A long and growing list of complex regulations and ongoing resource strains across finance teams is piling pressure on CFOs to transform the finance and tax function and make it fit for purpose in a digital age. While 96% of businesses say they are transforming their tax operating model, 48% say they lack a sustainable data and technology plan to achieve their vision for a modern tax and finance function, according to the EY organisation’s 2023 Tax and Finance Operations survey.
With tax increasingly becoming a strategic priority rather than merely a compliance and reporting obligation, EY tax professionals Daren Campbell and Richard Clough discuss how CFOs should approach digitisation to ensure their transformation projects are a success.
You need to understand the value of transformation to engage your people and drive the business case
How should organisations go about setting up the right foundations for transformation?
The foundations are vital, but you’re not going to move your foundations forward if you don’t understand the cultural needs that go with it. You need to understand the value of transformation to engage your people and drive the business case.
You also need a well-managed data lifecycle, from supplying the data, mapping and cleansing it, to making it available as an asset. That means taking what is messy and low quality and raw, and turning it into something that’s curated, managed and available. You must ensure it is clear for people to use and consume at scale. That’s what the foundations need to achieve.
You also have to make sure you have the right stakeholders involved. In some transformations, we still see that as a bit of a challenge on the tax side – sometimes tax is an afterthought. It can end up being a very expensive process if you need to go back and try to add tax in later. If tax has a seat at the table in the first place, there might be a marginal cost increase, but if you wait until the end, it could cost you more.
You also need to create a common frame of reference for the maturity level of processes. This means that, as you plot out the journey going forward, you can see how it will change the current maturity in terms of data, technology and what people do. Without that maturity framework, the journey won’t happen. Even if you get into a transformation, you’re not going to be able to explain where you came from and where you’re going. So you must have a clear journey and be able to explain where you are on your way.
Why is it important for tax to be part of any finance function transformation?
Tax can often pay for the transformation itself. For example, if the tax rules aren’t set up correctly, then there is time that’s spent at the end of the process where you may be going back in and filing for a refund because you overpaid tax and then have to wait to be repaid. If you have more accurate information upfront so you are not overpaying tax or you’re taking advantage of tax credits or other incentives, you will have kept more cash in-house.
How important is collaboration to the transformation journey?
As you work through this journey, you have to articulate and understand what the benefits of that are to all parties to change, otherwise the risk is the transformation journey can become a bit one-sided to whoever is at the core of it.
There needs to be some give and take for anything to change. So the parties on each side of that change need to be present and ensure the project is a win-win, which you can establish if you have a joint journey. If it’s just one function on its own, then at some point, that function will bump into another one, and the benefits case will only be on one side and it will start to stall.
What other change management strategies should CFOs consider?
When you’re looking at a broader transformation, it’s also important to look at the sourcing model. Above-the-line items are your strategic items and below-the-line items are things that you need to get done, but doing them isn’t really strategic. So companies should think about what work to keep in-house and what to outsource.
Generally speaking, anything that ends up in the operational bucket is an opportunity to outsource to someone who can do that at scale. They are probably going to be more efficient and have access to better technologies that help with those activities. Another challenge we see as companies go through a transformation project is that day jobs still have to happen.
Given resource shortages, companies may want to look at outsourcing day-to-day tasks such as compliance reporting to free up internal tax and finance professionals to be involved in those transformation meetings.
What common pitfalls do CFOs need to avoid during the transformation process?
The work can get very detailed and quite technical, so the path of that work must not get disconnected from the understanding of why it’s being done. The journey must remain common from start to finish, and the programme shouldn’t disappear and then pop up later.
There needs to be a continuous cycle of business collaboration, and that’s hard to create because all of that is outside people’s day jobs. So I think that the transformation community is super important. That takes a lot of effort to maintain because the parties in the community come from different functions that will naturally default back to what they were doing before if you don’t create alignment throughout.
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