Episode 34: Autonomous Finance is ready- Are you?

Madhurima Gupta:
Welcome to CFO Circle podcast, powered by High Radius. I’m Madhurima Gupta, your host, and today I have with me a very special guest, Peter McKenzie. Now, before we dive deep into what we are gonna talk to Peter McKenzie, let’s learn a little bit more about who he is. So Peter is a senior C-Suite executive and coach who comes with over 25 years of experience as a CFO and COO. Currently he’s working as CFO and corporate director of anti sepa real estate, a servicing company owned by Blackstone Group, which manages large debt and real estate portfolio in Spain. He has been the CFO of real estate debt collections, corporate investment banking and consumer banking businesses in Spain and Portugal. Having created and led strong teams that thrive in challenging environments, he believes that excellent interpersonal communication is key in motivating people in creating an enjoyable environment for teams to grow. On that note, let’s welcome the guest on the show today. Hi Peter. How are you doing?

Peter McKenzie:
Hi. Good to see you. Very happy to be here.

Madhurima Gupta:
I am so ecstatic to have you on the show today. Thank you so much for taking time.

Peter McKenzie:
Pleasure. Absolute pleasure.

Madhurima Gupta:
All right, so Peter, today we are gonna talk about how ready are CFOs today for autonomous finance for the office of the CFO. And before we dive deep into, you know, the topics details I wanna talk about, I just wanna set some context. You know, today, business’s environment is constantly changing and it has become unpredictable and customers’ needs are evolving at a rapid rate. While competitors are becoming increasingly unconventional. Companies must therefore be more agile and proactive. The use of intelligent automation and intelligent autonomous technology is one of the ways to achieve it. And by reimagining finance as an AI driven autonomous operation, your workforce could be transformed and given the time and space needed to come up with ideas and insight strategies that’ll help companies compete and grow. But what are these autonomous finance tools, right? What, what would you suggest, or, you know, what would you say that these autonomous finance tools comprise of today?

Peter McKenzie:
Yeah, no, I, I mean, I think as you, as you’ve outlined, I think it’s, it’s definitely a space where CFOs are, are looking into more and more, you know, and for, for, for many years, CFOs are being charged with sort of reducing costs and automating across the company, but especially within finance itself. And I think an interesting thing is since the pandemic as well, you know, we saw a real push in terms of digital you know, being pushed out generally in the way everyone works, and especially in the, in the finance space. So I think the autonomous finance is definitely something on people’s agenda. And I, and I, I see that I go to a lot of conferences as well. I see a lot of colleagues in different industries, and it’s definitely on their agenda. Now, what I see as well is that there’s a, there’s a, there’s a lot of offering, conceptual offering in this space. You know, how you can use artificial intelligence, how you can use this sort of technology in, in the finance area. What I see is real, real cases where I can see this actually working today and even in my own business, is it working, are with things like you know, going one stage beyond the RPAs, the typical robotic process automations into something where there’s a little bit more intelligence, a little bit machine, more machine learning being applied, things like invoice processing. That’s one that I, I use myself and you can, it’s almost, I wouldn’t say it’s completely an autonomous function within finance, but it’s, it’s virtually there. So one I would say is definitely accounts payable. And also accounts receivable on the other side. And, and the other area I see it being used more and more is within forecasting and budgeting. So using data, coming up with, you know, real, not real time data, but almost real time data to make decisions as opposed to what CFOs were using in the past. We’ve used a lot of historic data. So I see this sort of big data theme being used, and I see finance functions now beginning to use this autonomous finance sort of idea in terms of managing their forecasting. And just a, as a caveat in some places, right? Not all CFOs have bought into the idea, and there’s still many finance functions that are extremely manual.

Madhurima Gupta:
Absolutely. So in your experience, which finance function today is most manual and people are still a little distant from automating it?

