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Bots, algorithms, and the future of the finance function

Abstract Futuristic Background

Here is a brief excerpt from an article written by Frank Plaschke, Ishaan Seth, and Rob Whiteman for the McKinsey Quarterly, published by McKinsey & Company. To read the complete article, check out other resources, learn more about the firm, obtain subscription information, and register to receive email alerts, please click here.

To learn more about the McKinsey Quarterly, please click here.

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Automation and artificial intelligence are poised to reshape the finance function. Knowing what to automate and managing the disruption can lead to a new era of productivity and performance.

Automation and artificial intelligence are poised to reshape the finance function. Knowing what to automate and managing the disruption can lead to a new era of productivity and performance.

Manage the disruption

In theory, finance has many opportunities to redeploy its people. Financial-planning and -analysis professionals could be retasked to support the business. Tax specialists could be refocused to maximize after-tax income.

But, especially in transactional functions, the hard reality is that automation—if implemented effectively—will inevitably lead to changes in organizational structures, redefined roles, and layoffs. At one global financial institution, the CFO is on pace to release a quarter of the company’s 20,000-person shared-services organization over the next 24 months. That’s bound to be disruptive, and there’s no point in pretending these realities don’t exist or trying to hide an automation program behind closed doors.

The leadership and vision of the CFO, in particular, are paramount, just as with any finance transformation. In our experience, the best approach is to manage automation systematically along these lines:

  • Start with the more mundane, transactional tasks, which inherently have higher turnover. Rather than releasing a lot of people, in many cases you just don’t fill existing roles as people leave. Also, such roles usually don’t require a major organizational redesign to capture automation’s benefits. A team that currently requires 20 people could simply reduce its head count to ten by using a fully or partially-automated solution. Going after basic tasks first allows the remaining employees to focus on the more professionally rewarding tasks, and early wins create the capacity and funding that help the finance function to fund other parts of the automation journey by itself.One institution started by rolling out some 200 bots to automate work at its offshore shared-service centers. That allowed the company to develop a playbook, a governance model, and a workforce-management strategy that could be deployed elsewhere. It also created the foundation needed to consider automating more complex, higher-order processes, such as financial modeling and audit.
  • Create a human-resources and placement capability that works in lockstep with the CFO and the finance function. Automating more complex activities, such as a company’s controllership and tax functions, often means releasing people, since these have less turnover than more transactional work. For many companies, redeploying people has proved a challenge. Most just take the savings or, worse, incur new automation costs without a corresponding reduction in labor spending. Thoughtful workforce planning is critical.Communicating a plan for the affected workers well before automation tools are introduced can help. The necessary steps include designing the future organizational structures, telling people exactly what you’ll do to evaluate them fairly, and promising to do your utmost to create opportunities for redeploying personnel. Maintaining a constant lineup of open positions in finance and other parts of the company can further minimize the impact on people. Honesty and transparency are critical.One North American bank, for example, explicitly mapped the automation solutions it was using to the approximately 200 finance employees affected. Before the organization introduced the technology, it had a plan to redeploy employees in more valuable roles. To date, the company has found ways to redeploy nearly 50 of them to other areas within and outside the finance function.
  • Adapt the recruiting and retention profile to get the finance professionals you need. Even if technology intimidates some employees, a willingness—and ability—to learn new tools is important. Future leaders will be quite excited by a function on the leading edge of digitization and automation. And even CFOs of companies that aren’t planning an automation program in the next year or two should seek out and recruit people who will be prepared for it when it happens.One technology company undertook such an effort by creating an internship program to attract machine-learning talent to the finance function. The company maintains data sets that can be used to automate activities ranging from financial forecasting to internal audit. Each year, two or three students from a local university spend the summer building algorithms and bots. Not all of these efforts succeed, but the company has begun implementing at least half a dozen solutions developed by the interns. Similar programs will be critical to attracting talent that can lead an increasingly automated finance function.

Automation is already reshaping the future of work in the finance function, and the opportunity to boost performance will fuel the trend. Adapting to disruption is challenging, but CFOs who build a clear early perspective on the nuances of the automation journey will be well positioned to thrive.

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Here is a direct link to the complete article.

Frank Plaschke is a partner in McKinsey’s Munich office, Ishaan Seth is a senior partner in the New York office, and Rob Whiteman is a partner in the Chicago office.

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