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Point of view on Enabling Technologies

December 2016

Wheel of Finance The future of Finance: As we look at What does the future hold for the the future of Finance, it’s important to Finance function? Today’s Finance consider two things: How Finance organizations are more then ever under delivers value to the organization, and pressure to deliver value to the business what enables the Finance function to do and in parallel operate within a highly so. cost-efficient and most-effective delivery model. The introduction of new Digital How Finance delivers value: In our technologies is likely to be the view, Finance delivers value through most important factor impacting the three types of services: Operational Finance function. Finance, Business Finance and Specialized Finance. Think transactional, Digital technologies radically transform strategic and highly specialized. how the business and it’s Finance function delivers value. Digital Finance What enables Finance: Underpinning utilizes disruptive technology, data, these three services are what we call innovation, and people to elevate and Finance enablers. These enablers differentiate the capabilities of the include the organizational structure and Finance function. Digital requires the Finance team’s talent; the organizations to think and act differently information, systems and data available in order to generate value. to the Finance group, and the processes and policies that enable the Finance The ability of CFOs to leverage Digital team to monitor risk and stay on top of technologies to position their future regulatory obligations. Finance function will determine the future of their organizations.

Wheel of Finance Rise of the Finance Factory: Finance some time. However we expect that will be a utility function where day-to- Finance teams will be transformed by day transactional finance — from the rising use of robotics, mobile devices payables, receivables and invoices to and cloud computing. treasury transfers, journals, capital expenditures and the close cycle — will Close, Consolidate and Report: One be managed centrally in “Finance of the transactional Finance processes is Factories”. These Finance Factories are the process by which organizations fully automated/robotized process produce their internal management centers with continuous control and reports and external financial process visualization tools monitoring statements. In this Point of View we real-time on process exceptions. focus on Finance technology trends and enabling technologies providing What else: There’s no paper, solutions for today’s Close, Consolidate anywhere. Employees use cloud-based and Report challenges, in particular the apps on mobile devices to transact their Close process. business, and highly standardized, workflow-enabled business processes Reviewing the literature, global trends, handle the rest. Finance managers innovations and based on conversations receive event-driven, real-time updates with solution providers about how they thanks to new integration tools and see Finance evolving, we developed our advances in in-memory processing. perspective on the future of Finance and the Close, Consolidate and Report Information & Systems: Integrated process. ERP systems will remain the backbone of companies’ financial systems for

© 2016 Deloitte The Netherlands 4 The Evolution of Automation Automation continuum range from enabling strategies that improve parts of business processes to sophisticated technologies with cognitive elements

Maturing Emerging Complexity

Time Robotic Process Intelligent Artificial Automation Automation Intelligence Software used to capture and interpret existing Automate non routine tasks involving intuition, “The theory and development of computer applications for the purpose of automating judgment, creativity, persuasion, or problem systems able to perform tasks that transaction processing, data manipulation, and solving normally require human intelligence” communication across multiple IT systems Automate this: The business leader’s guide to Cognitive Technologies, the real opportunities for The robots are coming, Deloitte Financial Services robotic and intelligent automation, Service Delivery business, Deloitte Review, issue 16, 2015 White Paper, 2015 Transformation, Deloitte, 2015

. Screen scraping data collection . Data input and output in any format . Natural language recognition and . Rules based business process management . Pattern recognition within unstructured data processing . Tactical toolset to automate repetitive tasks . Replication of judgment based tasks . Dealing with unstructured super data sets . Cheaper and faster step towards process . Basic learning capabilities for continuous efficiency improvement to quality and speed . Hypothesis based predictive analysis . Self-learning rules continuously rewritten to improve performance Source: Gartner Hype Cycle for Emerging Technologies | Note: Trends across time are not to scale

© 2016 Deloitte The Netherlands 5 What could Digital look like for Operational Finance? Most processes could be centralized into “Finance Factories” providing oversight and continuous improvement over highly automated activities

Imagine a future where… Digital technologies are used to advance Finance

• Advances in technologies give rise to Blockchain • Increased transparency to all transactions via a centralized shared service “Factories” distributed ledger which perform the majority of transactional • Increased speed of exchange between entities processing (e.g. payroll) while reducing the number of intermediaries (and the costs associated) to accelerate data • Factories are overseen by a Finance Control consolidation and reporting Center that monitors process • Blend teams involved in payment processing performance, exceptions and service levels for both people and Robotic Process RPA • Reduced labor required across all routine (rule Automation (RPA) bots. These processes are based) financial transactions completely web, workflow, and self-serve • Increased need for change management due to enabled dramatic revision of talent models • Event-driven, real-time information Cognitive updates and continuous process • Self-correct repetitive tasks such as AP/AR, improvement are made possible thanks to leading to reduced costs and improved accuracy advances with in-memory processing and • Enables identification, recovery, and reduction of integration tools overpayments in high volume, complex transactional data environments • The close cycle becomes nearly continuous thanks to the advent of visual In-Memory • Enhanced visibility into information and more close-management tools, integrated sub- efficient processes ledgers, and the automation of consolidation • Faster execution of transactional processes such and intercompany transfers as AP/AR and Travel & Expenses • CFOs are no longer focused on processing Cloud • Shortened close cycles and reduction of lagging data, and instead leverage leading reconciliations/data entry through single platform analytics to make key decisions implementation • Increased access to more efficient, well defined data models

© 2016 Deloitte The Netherlands 6 Where should organizations first focus on? Driving the Digital agenda toward value creation requires an evaluation of technologies according to the organization‘s needs