Peter McKenzie:
Well, I mean, I, I think a lot depends on the, the er p you have. So the systems you have, because a lot of this, you know, this, this technology has to fit within the, the infrastructure you’ve got, the technology you’ve got. So for me, for example, my erp, if I look at my, my own, my own sort of status, my erb is not sap. It’s not like a big global system. It’s a local system. It’s a real estate system that’s used in Spain. So just the basics of closing my books, the balance sheet, the p and l, the basic finance functions. I would say there we are still relatively manual. I mean, we, we, we’ve automated processes, but it’s certainly not using artificial intelligence. It, it’s automating processes by doing some, some functions that are more massive uploads into the system. But I wouldn’t go as far as to say it’s autonomous. So, for example, in that case, depending on your, your er p my pure basic bookkeeping functions are still, are still relatively manual. And when I look across the, my colleagues, I still see that that’s the case across the board. I don’t see many people automating the close, the close of their books, which is, I think what most CFOs would like to get to the, the automation of the actual accounting books and records. So the closes are much quicker, and there’s a lot less manual intervention. So for me, that’s one area. I think the invoice area and the forecasting areas are the two where we are seeing this technology come in. But I think a lot of the other areas are still relatively manual. For example, treasury is another one. Treasury is, you know, moving cash around, I think is still a very person driven function. Actually, automating the movement of cash is something that most CFOs would be relatively wary of doing, right? Because you’re touching the, your cashflow, you’re touching the actual money.

Madhurima Gupta:
But on the other hand, you know, the core of many processes today remain fundamentally unchanged from decades ago. In Spite of introduction of automation software that can help manage these repeatable and basic tasks. So how do you feel that autonomous finance or which elements of autonomous finance can change this?

Peter McKenzie:
Well, again, you, you’re absolutely right. I mean, when, when you take a room of CFOs and you ask them how many people are still using Excel as their basic analytical tool, or they’re using pivot tables or what, whatever it may be, then all the hands go up. Well, most of the hands go up. So you, you’re dead, right? I think, you know, if, if, if you’re looking for the, how would you begin to really sort of push the, this idea to CFOs apart from having the, the, the success cases that would convince them. I think the other thing is that, you know, it, it’s like a mindset shift that CFOs need to get into, because this is, for me, you need to invest quite a, quite, you know, you need to be ready to invest a relatively large amount of CapEx into a process. And I, I never believe the return on investment when people tell me, Okay, there’s three or four months you get your money back. Rarely is that the case in projects. Normally, you, you, you’re talking, you know, nine, 10 months that, for me would be a project I would, I would tick off even, even a year. So in these cases, I think it’s, it’s being willing to go in with you know, sufficient investment to make it work. If you, if you sort of dabble around the edges, you’re never gonna get anywhere with these things. So, you know, I think that’s, that’s part of the, the problem people have. And so for CFOs to actually be willing to invest, they, CFOs are very, obviously we’re charged with controlling the money, making sure the return on the investment comes through, that any CapEx investment is controlled. So I think, again, it, it takes a, it takes a bit of bravery, bit of courage to step in and say, I’m gonna bet on this, on this solution. Which is why it’s more often than not needed to, you know, have something to actually hang your hook on and say, Listen, this, this process definitely works. It definitely works over here, therefore you can replicate it. And I think that’s part of the problem in general, because when you, we talk about some of these other areas where autonomous finance can go, where you don’t have a real case, where you can really showcase it and say, This works and it works for a company that may be a medium sized company rather than a huge company, then it’s more difficult to convince people to sort of go full in. And I think here you have to be willing to invest, you have to be willing to really take a risk that these these processes will work.

Madhurima Gupta:
And you know, I, I totally agree with you. When we talk to CFOs, there’s always a concern in terms of the amount of investment, the cost of investment that will be there to implement an enormous finance solution versus, I mean, often they don’t even think about the value that it’ll bring to them in the long run, right? So at that point, the case studies that we produce, they definitely help. But in order to get a CFO to actually see that case study, it takes a bit of a time, right? It’s not an outright thing that we’ll be able to push that case study in front of them. So what do you feel I mean, how should your peers be looking at cost versus value of finding the right kind of autonomous finance software for their office?

