Finance and Accounting in the Digital Age

The business world is going digital. It’s starting to use all of those digital breadcrumbs that you, your cell-phone, your social media posts and your sensor-enabled world are leaving behind. Your employer is likely using these digital artifacts to its benefit, too. Is this a fad? No, it isn’t as no one’s giving up their smartphones and businesses are just beginning to wire up the planet in a giant Internet of Things network.

New Opportunities in Big Data

How big will this get? Several firms have pegged the number of internet-connected devices by the year 2020 to range from 25-75 billion devices with the majority of estimates coalescing around 50 billion devices. Let’s put that in perspective. There are only 7.3 billion people on the earth currently. In just four years, there will be 7 devices per person. Many of those devices will be ‘phoning-home’ asking the company responsible for them to repair them, replenish their consumables or just to pass along data.

It is the vast of amount of data that will be generated that is staggering. For example, a single sensor-enabled turbine engine making a two-hour flight creates 2 terabytes of data. Who will sift through this much data? What tools are needed to spot anomalies, recommend actions, etc.? Are finance and accounting departments staffed with the right people, skills and tools for the Digital Age? Probably Not.

Digital Age firms differ markedly from their Industrial Age counterparts. Digital firms have a different set of metrics and measures. They care about customer acquisition rates & costs. They assess their effectiveness in driving up monthly and lifetime customer revenue and carefully manage any churn in their customer base. They create ‘networks’ and ‘network effect’ around their firm. To be blunt, they don’t really need much of what many of us learned in college cost accounting and managerial accounting courses. Those courses spoke to an Age that is less relevant today.

One recent study showed that 43% of Marketing organizations were selling their company’s data – big data. When I confront CFOs and Controllers about this, no one is aware that this is going on in their firm. They are worried that Marketing may not be valuing this data correctly but the accounting profession has yet to provide guidelines on how data is to be valued. They worry that Marketing isn’t anonymizing the data thoroughly and this could expose the firm to new risks. Data is not only flooding into companies, it’s flooding out, too.

Putting Stress on Financial Systems

There will be challenges for those Finance organizations that want to become Digital Age relevant. One of the biggest challenges may be in long overdue rehabilitation of their existing financial systems.

There are several common problems with many of the accounting and financial systems in use today. Many companies have a veritable “dog’s breakfast” of software that was acquired over the years. Worse, the software in use may vary widely across every plant, legal entity or division. Acquisitions often bring their diverse systems into the mix, too. What’s holding all of this together is a bunch of interfaces, spreadsheets, integration programs and APIs. However, the data within these financial systems is often defined differently in each system and there is often a lot of latency with this data.

Why is this so problematic? In the Digital Age, large volumes of data are available for review and decisions must be made within seconds. Waiting until a week after the accounting period is closed is not viable in the Digital Age. What modern Finance groups need are solutions that were designed for:

• Large operational and third party datasets (i.e., Big Data)
• Scale – can the solution scale up and down based on changing business needs
• Cloud deployments
• Unconstrained IT (i.e., no worries about inadequate disk storage, memory, throughput, etc.)

The problems with older, non-real-time, loosely interfaced systems really start to show up when operational executives want to include big data sources in financial plans, budgets and forecasts. If your firm’s leaders still can’t agree on your total headcount, you probably have too many, redundant finance solutions that were designed for a time when all of your company’s key data fit in a spreadsheet. That just won’t cut it anymore.

To learn more about this topic, check out my presentation from the Planful Future of Finance Tour.