them differ across organizations.
Yet, beyond the realm of technological solutions, there's another, even more fundamental avenue for change - our mindsets. Here, the concept of the 'scout mindset' as articulated by Julia Galef in her seminal work offers a valuable perspective.
In contrast to the 'soldier mindset', which is geared towards defending one's beliefs, the scout mindset values truth above all. Scouts are intrinsically motivated to gather information, even when the facts might prove their existing assumptions wrong. They're open to reevaluating their beliefs and enjoy the process of discovery.
Applying the scout mindset to us as finance professionals allows to step away from the familiar, sometimes limiting, confines of traditional practices and to actively seek out more effective, innovative solutions. This approach embraces iterative learning and change, two aspects crucial in navigating the shifting landscapes of digital transformation.
Considering the mindset shift will not solve all the challenges while it does enable navigating this journey of transformation not as passive passengers, but as active explorers, harnessing the tools of automation and data literacy to chart a course towards more value adding work.
III. The Need for Data Literacy in the Digital Era
As the digital age advances, data literacy—defined as the ability to read, analyze, and communicate data—has become an increasingly crucial skill. We are living in a digital age in our personal lives, which promises benefits also into our FP&A work.
From FP&A perspective, the transition to digital operations brings an exponential growth in data. From using the current tablestakes data warehousing opportunities for analytics, advanced analytics tools, predictive models, and AI are becoming said to become more and more commonplace, turning data literacy from a luxury into a necessity.
Data literacy enables finance professionals to not only understand and interpret data but even more importantly to make informed decisions and strategic recommendations based on these insights - to be the business partners, not number ATMs. It ensures that teams can leverage data effectively to bring out meaning from the trends, conduct scenario analyses, and identify opportunities for growth and innovation (yes, innovation). It allows organizations to turn financial data from a simple by-product of operations into a strategic asset.
This shift towards data literacy mirrors the concept of a growth mindset, as explored by Carol Dweck. A growth mindset views abilities and intelligence as qualities that can be developed through dedication and hard work. It cherishes learning, embraces challenges, and perceives effort as a path to mastery.
When applied to data literacy, a growth mindset helps individuals and teams to recognize the potential in leveraging data for decision-making, and to understand that their skills and proficiency in this area can be developed over time.
IV. The Solution: Embracing Automation in Finance
Automation—the use of technology to execute tasks with minimal human intervention—marks a revolutionary shift in the finance function, not unlike the transformation in IT operations depicted in "The Phoenix Project".
In traditional finance settings, analysts often spend a significant portion of their time on routine tasks—consolidating data, preparing reports, inputting numbers into shared spreadsheets and different forecasts. Such manual processes not only consume valuable time but are also susceptible to human error and resulting frustration. This is where automation steps in as a transformative solution.
With automation handling routine processes, finance professionals find themselves with more time to focus on exploring and interpreting the data, deriving insights that can drive informed business decisions. They can leverage their expertise to analyse complex data sets, spot trends and anomalies, and predict future outcomes.
For organizations, automation signifies much more than just efficiency and cost-savings—it's an enabler of strategic agility and competitiveness. By speeding up processes and enhancing accuracy, automation empowers organizations to respond swiftly to business needs and market changes in order to maintain a competitive edge in the rapidly evolving business landscape.
In essence, automation is not just about replacing manual tasks with machines. It's about augmenting human intelligence with machine efficiency, empowering finance professionals to transition from data handlers to strategic advisors.
V. Navigating Challenges and Building Agility in the Face of Change
In the quest to improve data literacy and implement automation, we will need to take into account the challenges that range from cultural shifts to technology adoption and skill development. In essence, the transition would not be just about implementing some new software, it’s even more about changing mindsets and the value that the change can bring.
The cultural shift around mindset is about creating an environment where curiosity, questioning, and data-driven decision making are encouraged and rewarded.
Next, we can’t avoid the neverending challenge of technology adoption. Implementing new technologies is disruptive and therefore creates justified resistance. Hence, in any transformation, the theme cannot be about just adopting the latest technology (every other year), but determining which technologies bring the most value to the organization. As emphasized also in "Peopleware," the focus should be on how these tools can better serve our people, improve processes, and ultimately contribute to achieving our strategic goals.
At the heart of these challenges, however, lies the solution - our people. As Peter Senge argues in "The Fifth Discipline," successful learning organizations are those where people are continually learning how to learn together. In this context, fostering a learning culture becomes critical. We need to promote a culture where our teams feel empowered to learn new tools, embrace new skills, and adopt new ways of thinking.
VII. Conclusion
Digital transformation isn't a walk in the park. It's about shifting mindsets, making smart tech investments, taking time to shift to new tools and creating a culture that's all for learning and change. "Peopleware: Productive Projects and Teams" described it well when they pointed out how investing in people and the tools they use can truly shape an organization's success.
What does that mean for us? It's about nurturing an environment where data literacy is valued, new tech tools are embraced despite difficulties in transitions, and we have put value before efficiency gains. With the right strategy and an open mind, we're not just enhancing our business - we're creating an environment where our teams can learn and grow.
References
Senge, P. M. (2006). The Fifth Discipline: The Art & Practice of The Learning Organization.
Meadows, D. H. (2008). Thinking in Systems: A Primer.
Galef, J. (2021). The Scout Mindset: Why Some People See Things Clearly and Others Don't.
Dweck, C. S. (2006). Mindset: The New Psychology of Success.
Kim, G., Behr, K., & Spafford, G. (2018). The Phoenix Project: A Novel about IT, DevOps, and Helping Your Business Win.
DeMarco, T., & Lister, T. (2013). Peopleware: Productive Projects and Teams.