The Chief Financial Officer of a midsize enterprise faces a different set of challenges than their counterparts in larger or smaller enterprises. Midsize enterprises have grown to the point of requiring capabilities similar to larger businesses but typically lack the staff or financial resources afforded to bigger ones. The past decade of IT innovation—especially the expansion of cloud computing—has brought substantial benefits to midsize finance and accounting operations by reducing the management and financial overhead that had been required for on-premises systems.
Artificial intelligence (AI) in all of its forms promises to have an even more positive impact on finance and accounting departments in midsize companies, boosting staff productivity and
upskilling in critical areas such as planning, risk management and compliance. ISG Research asserts that by 2028, one-half of the finance and accounting departments in midsize enterprises will make use of embedded AI capabilities to boost productivity and agility while cutting costs. Adoption of these technologies is likely to be fast, mirroring the adoption of the internet a generation ago. Rapidly growing midsize enterprises, in particular, should make investments in information technology that allow the business to scale without having to increase administrative head count, and focus resources on areas that accelerate growth, such as sales, logistics, R&D or customer support.
Our research has found there is a gap in finance and accounting department performance between midsize and larger enterprises. For example, the research finds that 59% of midsize enterprises take more than six business days to complete the quarterly accounting close, compared to one-half of larger enterprises. It also finds that 26% of midsize enterprises have excellent analytic skills, compared to 38% of larger businesses. AI, generative AI (GenAI) and agents will go a long way to remedying these gaps. For example, in the accounting close, agents can accelerate processes and eliminate time spent on functions such as reconciliations, matching and preparing the flux analysis.
CFOs in midsize enterprises must recognize the importance of using technology to enhance the performance of their finance and accounting organization. Readily available and affordable technology has the potential to close skills and cost-benefit gaps between midsize and larger enterprises, and this will accelerate as software enterprises apply AI, GenAI and agents to their offerings. For example, applications are incorporating common—and even some advanced—analytics capabilities that reduce the time needed to source and prepare data. As a result, business analysts have more time to spend on analysis to produce actionable insights. And software-as-a-service (SaaS) shifts application management to a third-party provider to manage software and hardware more efficiently, providing better performance and ensuring applications are fully up-to-date and running on the most current hardware.
A contributing factor to the performance gap is the more frequent use of spreadsheets by midsize enterprises to manage core processes. The difference is greatest in areas such as sales tax provision, management accounting and post-consolidation close-to-report functions. To address this performance gap, ISG Research recommends midsize CFOs focus their IT investments in three areas: financial management and ERP; planning and budgeting; and the close, consolidate and report portion of the accounting cycle.
Finance department executives should recognize that all software has a useful life, but enterprises are reluctant to replace ERP systems because the process is expensive, time-consuming and poses risks. Yet, executives must recognize that there is also a risk to their operations from aging systems, and past a certain point they are foregoing useful capabilities not available in legacy systems. This is especially true for midsize companies that have outgrown their small business accounting software or those that are still using an aging on-premises system.
The technology underpinnings of ERP systems have changed, increasing their business value, as enterprises move these systems to the cloud from on-premises. The ongoing evolution of the underlying technology, especially AI using machine learning (ML), will change the nature of staff work, upskilling the workforce and reducing the amount of time they perform low-value chores. Technology will also enable executives who adopt a continuous accounting methodology to attract and retain the best talent by offering a more attractive work environment. It’s likely that there will be a long-predicted shift in the skills of the department, emphasizing more forward-looking and analytical capabilities (augmented by AI), with less time needed to do rote, repetitive work.
Planning is another area where software can bring large enterprise capabilities into midsize ones. ISG Research defines integrated business planning (IBP) as a unified approach that lets departments plan in ways suited to their work while keeping executives aligned to one integrated plan. IBP uses a single planning data environment, workflows, and advanced analytics to speed planning and budgeting, shifting the focus from planning to decision-making. A single, adaptable application connects financial and operational models so FP&A can make budgeting easier for owners; driver-based, predictive planning rapidly updates consolidated forecasts as revenue, benefits, FX, commodity prices and other assumptions change. Yet few midsize enterprises plan this way, which stands in the way of operating as nimbly as they did when they were a small business.
Closing, consolidation and reporting are also areas where technology gives midsize CFOs outsize capabilities. Advanced financial consolidation and close software typically accelerates the close process, automating what were once manual processes while providing greater control of calculations and postings. Even midsize enterprises currently using a single ERP or financial management application may find that it requires too many manual operations to close the books quickly, especially with even moderately complex legal entity structures or international operations. If so, enterprises should look into the benefits of an application that can perform the period-end consolidation.
Departments can accelerate their close, consolidate and report cycle using software that adds automation, including reconciliations, consolidation and reporting. The software has grown more capable, usable and affordable over the past five years. By enabling consistent process management that captures best practices and automating rote, repetitive activities to boost staff productivity, these applications enable organizations to shorten the close, make the process more efficient and reduce the risk of material errors by strengthening accounting controls.
I strongly recommend that CFOs in midsize enterprises invest in software that enables them to scale their business without having to increase administrative head count. They should find ways to reduce manual processes to accelerate reporting and analysis. And they should focus their staff on work that increases the value of the department as a strategic partner to the rest of the enterprise, such as bringing together financial and operational data to perform more operationally focused analysis that delivers deeper insight into their company’s performance. There are a wealth of software options available to CFOs and controllers of midsize enterprises that are designed specifically to meet their requirements while respecting their limited financial and people resources.
Regards,
Robert Kugel
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