A new report by IMA® (Institute of Management Accountants) on the State of Technology on Finance and Accounting in the Middle East and India reveals that strong digital transformation has taken place in the finance and accounting functions across companies of various sizes in both regions. The report highlights that digital transformation, propelled by normal business competition, has been accelerated significantly by the COVID-19 pandemic.
“Digital transformation leads to fundamental changes in how a business operates, how it makes and implements decisions, how it values its people, and, ultimately, how it delivers value to customers,” said Hanadi Khalife, Senior Director Middle East, African, and India Operations, “To remain relevant and to help their companies compete, finance and accounting functions of organisations need to be part of this transformation. The report shows that the engagement of finance in this transformation varies considerably from company to company, especially when viewed by company size.”
With regards to the overall digital transformation of finance, it has already occurred to a large extent for slightly more than half of the large companies (1,000 or more employees). This is significantly higher (by close to 50 percent) than the digital transformation having taken place within the finance function of small companies (less than 50 employees). In fact, the percentage of finance functions at large companies that reported extensive digital transformations between 2019 and 2020 increased by nearly half. The change was even more dramatic among medium-size companies, which often struggle with tighter margins and more limited resources, with their percentages more than doubling.
Technology is also impacting financial processes, starting with financial planning and budgeting, the No. 1 “pain point” for CFOs, made even more by the pandemic. While companies of all sizes are using technology to improve the planning and budgeting process, this is more likely the case with larger organizations (59%) than smaller ones. This result, consistent across all countries, is not surprising as larger companies have a greater need for integrated, strategic planning and greater resources to devote to it.
The digital revolution is having its greatest impact on processes that require the automation of routine, repetitive tasks. Many financial processes consist of such tasks and are likely candidates for a digital transformation. This survey, consistent with a prior IMA study, bears this out: This was consistent across all the countries in this study and larger companies’ processes tended to have been impacted the most and smaller companies were impacted the least.
To enhance its value offering and reduce operating costs, many companies are turning to robotic process automation (RPA) to aid in organisational and financial process transformation. The use of RPA increased tremendously over the study period. In 2019, 57% of companies indicated that they had not implemented RPA. A year later, only 28% of respondents had not begun their RPA journey. In nearly one-quarter (22%) of organizations, finance is leading the implementation of RPA. In another 43%, it is partnering with IT to progress the implementation. Only in 26% of organizations does finance have a limited role (where IT is leading the implementation and finance is only being consulted), and in 9%, it has no role. This finding was consistent across all countries in the study.
The percentage of large companies that have implemented intelligent automation (i.e., RPA combined with artificial intelligence or AI) rose from 18% to 32% from 2019 to 2020 while for medium-size companies, this has risen from 2% to 16%. Smaller companies, however, still lag their larger counterparts, which raises concerns regarding their ability to adequately embrace digital technologies.
Despite the benefits from adopting enhanced technological and analytical capabilities, the vast majority (95%) of companies encounter at least some problems in developing these capabilities. Most common is the cost of investing in new technologies (30.3%), followed closely by developing necessary skills in existing staff (29.4%), limited staff resources/focus on competing initiatives (29.2%), and the difficulty in hiring staff with the necessary skills set (28.6%).
The report also finds that deploying new technologies and increasing the use of leading-edge analytics tools and techniques has changed the relationship between finance and other organizational functions. Across organizations of all sizes, the vast majority (78%) find that finance is now viewed more as a business partner, helping improve decision making and enhancing performance management.
Raef Lawson, Ph.D., CMA, CPA, IMA vice president of research and policy, said, “Finance and accounting professionals in the Middle East and India, like their counterparts around the world, are responding to the challenges and opportunities presented by leading-edge technology to digitally transform the finance function. The digital revolution is impacting many financial processes for organizations both large and small and significant advances have been made during the study period and will continue to be made. By combining its traditional core expertise with enhanced digital and analytics skills, finance can become a true business partner, supporting organizations in making insight-driven decisions, thereby enhancing organizational value.”
Other key findings:
- Despite concerns around employee acceptance of automation, a majority (71%) of companies believe that automation will increase job satisfaction in the accounting and finance area over the next three to five years and also that it would improve employee retention in this domain.
- Digital transformation is affecting all types of data. While financial data is most likely to be impacted, operational data is also likely to be affected, especially for larger organizations.
- Reflecting the need for strong data governance and quality infrastructure, in order to ensure data integrity and quality, most respondents (77%) are including data security planning as part of their modernization efforts.
- The COVID-19 pandemic has provided organizations additional impetus to move both data and financial applications to the cloud.
- Despite knowing that data analytics is critical to business success, companies across regions are lagging on implementation – with only 14.35% of companies having completed it and the rest in different stages of having just begun or still scoping it out.
- With regards to employee preparedness to these technology changes, only 25% of companies find their employees well-prepared and 40% find them somewhat prepared.
- Finally, the most important technology skills for the finance area in the next three to five years are seen to be AI and data governance, followed by enterprise resource planning, data visualization, and process automation.