By Tim Wakeford, Financials VP of Product Strategy, Workday
Shift happens – and never more so than in the financial services sector which is no stranger to unforeseen change. From increasing complexity and managing ongoing regulations, through to the growing expectations that their roles need to transition beyond simply number crunching, finance leaders are at the apex of business evolution. And there’s nothing like a global crisis to remind CFOs just how instantly a business can change – and the sheer number of vulnerabilities that can be exposed. So, what are the big shifts that COVID-19 spurred in the financial services sector and what can CFOs learn for the next time change happens?
Technology sits at the heart of the solution. To succeed in a turbulent and fast-changing business climate, financial services CFOs must lead with better decision-making and greater flexibility. This comes from uniting operational and financial data so they can generate real-time insights and plan for multiple scenarios. In doing so, finance leaders can get a clearer view of their business, turn information into tangible actions, and chart the best path not just for recovery, but long-term stability and success.
Shift one: The realisations of remote work
COVID-19’s abrupt lockdowns highlighted how the back-office functions of financial services and insurance institutions are hamstrung by legacy technology. From prioritising customer-facing solutions, inherent risk aversion, or basic corporate inertia, many financial organisations are still relying on old, on-premises financial systems. To make matters worse, this infrastructure tends to linger through mergers and acquisitions. Resulting in banks and insurers often using clunky technology to extract data from legacy systems.
This practice is not just problematic; it became a business-critical issue in March 2020 as fragmented infrastructure made it almost impossible to close the books in a remote set-up. Cobbling together data from disparate sources through integrations, IT service requests, and spreadsheets is difficult under the best of circumstances. But it becomes completely unmanageable when the entire finance department is spread across the country. And this challenge impacts more than a business’s financial reporting, affecting also the wellbeing of individuals. Finance leaders were forced to put their people at risk, asking them to come into the office simply to be able to close the books.
For Aon, this was a breakthrough moment for its finance team. Like many companies, Aon’s team was faced with conducting a fully remote close. Despite this being a new challenge, Aon had baked agility into its financial processes by investing in the right cloud-led technology. With live data and transparency across its 120 regions, Aon’s finance team was able to close remotely on time, with one region even being able to close a day early.
Shift two: Disruption – the race to keep pace
It’s no secret that scenario planning is important for financial services leaders to make fast, data-led decisions. The pandemic, however, accelerated the need to take serious action on upgrading scenario planning capabilities. Last year, firms raced to understand the real impact of COVID-19 on their employees, customers and bottom line. But on-premise legacy systems hindered the sophisticated scenario planning required to swiftly and accurately reforecast for ongoing changes. Spreadsheet-based scenario planning, for example, is open to manual errors and version-control confusion and does not enable finance teams to spend time on actual data analysis or strategic planning.
Furthermore, as the pandemic tiggered market volatility, companies also faced changing risk profiles and compliance challenges. Increasingly, sophisticated regulatory requirements cannot be met on legacy systems. For example, FR 2052a, a regulation implemented by the U.S. Federal Reserve in 2014, requires large banks to replace static liquidity reports with dynamic assessments of their cash flows, liquidity risks, and potential drivers of funding vulnerabilities. If they lack a single point of access to consolidated historical data, leaders at these institutions face a huge challenge in meetings these demands.
These challenges illustrate how legacy systems hamper business agility and outcomes on a daily basis. The sooner CFOs embrace technologies to consolidate organisational data, the more successful financial services will be in keeping pace with disruption, not to mention the necessary regulatory requirements.
Shift three: The big data boom
The World Economic Forum estimates that 44 zettabytes of data existed in 2020. That’s 44 followed by 21 zeros. What does this mean? We now have more bytes of data than stars in the universe. But all-too-often banks and financial services companies are trying to manage their data via a byzantine collection of systems, tools, and solutions stitched together. And, despite companies getting access to more data across their organisations than before, some firms are still lurking in the dark when it comes to understanding the health of their business and turning information into actionable insight.
Looking to the future, financial services firms cannot keep using legacy systems that are inaccessible, inaccurate, and isolated. In an industry facing increased regulatory pressure–not to mention other disruptions including increased climate concerns and fragile supply chains–agility will be the deciding factor that separates leaders from laggards. In this context, leaders understand that to increase agility, they must take control of their data. In fact, 99 percent of executives note the importance of real-time data, according to a recent Accenture survey of 450 finance leaders at companies with revenue of more than $1 billion.
To become agile organisations that successfully use data, financial organisations and insurers need a solution that goes beyond traditional enterprise resource planning systems. They need a cloud-based platform so teams can break down siloes, create a state of clarity by uniting operational and financial data, and produce real-time forecasting and reporting for instant change.
Driving agility with a single system
Implementing a unified cloud-based system opens up a wealth of opportunities for financial services firms. Banks, for example, can track and record events throughout loans’ life cycles, such as bankruptcies and credit scores, enabling them to conduct more nuanced risk analyses during tumultuous economic times. Insurers, meanwhile, can generate accounting from their brokerages to gain a global view of brokerage revenue and better understand product profitability and risk.
To succeed following the pandemic, financial leaders will need to lead their organisation towards agility. Instead of getting bogged down by data, financial leaders will need to make use of all the data at their disposal to enable deeper analysis, faster planning, and better decision making.