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What's really pushing digital transformation in finance?

22nd Jan 2024
Brought to you by
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Xledger is a leading provider of next-generation cloud-based finance software. 

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For over a decade, the finance industry has been undergoing a gradual paradigm shift. The advent of cloud technology, real-time data and automation has opened the door to improved growth, efficiency and service levels, but that shift remains uneven.

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New research from Xledger suggests that while digital transformation has touched most areas, many businesses remain in transition, with the need for change battling internal resistance. We found that, in the face of recession, digitisation is seen as a helpful prospect for 72% of all respondents, but in practice, adoption is more complicated.

Has digital transformation hit a wall?

A substantial amount of the finance sector remains only partially digitised. Our survey indicates that only 11% of accountants and the same percentage of in-house professionals have digitised over 90% of their finance functions. A majority (66%) are in various stages of this digital shift, leaving a notable 34% yet to embark on this journey.

The hesitance towards embracing full digitisation seems rooted in apprehension. Many fear that the shift might disrupt their traditional processes and hamper productivity. However, clinging to conventional systems, especially in rapidly changing times, might result in stagnation, potentially harming the finance function and the businesses they support. This has been put into starker relief by the mounting pressures that businesses have faced in recent years, including pandemic uncertainty, new regulation and cost volatility.

Reporting pressure

For businesses in regulated and scrutinised sectors, the need to understand, report and iterate on spending and income can be a major burden, particularly in the charity and not-for-profit sector. There's a constant balancing act – managing intricate reporting while also improving efficiency. However, current market dynamics necessitate a pivotal change – from merely collecting data to utilising it for strategic decision-making.

Looking at sector-specific insights:

  • Charity: 52% lack the necessary tools for effective recession forecasting. Outdated systems are the main culprits for 20%, and only 16% feel fully equipped.
  • Finance: 41% express a deficit in required tools, but 26% claim complete preparedness.
  • Hospitality: The disparity is evident with 29% facing a lack of resources versus 22% with full access.
  • Professional Services: Showcasing the highest confidence, 28% have all necessary tools, though 32% admit to a deficiency.

With the pain point clear, this could be a significant opportunity for accountants to fill the gap, helping businesses in regulated sectors meet their obligations more efficiently and driving value from the associated processes.

Visibility in a crisis

Mid-market businesses constantly grapple with the dual challenge of collecting data and turning it into actionable insights for rapid scaling. Real-time data, crucial for forward-looking insights, becomes a lifeline, but scale and disconnected systems can quickly muddy the water.

In our research, businesses that have fully adopted cloud computing showed the most encouraging picture, with 54% accessing data 'very quickly'. Conversely, an alarming 32% who haven’t embraced the cloud or have no plans to do so either access real-time data 'slowly' or lack this capability entirely.  A similar trend can be seen with big data adopters, where 62% can quickly access real-time data, while non-adopters lag, with 36% accessing data 'slowly'.

With market conditions in flux due to economic, geopolitical and market pressures, real-time data and efficient visibility are more important than ever, but clearly businesses need support to bring this kind of insight into their workflows.

The cash challenge

Cash is a perennial issue for businesses of all sizes, and when it comes to digital transformation it can cut either way. Some businesses embrace technology to improve their cash control, while others baulk at the upfront investment required.

When considering immediate concerns over the next 1-2 years, a staggering 68% of respondents highlight either revenue/growth (43%) or cash flow (25%)

Delving deeper, it's apparent that businesses equipped with cloud and data analytics have lessened cashflow anxieties. Among big data adopters, only 22% cite cash flow as a primary concern, but this increases to 33% among non-adopters. A similar trend is observed with cloud computing adopters versus non-adopters, with cashflow only the main concern for just 23% of respondents, jumping to 1 in 3 for those who haven’t adopted.

Where next for digital transformation

The finance function stands at a crossroads. While the benefits of digital transformation are palpable, resistance persists. However, in an era marked by economic uncertainties and the need for agile decision-making, clinging to traditional systems might prove detrimental.

With any transition, there is a clear balance between risk and reward. The challenge at the moment is deciding who takes on the risk, and will the reward be enough. While it may sound counterintuitive, accountants may well need to be the ones to take the plunge first – showing clients the value of these tools, even in the face of scepticism.

The alternative – sticking with the status quo in the face of mounting challenges – is unlikely to help clients or firms in the long term. But with the right tools and strategy, accountants who can take the calculated risk will be those best placed to answer the most pressing needs of the moment and pass on the value to their clients.

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