Financial digitalisation will undergo a major transformation in 2025
How has COVID-19 changed financial trends in organisational operations and digitalisation?
15 December 2021
COVID-19 has had an unforeseen, powerful impact on finance and business: accelerating business innovation, testing the concept of 100% teleworking, catalysing the convergence of industries. Financial transactions have not slowed down either, with global M&A activity reaching a record USD 2.4 trillion in the first five months of 2021. Companies have raised more capital in the past year than ever before, with non-financial companies in the S&P 500 holding more than USD 2 trillion in cash reserves at the close of the first quarter of 2021. Deloitte's updated Finance 2025 study looked at the changes and identified the key trends that are emerging.
In 2018, the transformation of the financial sector was triggered by digital disruption. In its Finance 2025 report at the time, Deloitte predicted the prevailing financial trends, but COVID-19 significantly disturbed the expected course of events.
On this basis, in this updated report, Deloitte also felt that the time had come to revise its predictions. How have recent market conditions changed our assumptions? What is our best current prediction of where finance is heading in the near future? What can financial managers do now to seize emerging opportunities and reduce risks? The aim is to assess what the changes mean for the future, and how finance managers can plan their long-term strategy on that basis.
As John Maynard Keynes put it, "If the facts change, I change my mind. And what do you do, sir?"
Big data, predictive models and analytical tools to help financial managers
By 2025, most competitive companies will have automated all repetitive financial processes, except for strategic tasks. ERP systems, big data and blockchain technology will be the key to automation. After the pandemic, the lack of investment in standardised processes and data architecture slowed down automation, but it is still progressing rapidly. Financial process automation is increasingly targeting end-to-end processes across multiple business areas. While blockchain is not spreading as quickly as previously thought due to cost and lack of proven applications, its cybersecurity and automation benefits continue to drive many financial leaders to embrace the technology. Financial processes increasingly rely on big data, analytical tools and predictive modelling to inform business strategy and decisions. Using this data, ERP systems are automating a large part of the financial processes, which will play an even greater role in companies' operations by 2025. ERP vendors are making several major system upgrades every year, incorporating cognitive features such as artificial intelligence, ML, robotics and blockchain solutions to increase efficiency and mitigate cyber risks.
It makes sense to accelerate the transition to a cloud-based ERP system, as this technology can ensure the constant maintenance of technological sophistication, the automation of key business processes and full data security,
– said Bálint Láng, Director of Deloitte's Audit Advisory business line.
Disappearing cyclical financial flows in a post-pandemic economy
While we are still a long way from real-time financial data, the trend is still for reports that are independent of the financial closing process to play an increasingly important role in the future.
In a post-pandemic economy, more timely information is needed to make decisions, due to the convergence of industries, the emergence of new business models, and the need to quickly address supply chain, technology and labour constraints.
While efforts are being made to speed up the closing process, it is still a monthly process at best, as the most important information is only available at that time. Real-time reporting, based on the concept of continuous accounting, where there is no closing and all information is booked in real time, has gained less ground so far. However, with cloud-based solutions, it is also getting closer to reality
– adds Bálint Láng.
The real data is the clean data
Standardised, high-quality data have become even more important, as it forms the basis for business decisions and automation. While almost everyone complains about data quality, few have come up with a solution. Companies will continue to struggle with this problem in 2025: bad data flowing into automated AI systems does not create efficiencies or practical business insights, but good data require process and organisational change. The scale of data cleansing efforts in financial processes will double by 2025, and leaders who can ensure data integrity and set the right data strategy will come to the fore.
What trends should you expect to see as a finance manager?
- Finance factory
While the automation of financial processes is still a focus, automation of not only operational transactional processes, but also the automation of business analytics and data generation has become a priority. We are increasingly relying on big data, analytical tools and predictive modelling to inform business strategy and decisions Contrary to expectations, blockchain technology has not been as well embedded in financial processes due to its cost implications and lack of actual patterns of effective use that have already been tested in practice. However, the need for the solutions provided by the technology remains.
- Role of finance
We continue to maintain that finance focuses on the services, analytics and business analysis it provides to business and support areas. The CEO turns to finance for a comprehensive view of the company's performance (as was the case in many cases during the pandemic). The availability of the right data structure and technology, as well as the development of emerging competencies within finance, remain essential.
- Cyclical financial processes
The production of real-time financial data is not yet a reality in many cases, but the trend is for reports that are independent of the financial close process to play an increasing role in the future. The emergence of new business models, rapid changes in supply chain, technology and workforce can all provide essential information for accurate and rapid decision making. But this requires the right infrastructure, data management and standardised processes. As in many cases the creation of these basic conditions is at an early stage, the focus has shifted to forecasting and analytics to support commercial decisions.
Finance is increasingly opening up to reporting solutions and in many cases, regular reports and analyses are now available on mobiles. Although automatically generated reports and their accessibility on various devices have greatly reduced the workload of finance, self-service as a service and technology has further potential. Indeed, the future of customer experience is all about push technology and visualisation tools. The former knows what the customer needs before they indicate it, and the latter helps make sense of complex data.
- Operating models
Cost reduction has historically been one of the main reasons for improving the operating model of finance. However, as the role of finance changes, so does the operating model. The need for new competencies in finance and even closer cooperation with other areas requires a new approach to the transformation of the operating model.This will be supported by multifunctional and interoperable cooperation tools and processes that help to make rapid, well-informed financial decisions in crisis situations and to support customers and partners appropriately.
- Enterprise resource planning systems (ERP)
Large companies developing ERP systems will continue to be the dominant players in the market, thanks to continuous improvements and the acquisition and integration of applications that provide targeted solutions. Cloud solutions are gaining ground over on-premise or hybrid solutions, but the transition is slower in highly regulated industries. ERPs will continue to drive financial automation and digital transformation. When an ERP upgrade introduces new capabilities, organisations will adopt and use them more readily.
Standardised and high-quality data is essential for accurate business analysis and automation. Therefore, it will be even more important to ensure data integrity at the moment the transaction is recorded in the system. Finance will work with its peer functions to further strengthen its efforts to develop the right processes and corporate data strategy.
- Workforce and employment
More data experts are needed in the finance area to work with finance professionals on data integration and analysis. To reduce dependency on IT, finance needs experts who can configure and customise digital tools to generate valuable business insights.
As we approach 2025, trends are becoming more certain, but of course no one can see into the future. It is certain that managements see finance as an important pillar for achieving competitive advantage in the market.
The availability of information and the ability to cast it in the right form, which ultimately supports fast and reliable decision-making, is now a fundamental requirement for success.
Concepts such as: self-service, finance factory or data/data strategy have long been known, but exactly how and by what means they are put into practice is a matter of ongoing discussion among managers.
However, these concepts and their continuous evolution make finance an even more exciting field.
Click here to read the full study.