Finance departments are on the cusp of a new wave of automation that will create fresh insights and unprecedented efficiencies. This means tax executives should also put on their tech hats. That’s one takeaway from a McKinsey article, Memo to the CFO: Get in front of digital finance – or get left back, that doesn’t pull any punches.
The overall tone of the piece is more upbeat than the title suggests. Digital transformation clearly opens significant opportunities for finance chiefs: “There is a clear mandate for [CFOs] to take the lead: today’s CEOs and boards say they want CFOs and the finance function to provide real-time, data-enabled decision support.” In addition, “CFOs themselves say they want to spend more time on digital initiatives and the application of digital technologies to finance tasks.”
That may be an area where tax leaders can offer support. After all, similar dynamics are playing out in the tax realm, and many tax processes would be good candidates for initial use cases to demonstrate the value of automation. McKinsey’s research examines a group of finance functions to determine the potential for automation using demonstrated technologies. Tax ranked in the middle of the pack, with 57 percent of activities fully automatable and 19 percent highly automatable. For the sake of comparison, nearly 90 percent of the activities involved in general accounting operations are fully/highly automatable; all activities in business development would be “difficult to do.”
McKinsey identifies the following technologies as showing the most promise for finance:
- Automation and robotics. Not surprisingly, RPA – robotic process automation – is the heavyweight here. It’s a technology with far-reaching implications for tax, as we’ve often noted in this blog. McKinsey offers a couple of intriguing examples, including a European utility that improved productivity within a finance shared services group by a hefty 20 percent.
- Data visualization. These systems help companies improve their performance through fresh, actionable insights. They can convert real-time financial information into intuitive formats to support decision-making.
- Advanced analytics. McKinsey sees an important role for these systems both within the finance department (to accelerate business support) and in the business at large category (to uncover shareholder value and growth opportunities).
Tax leaders will want to keep close tabs on these technologies and on the digital challenges CFOs are facing, with an eye to strengthening the tax/finance dynamic by capturing the full value of digitization.
Please remember that the Tax Matters provides information for educational purposes, not specific tax or legal advice. Always consult a qualified tax or legal advisor before taking any action based on this information.