Peter McKenzie:
Well, I think, you know, when you look at your, like any, like any area I think finance is, is no different to any other, to any other area within a business. You’re looking for your, for your value proposition as a business. And so therefore you, CFOs should be looking at all of the functions within the business as a whole as well. I mean, not even just, I think these days the CFOs not just focused on closing the books. They’re, they’re business people. They should be looking across the, the whole business. And so you are looking to eliminate anything that is not value added. I think that’s the first thing. So obviously anything that’s repetitive, anything that can be done by a machine that can be improved by a machine as well is, is there to be considered. And for me, that’s, that’s part of the, that’s part of the game. When I look at, I, I often think when CFOs look at the saves they can get, if you just look at pure cost saves from process improvement with, you know, automated finance in this case, or autonomous finance, perhaps some of the, that that case study or the, or the business case doesn’t build in some of the extra benefits you have. So going back to what I saw in my, my area, we, we look primarily when we did the return on investment on, on putting in a system that was with, with, with a big global sort of check blue chip partner that works very well. And, and they have a similar, you know, process. They, they roll out across the globe for many clients. For us, we did the, the return on investment based on head count saves. It was literally how many people do I have in my AP shop today when I get this process up and running and I’m, I’m basically paying a unit cost for every invoice that we process. And we, we process around a hundred thousand invoices a year. And some of ’em are quite complicated. They have a lot of, lot of detail. All of that was right for a more automated process. But we did our return on investment based purely on the headcount saves we could make. But there were loads of extra benefits. So there, like I said, there was the reworking benefits, the less noise with our suppliers, the ability to better forecast our expenses better because everything was in a system. It was smoother. We had no delays. We could, we could work out our accruals for costs at a much sort of more accurate level. There was an improvement in reporting, there was far less noise within finance. It freed up the, the me as a CFO and part of my department to be able to do other things than firefight managing invoices. And that we didn’t build that into our original business case for why this had a return on investment. So my very long answer to a short question, but my recommendation would be to look at all of the benefits that these solutions can give you, not just the pure, very straightforward cost size. There is a wider benefit that these processes can give you because they allow you to focus on your, your sort of core value.

Madhurima Gupta:
Absolutely. And you know, in our experience based on, you know, the discussions that we’ve had with like hundreds of CFOs that we talk to on an early basis is the lack of property data environment. Right. so you think that CFOs should wait to set up the right kind of data you know, in order for the different autonomous solutions to properly work? Or do you think they’ll be missing out you know, by waiting for the right data set up?

Peter McKenzie:
Yeah, I think, I think it’s I’m gonna hate my answer on this one and be a little bit on the, on the fence because I think you need a sort of certain basic data set up. Because if you’ve got absolutely appalling data quality, then obviously whatever you automate, it’s just gonna, whatever you put in is gonna come out just as bad. So I don’t think you could have a, an awful sort of data pool. You have to have a certain level of sort of quality within your, your data warehouse or whatever you may be running. But I don’t think you can be waiting for the sort of perfect moment because it’s like anything that will never come because you’re gonna be getting more and more data anyway, you’ll be working with, with more volume. If you have a data warehouse, you’ll be putting more feeds into it. It’ll never be a hundred percent clean. And I don’t think anyone expects that. So I think you have to decide, and maybe it’s a decision between finance and tech, is where is there, where is there a moment where you can sort of, you can trust the data that you have sufficiently to go with an automated solution. And let’s not forget that, you know, when you’ve got, you’ve got like machine learning, you also, the other thing that, that I think works really well is once you’ve got your data and you start to automate processes, having your data and using that data more wisely, you see some of the outliers, you see some of the problems with your data quality, it actually helps you clean the data. So I, I guess, you know, you’ve gotta have a minimum, but you can’t be waiting for perfection. Cause you’d never be, you know, you’d never do anything. So my advice would be to jump in as long as you feel you have the bare minimum. I think it was Voltaire who said perfect is the enemy of good. So if you wait for perfection you’ll never do the good thing. So you have to, you have to jump in. There’ll never be a perfect moment. That’s my advice.

Madhurima Gupta:
Fair words, That’s actually true. I, I totally agree with you there. I mean, waiting for things to become perfect, which probably they will never, and it’s gonna hinder you from probably improving your processes multifold during that duration. So why do that? I totally get it. All right. So the next question I have for you is on lines of how AI driven capabilities help in automating processes and what they bring to the table for transforming you know, how a CFO’s office works today, right? So in, in your experience, how is AI transforming the way that a finance function works today?

Peter McKenzie:
Yeah, but I think I think there’s a couple of things. I think the finance function becomes less of a back office function. So certainly in, in Spain, at least where I am, we talk about finance and administration. So you have this administrative label to finance, which I, I think somehow brings the, the level of, you know, how, how elite a finance function looks to the outside world. It brings it down. So I think part of what it, what it allows you to do is to sort of upscale your image and your value add to the business. As I said before, it frees up your time to be able to do things, I think, that are more value add, which which is important and take away some of the more mundane work, which is less value add. So I think there’s a couple of things. I think one, you need to, the team itself changes because the skill sets you need in your team changes. So you have probably less people, but high quality people, which brings challenges as well. So it’s not necessarily that easy to do that, but you need to sort of rejig your, your team. And the second thing is that you are more involved with giving, I think, more business focused data. So, I mean, accounting data is too historic. I think these days. I think anyone would, would agree with that. You wait for the, the books to close. You give some sort of financial data from the previous month against the budget. This is no longer what the business needs. The business needs more real time data, more lead measures rather than lag measures, which I think accounting records are. So the, for me, the CFO, and certainly, I mean, I’m now also looking after tech within my company. I’m not, I’m not a CIO and I’m not really that I’m, I like tech, but I’m not a tech person, but I’m involved with the data warehouse. I’m involved with some of the, the more business KPIs indicators. And that’s on the back of being able to automate the processes that we have that has allowed me to not be managing those process and being more focused on giving value, add information to the business. So again, I think that the CFO function is moving far more into almost like business information being on that side of things. It’s far more techy. I think a CFO who’s not involved in tech is not really driving the data warehouse type projects. If you leave that with your CIO, I think it’s, you know, you’re missing a trick. I would recommend most CFOs get involved in that because that’s where the finance function is going.

