We believe that Digital Finance Transformation is a critical requirement for the Finance functions in Swiss private and cantonal banks1 in addressing the challenges they face – technology disruption, macroeconomic uncertainty, and increasing competition, as well as continuing high regulatory costs of doing business. Senior management in banks are focusing on efficiency, and as a result Finance functions are under pressure to limit their own costs, help the entire organization to cut costs and deliver effective financial control, and at the same time provide high-quality insights.
Operating costs of the finance function - Rising customer expectations, strong competition, disruptive technologies as well as high regulatory costs are pushing senior managers to make their organisations more agile and efficient. In recent years, many Swiss banks have undertaken efficiency programmes to bring down their cost base, albeit with mixed results. Therefore there is still room for improvement across all functional areas of the business, and Finance is no exception to this.
Source: Annual reports, Deloitte research and benchmarking data
Typically, among the clients we work with, inefficiencies exist in Finance: for example numerous close and reporting activities tend to be duplicated across fragmented functions. In addition, a significant portion of time and resources is still spent on manual sourcing and aggregation of data to produce standard reports, in a business world where there is growing demand for frequent and ad-hoc reporting with fast turnaround times.
Business partnering – Finance functions in Swiss banks are experiencing difficulty in supporting their business with meaningful financial insights. There are three reasons for this. First, many resources in Finance still have to focus on repetitive and time-consuming operational finance tasks, which take up a significant amount of time that could otherwise be spent producing financial analysis and insights. Second, providing analytical insights is resource-intensive, as many banks have not yet adopted integrated financial analytics solutions to enable quick and dynamic production. In other words, most analytics are still being produced in Excel. And third, the Finance talent pool in general, while possessing suitable accounting and finance skills, has not yet acquired the skills required to use effectively the integrated tools available in the market.
Finance technology –There is a lack of investment in technology for the Finance function. Many banks delay the renewal of their core financial infrastructure, and as a result few have integrated core ledger and data platforms. Legacy systems and fragmented system landscapes therefore oblige Finance practitioners to perform numerous processes offline and manually, resulting in a general lack of data quality and traceability. In addition, “digital" tools such as visualization dashboards and predictive analytics are in many cases only tested or used by a select few, and not adopted more widely across the organization.
How to respond
In response to these challenges, we believe there are four approaches to consider which, though closely linked, can also be implemented independently.
- Develop Finance service proposition
One approach taken by some of our clients is to define and implement a clear, lean and robust service proposition for their Finance function, setting out the services and level of service that it should provide to the business, for example defining the type and volume of reporting and analytics required. This creates a clear role for Finance and identifies where it should focus its resources. It is crucial that the rest of the business should be part of defining this new Operating Model for Finance, to help gain tangible support and communicate cost vs. provision trade-offs.
- Define high value vs. standard services
Finance functions should identify and define the services that they provide that are value adding to the businesses they support vs. standard typically operational finance services. This can be linked to the service proposition for Finance. Divisions or local CFOs and their teams focused on value-adding activities that matter most to the business, such as analysis and decision support. Workforce changes and enhancements to data architecture and analytics capabilities may be required to perform this role.
- Simplify, automate and centralize standard activities
Most banks have an opportunity to centralize, standardize and optimize their operational accounting activities, such as statutory and regulatory reporting. Manual activities such as journal postings and reconciliations are suitable for automation. Centralization can be achieved by creating centres of excellence or a “Finance Factory”, and/ or some activities could be outsourced. Standard regular internal and external reporting can be simplified or replaced entirely with self-service dashboards enabled by visualization tools.
- Bring core digital capabilities up to speed
To achieve scalable transformational change and integrate new digital technologies, Finance functions should consider creating a digital core by implementing effective data, ledger and reporting platforms while also considering ‘as-a-service’ delivery models and/ or moving data processing to the cloud. The introduction of a F2B approach will enable a daily operating finance cycle that drives data quality and availability.
Careful planning is the pre-requisite for a successful Digital Finance Transformation program. Below we outline the key steps.
- Understand the views of stakeholders – Conduct interviews with key stakeholders and senior Finance personnel, and follow this with a digital and innovation maturity assessment for Finance.
- Develop a strategy for Finance – Develop an understanding of digital finance basics and create a vision based on stakeholder needs and relevant technology trends.
- Conduct an innovation lab – Break down your vision further into a project plan with clear objectives and initiatives, and prioritize these initiatives according to costs and benefits.
- Mobilize and implement – Engage relevant stakeholders and execute the project plan. Identify risks and calibrate the approach on a continuing basis.
Swiss banks operate in an increasingly difficult environment, but there is hope. Digital Transformation offers a wealth of opportunities that can make the Finance function as well as your entire organization more efficient. With a clear digital vision for Finance, and with careful planning, these opportunities can be leveraged to bring about significant gains in efficiency and effectiveness.
1 Throughout this blog post we will collectively refer to Swiss private and cantonal banks as ‘Banks’
2 Calculated as a percentage of total operating expenses for the financial year