Predicting the future can be a fun exercise because almost everyone is interested in what the future holds, yet no one can say you’re wrong. Adding some appeal, predictions that turn out wrong down the road are generally forgotten.
McKinsey, however, is happy to shine the light on a set of four corporate finance imperatives for the following decade that the management consulting firm unveiled in 2020.
Asserting that the four imperatives remain important keys to putting finance departments on the right path heading toward 2030, McKinsey recently published an updated version of its 2020 report in the context of current trends.
Now, McKinsey says, these emerging trends — not least being the arrival of generative AI — point to a need for upskilling finance professionals to best respond, even as the four imperatives are still guideposts for the coming years.
Imperative 1: look beyond transactional activities
According to McKinsey, finance departments have become so efficient in core accounting activities like accounts payable and accounts receivable that while further improvements are possible, diminishing returns are nearly inevitable.
There remains much greater room for improvement in strategic areas, which McKinsey exemplified as FP&A, optimizing capital structures, tax planning, controllership, internal audit, and financial risk management.
“With advances in computing power, machine learning and artificial intelligence can increasingly be applied to complex tasks, building on the lead started by robotic process automation and similar technologies that are used to automate transactional activities,” McKinsey wrote.
Companies are advised to shift their focus from low-end to high-end automation, make better use of staff time spent on value-added activities, and align with the wider enterprise on AI and machine-learning technologies.
Imperative 2: help finance lead in data
Finance teams are no different from other corporate disciplines, in the sense of being challenged to understand and employ massive amounts of data. In finance, it informs and guides their efforts to gain competitive advantages for the company and remain compliant.
What finance departments need, McKinsey says, is a “clearly defined master data-management strategy.” Otherwise, data sources may be insufficiently trusted to make good use of emerging technologies like generative AI.
Finance departments are well-positioned to help create this definition, according to the report. Their focus should be on prioritizing data quality and consistency, helping lead data-standard alignment across departments, investing in an agile, tech-enabled backbone, and allocating finance-staff capacity to clean data.
Imperative 3: improve decision-making
Using advanced analysis to solve business issues is nearing table-stakes status for CFOs. And beyond that, finance departments are also “responsible for framing discussions on company performance and the actions needed to improve it,” McKinsey wrote.
To be effective, according to the report, finance staff must provide clearer, faster, and richer insights, the latter based on “more robust data from a wider variety of sources, providing broader perspectives than those based only on internal financial data.”
Imperative 4: reimagine the finance operating model with new capabilities
Today there’s a growing premium on a staff’s ability to work more quickly and dynamically, according to McKinsey. Finance departments increasingly have a leaner core, with “tighter data standards, new data-management practices, enhanced automation, and integration with a wide range of digital technologies.”
Implementing this new model, McKinsey stressed, requires finance to make several changes: break traditional hierarchies into flat networks of teams; mobilize temporary teams to deliver deeper insights into business problems; embed digital skills across the finance organization; and develop a core of business-savvy leaders with the stature to engage company leaders as peers.
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