Madhurima Gupta:
Very interesting. So, you know, just some extending on what you just mentioned. So it looks like you’re also foldering the responsibilities of the CIO. And in general, from what I understand, having the right relationship between CFO and CIO definitely helps a business grows, right? How, how does this additional responsibility overall, in your opinion, helps your organization to, let’s say, grow better tackle, changing market environment, better ensuring that your initiatives, let’s say for digital transformation have better ROI?

Peter McKenzie:
Well, I think, I think you just said it. I think that the good thing is with the CFO partnering with the CIO or maybe having responsibility. Cause I, I have a CIO, right? So all of the, the technical all the technical stuff, he does that. And in fact, all of the infrastructure, he looks after that. So it’s not as though I’m replacing the CIO because that will that be very ambitious. But what you get when the CFO is really involved on the tech side is you, you, you can actually see those returns. The, the return on investment, the control of CapEx, deciding where to invest, where not to invest. Seeing the value, for example, of the, of of data and the data warehouses that people build data leaks and using that to drive business results. I think it’s something that the CFO is closer to, cuz the CFO’s closer to the business than the CIO. I think that’s inevitable. The CIOs tend to be more technical. They tend to be looking after, you know, getting the processes right on time, delivering what needs to be delivered. But when, if you leave a data warehouse project in the hands of the CIO, I, I think I would fear it wouldn’t necessarily, you wouldn’t necessarily create something at the end is completely aligned with the business. Whereas the CFO being involved in that, I think its far closer to the, to the business with the FP & A functions you know, controlling the budgets, controlling the things that are, that are really important both for the operation and for the, the actual front office as well. So that’s where I, I think it’s really important. And I would recommend any CFO out there who is not in the tech space, who is not getting involved in digitalization of their, of their businesses. I mean, that’s where they should be trying to, to expand because that’s the future of the CFO, I think. I think if you remain back in the typical bookkeeping reporting function, then maybe in 10 years time that function will may not exist even.

Madhurima Gupta:
The other thing that I wanted to touch upon is the reader, the need of right kind of talent to implement and utilize the autonomous finance function solutions that are available in the market. So in your opinion, what is the right mix of talent that CFO’s office needs and how can they be nurtured and trained?

Peter McKenzie:
Okay, that’s, it’s a, it’s a million dollar question you’re asking there, right? Because you are looking for people that are far more data savvy and far more tech savvy within the, the finance space. So you’re looking for people that understand, understand data, understand algorithms have a working knowledge of of, of how these things work. Understanding even how machine learning the concepts of what some of these processes can do. And, and also even in the future, be aware of where else we can implement some of these some of these tools. So for me, it’s completely different to the typical bookkeeper that you have before that was like more of an accountant because I think the, the accountant, the accounting functional, the accounting profession as was, although it may take us 10 years to get there, I don’t think we’re gonna be there next year or the following year, but it has to come where those, that function is no longer required. There no, no manual input, there’s no decision making because again, it’s, it’s a rule based function and it is absolutely right for being done by machines. So what we are looking for now, I think is far more tech savvy people that are able to interpret data, to communicate data to, to, you know, to actually add that value to what you’re getting back from data warehouses you know, business objects, reports, things that you can extract for the business. It’s, it’s far more important that the people in finance now are able to, to work with that. I would even go as far as to say, you know, knowing Python or knowing something about how the actual coding works is also is something we’ve certainly considered. I’m not saying all of your finance staff need to be at that level, but there’s, that’s far more sort of technology required and it’s a problem, right? On the other hand, that’s great that I say all that. On the other hand, it means you’re looking for a more skilled resource and there’s a lot of competition for those type of resources. So actually it’s, it’s a real challenge to find the right people and actually get them on board and keep them on board. So it gives you another challenge to face.

