The stats don’t lie: A full 98% of private equity sponsors say that their portfolio company CFOs must take a lead role driving digital transformation within the finance function. The problem is the gulf that exists between what sponsors want and what they’re getting. Only 23% believe that their CFOs have been completely effective at attempts to digitally enable the business. In a surprising finding, the CFOs themselves agree. In fact, only 20% think they’ve been fully effective digitizing the function.
The so what? PE-backed CFOs need to prioritize finance function digital transformation this year. It’s not only a sponsor mandate – the market demands it as well. Deal activity is expected to quickly rebound in response to lower borrowing rates. That means the private capital industry will finally be ready to put its record setting $1.6T of dry powder to work in new deals, three out of 4 of which are projected to be add-ons. The integration work required of add-ons is both complex and sophisticated. Synergies targets will only be met if the finance team isn’t burdened manually pulling, cleaning, and analyzing data. So not only does the CFO need to lead digital transformation this year, but they also need to do so now, before they’re awash in M&A activity.
To an under-resourced, over-burdened CFO the idea of digital transformation can be intimidating. It needn’t be. CFOs can follow a 4 step, 100-day cheat-sheet to make the intimidating more digestible:
Step 1: Kicking off your digital transformation:
It all starts with infrastructure. The function can’t digitize without the right technology foundation to enable digitization. As a result, the CFO’s very first step must be to conduct a technology audit. Think of this as IT due diligence, wherein the CFO is trying to assess whether the company has the right suite of integrated architecture to close system gaps and drive optimized financial and operational reporting. For example: Does the enterprise resource planning (ERP) system cover core business operational and financial processes? If not, the CFO should implement supplementary, scalable corporate performance management systems (CPM) and data and analytics solutions to enable streamlined monthly close, reporting, budgeting, and forecasting processes.