Talk of digitalization tends to take on one of two forms: Specific technologies or worldwide impact. Neither will yield much insight to organizations trying to cope and prepare for digitalization. The concept of the three waves of digitalization aims to describe the impact at large while maintaining enough detail to provide utility.
The three waves of digitalization in the CFO function are: 1) Operational efficiency, 2) Business partnering and 3) Business transformation. Each wave outlines what digitalization means for the CFO function in terms of both actions and, more importantly, how the overall role of the CFO changes. They are a key concept for improving digital maturity of an organization, as well as preparing for changes still to come.
To keep up with the increased demand for speed and quality, efficiency is sought by increased use of modern technologies such as automated integrations, machine learning and RPA
In the first wave, the CFO’s focus is on operational efficiency improvements enabled by automation and data driven processes. Increasing amounts of data and a demand for accelerated clock speed represent both challenges as well as opportunities for providing better services to internal and external business stakeholders. Additionally, the CFO is no longer focused solely on analyzing financial data but moves towards the use of operational and market-related data for better decision-making support and in-depth forecasting. To keep up with the increased demand for speed and quality, efficiency is sought by increased use of modern technologies such as automated integrations, machine learning and RPA.
After efficiency improvements, the attention is shifted towards providing value for internal clients. In the second wave of digitalization the CFO’s focus is on serving other business functions and acting as a business partner in development. The CFO function becomes part of smaller business teams across the business organization. Financial analysis and constant support for different business functions accelerate the business and provide up-to-date information for decision-making. Financial data is required to be visible and understandable for most of the people in the organization. The data interfaces are developed to become more user-friendly whilst the channels for providing the information are improved. The CFO function is no longer working solely with financial transactions and produce reporting. It is becoming a key stakeholder and influencer of business development as well as in identifying new opportunities.
The third wave of digitalization is about comprehensive transformation, not limited to the CFO’s department. Transformation of the business may come from outside or inside the organization, but the change is so comprehensive that it fundamentally impacts the business. In business transformation, external innovations and technological advances, such as blockchain, will impact how the business is managed. Value chains become increasingly connected as companies are opening interfaces to ERP systems and creating new ways for optimizing supply chain management. As companies become more connected, technological solutions and information handling must improve to enable efficient data management, analysis and quick decision-making processes. Fully automated, interconnected and integrated value chains and data networks increase the need for business partnering towards external stakeholders as well. The CFO function will take a key role in enabling and driving this transformation.
While presented as linear and chronological, the impact of digitalization actually behave a lot like real ocean waves. Different waves interact with each other, making it hard to determine where one ends and another begins. Organizations, like ships at sea, are always affected by more than one wave at a time. CFOs will above all need to focus on understanding where they are now to prepare for these changes. And as any experienced sea captain will tell you: the only way to stay afloat is to ride the waves, not fight them.