Madhurima Gupta:
Absolutely and how about the software, which actually does not require that technical expertise at the end of the day, because if you get the right kind of software, which automatically does all of the automation for you, not requiring you to hire people with those you know, really high qualifications. So would you say that it’s, it’s a simpler approach in terms of, you know, not having to have those advanced kind of talent availability in the market is anywhere limited, right? And hiring them and retaining them becomes another challenge they could rightly pointed out. So if you get the right kind of software that does a part of the work and not necessarily very skilled people and maybe train them over the years, would, would that in your opinion work?

Peter McKenzie:
I think so, But then, I mean, what you’re describing to me is almost like someone looking at the pro. If, if you’ve got a software that is managing a lot of the process and then you are, you are sort of, you know, maybe then kicks out errors or things that need to be repaired or it’s, for me that’s almost like a, it’s almost like an, it’s almost like the classic IT role where you’re looking at someone looking at a, a machine, running a process, and then you are, you are seeing if does a process run Yes, no at the end of it, and are you then able to repair what’s gone on? So for me, yes, you’re right, that could be a lower level technician, but it’s almost, it’s certainly not a, almost like a finance person. It’s almost like an IT person who’s looking at, does the process run, hasn’t run correctly, is there something to be repaired? So I think, I think you may be right, you may be right that, that I would always put that into my IT box and have my finance people more involved in, in sort of going up to scale. Because where I do see, I still, I still struggle to see the autonomous finance, for example, and things like forecasting and although, and even reporting sort of numbers business numbers and trying to work out what the trend will be, I still think that’s like a hybrid function where certainly the machines can get to the stage where they can give you a pretty good picture of what’s going on, but I think there’s always gonna be the need for a human to step in and enhance that and communicate that correctly to the stakeholders. I think it’s, it’s difficult to think you’re just gonna have like a completely autonomous function.

Madhurima Gupta:
Absolutely. Totally. I mean, humans play a really important part in that you definitely cannot override. I totally agree with you. You know, we come to the end of the podcast and I you know, wanna bring or highlight one area, and that is the results that transformations through AI, powered autonomous finance you know, provide, and it can be dramatic is based, and it’s based on even what Harvard Business review found. A 5 billion company can actually save more than 8 million in year if they’re able to, you know, implement the right kind of solution. And that’s like huge return on investment as well. So, as parting thoughts from you, what would you like to tell our listeners on why the future of finance is autonomous?

Peter McKenzie:
No, no, I agree. I mean, there’s, there’s several studies that go, that come back with similar, similar numbers. I think, I think Gartner did a survey and estimated that in 10 years time, sort of 40 to 50% of finance costs would be eliminated because of autonomous finance solutions. So I think, you know, we all sort of know that that’s the, that’s the, that’s the way finance is going and maybe could even be quicker than 10 years time. I, I mean my, my feeling is that there’s no stopping this, right? I mean, it’s like digitalization in, in general. We, we’ve been hearing a lot of these concepts for a few years, whether it be machine learning or, or using blockchain, and bit by bit they’re, they’re coming, you can see, you know, 15 20% of CFOs or finance functions are beginning to use these things. It’s still not like a, like the majority, but it’s inevitable that the companies that do this first and the finance functions that do this first will be more efficient. Their, their companies, their businesses will be more efficient and they’ll be more able to compete. Which goes back to your comment at the very beginning Madhurima, where you were saying about, you know, the competitive environment that we have. You know, this is, this is like a one up on your competitors if you’re able to automate. So I would say that CFOs have to take this very seriously. I would say that they have to get into this space. They have to be willing to invest in this space, try things out. My experience has been the things that work, work really well, and there’s some, there’s some gray areas where we still need to see some of these solutions convince us all. But you have to be, you have to be willing to, to get in there, take a risk, put, put in a bit of CapEx. I think if you wait as you said before, for perfection to appear and everything to be up and running, and you can then just buy the solution because everyone else has done it, it’s probably too late. You’ll probably be dead. You’ll probably be out of the market. So my, my advice would be to get, if you’re not already there, to get right into this space and look at these solutions and, and try some of them out.

Madhurima Gupta:
Absolutely. Thank you so much for sharing your opinion on CFO Circle podcast. Really appreciate it. And with that, we come to conclusion. Peter, thank you so much for taking time and having this really important discussion with me. And I hope that you enjoyed it as much as I did and our listeners out there. Thank you so much for listening in as well. Stay tuned. We’ll be back with more.