5 Ways Financial Technology is Transforming the Office of Finance
Since the beginning of double entry bookkeeping in the 1400s, companies have relied on educated and skilled accountants to perform a lot of data entry. Things didn’t change much over the following several centuries, as we still have a heavy focus on using people for data entry.
As John Murdock, CEO of business intelligence experts Centage, explains below for Finance Monthly, this has begun to shift over the past decade due to technology and automation.
Companies like Botkeeper and MindBridge.ai are fully automating tasks like entry and validation of transactions, line items, compliance and auditing corporate books. Other companies offer platforms that streamline budgeting, surface trends hidden in data, and a wide variety of classic financial team functions.
As these functions move into software, one of two things will happen: accountants will lose their jobs, or automation will prompt them to radically transform the office of finance. Even if CEOs prefer people to AI, they may have trouble finding qualified accountants to staff their financial teams. According to Accounting Today: “Accounting, like many professions, is experiencing a shrinking talent pool as boomers retire and younger generations are opting for other careers.”
This evolution is going to kickstart some serious changes in the industry, which is why the AICPA, through its CPA Evolution project, is working to ensure CPAs continue have the skills needed to support the accounting profession. I see that there are five distinct transformations occurring in the office of finance that are a direct result of financial technology.
1. Finance teams are becoming business partners
Back office automation allows the financial team members to move in a more strategic, front-office role by offering their talents to the managers and department heads who run the day-to-day business. For instance, the financial team of a retailer can help the company optimize revenue per square foot, or understand the profitability of each product in order to tweak the brand’s merchandising strategy.
The financial team of a retailer can help the company optimize revenue per square foot, or understand the profitability of each product in order to tweak the brand’s merchandising strategy.
Personally, I see this as a positive development. I never saw the benefit of sequestering such an important role in the office of finance. The finance team is responsible for ensuring company priorities are funded. How can they do that if they don’t understand how or why those things become priorities to begin with?
2. Finance teams will recruit more graduates with business and operational knowledge, not just accounting degrees
The more the financial office moves to the front-office, the more executives will value people who have degrees and backgrounds in business strategy, market differentiation, and competitive positioning. These are the skills that inform strategic decision-making and can help the business chart long-term strategies.
This is a reversal of a trend that began after the 2008 financial crisis and the passage of Sarbanes-Oxley. According to the executive search firm Spencer Stuart, the number of CFOs with CPA certification rose from 29% to 45%. But now that compliance and auditing can be automated, I believe that CPA certification will be less of a priority for management teams.
The accounting industry itself is undergoing a similar shift. Non-accounting college graduates accounted for 31% of new hires across public accounting firms in the US in 2018. The Journal of Accountancy cites the need for tech skills as a primary driver of the shift: “Increased demand for technology skills is shifting the accounting firm hiring model,” Barry Melancon, CPA, CGMA, AICPA President and CEO and the CEO of the Association of International Certified Professional Accountants, said in a news release. “This is leading to more non-accounting graduates being hired, particularly in the audit function.”
3. More CFOs will have a non-traditional path to leadership
The other day I listened to a podcast of the Boston Red Sox, Tim Zue, describing his rise to CFO. He didn’t come from a finance background (he studied mechanical engineering in college). But after working for the Red Sox organization for more than 18 years, he developed a keen understanding of the business, which more than made up for his lack of a finance degree. He knew the right questions to ask in order to make strategic business decisions. As a result, he now believes that the only way to gain such a deep understanding is to get into the front office and work with the people who are running it day-to-day.
The only way to gain such a deep understanding is to get into the front office and work with the people who are running it day-to-day.
I agree wholeheartedly with Zue, not the least because I experienced the same trajectory in my own career. I earned my bachelor's degree in engineering and worked in sales and marketing prior to becoming a chief revenue officer. My experiences as CRO positioned me to become a CEO.
4. Technology will increase the demand for strategic thinkers
This may seem counterintuitive, but as AI merges with business intelligence to alert the finance teams to trends inside the business as well as trends within their markets, companies will need CFOs who are highly strategic thinkers. After all, if everyone uses the same software to guide decisions, they’ll all make the same decisions. We see this phenomenon in our everyday lives all the time. For instance, Waze does a great job of informing drivers of traffic congestion and suggesting alternative routes. But if enough drivers take that alternate route, it just creates another traffic jam.
To complete the metaphor, successful companies will need CFOs who can see the out-of-box alternative route to long-term sustainability and growth.
5. Finance and engineering will merge
Financial degrees are already becoming more data and tech centric. This past October, the Pratt School of Engineering at Duke University announced it will offer a masters degree in financial technology. There is compelling reason why these disciplines are merging: both center around data. Fintech is still in its infancy, and it offers significant opportunities for engineers to build out automation around financial rules. It makes sense for engineering schools like Pratt to train their students in the ins and outs of finance. I can’t emphasize enough how radically the coupling of these disciplines will transform accounting and finance over the next decade.
Accountants and finance teams shouldn’t fear technology. It will certainly change the way they think about their roles, but that’s a positive, not a negative development, especially for ambitious people who are eager to play a more strategic role in their corporations.