What Will Accounting and Finance Look Like in 10 Years?
Reinventing the accounting and finance role for a future unknown takes trial and error.
Digital Exclusive - 2018
Accounting and finance leaders are quick to quote Microsoft founder Bill Gates when prophesizing about the future of the accounting and finance profession: “We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten.”
The truth is, most people have difficulty envisioning a future much different from what’s seen in today’s most state-of-the-art departments. Outside of robots taking over, what more can change? If we look back at the careers of professionals who are about to retire, the profession looks far different today than it did 40 years ago.
In 1978, most companies kept their accounting records in paper ledger books. The only personal computer you could buy was an Apple 1 sold as an assemble-yourself kit. Visicalc, the first personal computer spreadsheet, did not yet exist. Those companies that had computers entered their data using 80-column Hollerith punch cards. The mechanical chains in computer line printers cranked out reports on tabloid-sized “green bar” paper that the computer operator might print in up to six carbon copy parts.
At the time, business school graduates were still about 75 percent male and supervised overwhelmingly female clerical staffs. Professionals wore suits and ties, might have a beer (or two) at lunch, and likely carried a paper appointment calendar in their breast pocket. Well, all of that has certainly changed.
So, what will accounting and finance teams look like a decade, or two, or three from now? I will make this prediction based on my own 40-year career: Some companies and some industries will have made radical changes to how they perform business processes and others will look very similar to today.
No kidding, right? When I first saw electronic data interchange (EDI) being used in the late 1970s, I thought this was the wave of the future and everyone would be transmitting data electronically within a few years. It happened in automotive supply, retailing, and the securities industries, but in most industries, companies are still at best exchanging .pdf images of paper documents, rather than exchanging upload-able data.
Stuck Behind the Times
In 1986, many management accounting experts recognized that using activity-based costing (ABC) could provide a significant competitive advantage. Today, we know using it in pricing can double a company’s profitability. Yet perhaps only 50 percent of all companies use ABC.
In 1992, the balanced scorecard became the recognized method of developing performance metrics to tie budgets to corporate strategy. Today, only about 20 percent of all companies use this method.
Organizations have had the ability to pay vendors via automated clearing house (ACH) transactions for years, but many accounting software developers still have no feature that seamlessly lets this happen through their software.
My point here is that in order to be at the forefront of our profession you do not have to invent new technology no one has ever used before. Merely using all of today’s accepted best practices alone can put most finance departments ahead of the rest.
Early Adoption Not Required
Research led by Jim Collins and reported in the books "Good to Great: Why Some Companies Make the Leap ... And Others Don't
" and "Great by Choice: Uncertainty, Chaos, and Luck -- Why Some Thrive Despite Them All
" reveals that the great companies identified by these two very different studies were not early adopters of new technologies.
The “Good to Great” companies avoided technology fads or adopting any new ideas too soon. In fact, none of the “Good to Great” companies relied on pioneering technology to begin their transformation from good to great; instead, many used carefully selected new technology to accelerate their transformation after carefully examining the technology’s impact and reliability.
The “Great by Choice” companies used a similar process, which Collins called “firing bullets before cannon balls.” They experimented with new technologies but adopted them only when they proved reliable. While the CEOs of these companies sometimes seemed to be bold innovators to the outside world, in reality, Collins’ team viewed them as “paranoid neurotic freaks” whose bold gambles were, in fact, carefully calculated moves based on experimentation and analysis of cold, hard empirical data.
This research clearly shows us that great companies adopt technologies not because they are new, but because they have proven to be better. We do not want to adopt new ideas too early, but we also do not want to adopt them too late. Being familiar with what is going on around us will allow us to adopt new technologies at the right time.
See the Possibilities
How do we see the possibilities? How many of us have a deep understanding of multiple companies? I have often posed this question in Executive Education Inc. seminars involving senior level financial professionals. When I define a “deep understanding” as requiring at least six months working inside an organization, I only get a few people who will say their experience is with more than 10 companies and I have rarely had anyone whose number is as large as 15. Thus, none of us has seen more than a very small sample of the possible ways finance departments might work.
Whether you think about your job this way or not, every business activity has products and customers. Our product is financial information and the CEO, board, bank, and others who use that information are our customers. To see opportunities for improvement, take a moment to understand your product from their viewpoint.
If the CEO was to walk into your office at 8:30 a.m., what would she want? Some CEOs would want sales data, working capital, cash balances, etcetera, etcetera. Now if you put yourself in her shoes, the first thing you realize is that you do not want to go groveling to the controller to get financial information. You want to walk into your own office, turn on your own computer, and see your company’s information (whatever that may be) displayed on your dashboard.
We all want to see our numbers, when we want them, which is now, not on some schedule predetermined by accounting. While up-to-the-minute numbers may not be expected or feasible, seeing the state of the company as of one, two, three, or four weeks ago is not acceptable anymore.
Today, only about 5 percent of all accounting and finance departments can make real-time information available. This process might initially sound like more work, but because being fast also requires you to drive the errors out of accounting processes, once you embark on this journey, you’ll learn that faster also means better and cheaper.
Where to Go
Once you can see the possibilities of where you can or need to go, the route to getting there will be much clearer. I encourage you to investigate ways to exchange data with your vendors and customers. Look for technology that truly makes things better. And implement the proven best practices that you might be overlooking to up your competitiveness. Ultimately, do what gives everyone in your organization a much better view of the business.
It is going to take a while, but I am looking forward to seeing what you have achieved in the decades ahead.
John L. Daly, MBA, CPA, CMA, CPIM, is a former CFO and COO turned management consultant specializing in costing, pricing strategy, and pricing model development. He teaches continuing professional education courses for Executive Education Inc.