Level of Mobilization Maturity Benefits Impact Complexity Automation of low and medium complex Opening Peaking Declining Mature High processes resulting in three to ten times Highest ROI can be found in RPA Medium more operational efficiency gains depending transaction intensive processes Low on application Automation of medium and high complex Integrating RPA and cognitive RPA with Opening Peaking Declining Mature High processes resulting in true process exception predictions is at the leading edge of Cognitive Medium management; robots learn and evolve as applications and requires Finance Science Low new scenarios are presented workers to develop new skillsets Deeper insights allow Finance to enhance Cross disciplinary support required Opening Peaking Declining Mature business capabilities and move to granular to develop and manage High Cognitive exception management; can be a driver to technological and analytics Medium Computing improve enterprise value and increase speed platform; new skills are required in Low to insight the Finance organization Exponentially faster transaction and BI Requires organizations to refocus Opening Peaking Declining Mature processing allows moment in time close and High In-Memory processes to support shorter cycle performance analysis; allows organizational Medium Computing times; adoption is still in early data to be mined in real time to support Low stages business strategy

Opening Peaking Declining Mature Distributed ledger allows increased Early stages of adoption; High transparency of transactions, reduced Blockchain commercially viable products are Medium auditing burden, and changes payment Low still evolving processing (AR/AP) Machine driven insights to sense patterns Opening Peaking Declining Mature High Insight and trends in data, allowing for the Early stages of adoption; use cases Medium Generation automation of repetitive reporting, customer and ROI are still evolving Low engagement, and data visualization insights

Finance

Transaction processing

Close, Consolidate and Report (general accounting) Purchase-to-Pay Order-to-Cash External reporting

General Leger Monthly/ Financial Requisition Purchasing/ Legal Entity Statutory Consolidations Order Entry Billing Accounting Quarterly Close Reconciliation Materials Procurement Reporting Reporting

Fixed Asset Tax Planning/ Benefits Admin./ Inquiry Payment Accounts Regulatory Rating Agency Cash Application Collections Accounting Accounting Accounting Handling Processing Payable Reporting Relations

Investment Daily P&L/ Mark Premium Re-insurance Accounting/ T&E Procurement. Bank Treasury/ Trust Investor to Market/ Accounting (Ins) Accounting (Ins) Securities Accounting/ Card Admin Reconciliation Management Relations Middle Office Pricing (FS) Reimbursement

Business decision support Finance management Planning Control

Finance Human Budgeting & Function Performance Strategic Accounting/ Financial Internal Project Financial Forecasting Internal Audit Management Management Planning Tax Policy Analysis Consulting Management Planning

Business Training & Management reporting Specialized expertise Liaison Development

Profit Center/ Expense/ Multi- Risk Actuarial Performance Customer/ Acquisitions & Real Estate Revenue Dimensional Management Analysis/ Measurements Producer Divestitures Management Allocations Reporting (CM) Reserving (Ins) Profitability

Opportunities for automation

Low Medium High

Level 1: Close Consolidate and Report Close challenges • Inconsistent closing calendar and checklist • Lack of quality data from upstream processes or ineffective data aggregation activities • Lack of automated close processes (e.g. high level of manual journal entries) • Ineffective procedures for validating results • Lack of timely hard close of periods and Master Data ability to post transactions after reporting Close Consolidate Report Management package submission • Intercompany accounting and reconciliation is overly time-consuming

Level 2: Close

Ensure Manage IC Execute Prepare Perform Calculate Close Reconcile Close Accounting and GL Accounting Financial Management Income Tax Sub-Ledgers Accounts Readiness Transfer Pricing and Close Statements Review Provision

© 2016 Deloitte The Netherlands 10 Filling the “gaps” between ERP and enabling technologies Enhanced Finance Control and Automation (EFCA) and Robotic Process Automation (RPA) provide innovative opportunities

Improved Close process Filling the ERP “gaps” • ERP systems currently do not automate the full end-to-end Close Consolidate and Report process. Also, ERP systems do Full suite not fully support the linkages with the business

High and analytics • This can lead to a fragmented, manual and inefficient close, 4 as well as to inefficiencies throughout the accounting period Integrated MJV Control, IC accounting & • Leveraging integrated technology solutions for financial close Disclosure management improves governance, collaboration and management workflow around complex, labour-intensive activities, 3 including: 1o Financial process & close management 2o Automated account reconciliation (operational & financial) Automated Account reconciliation 3o Manual Journal Voucher control, Intercompany (IC) 2 accounting (transfers & eliminations) and Disclosure management 4o Financial process & Analytics, including external benchmark data and big data Robotic Process close management analytics 5 Automation 5 1 (RPA) o Automated Close through Robotic Process Automation ERP Implementation complexity Implementation • Innovations focuses on deploying reconciliations management facilitated * financial outside of the finance organization into operational areas close • Enhanced Finance Control and Automation (EFCA) suites are Maturity level depending on continuously expanding in scope and delivery options to meet ambition and current IT landscape Low business functionality needs* Low High Functionalities • Gartner predicts these solutions as being the norm through 2019* * Source: Enhanced Finance Controls and Automation Fills the Gaps in ERP and CPM Processes, Gartner Inc., October, 13, 2014 (last reviewed on February 2, 2016)

© 2016 Deloitte The Netherlands 11 Financial close solutions and Robotic Process Automation Today’s business conditions are ripe for a major change. Emerging technologies and Robotic process Automation could be the solution

Financial Close solutions Robotic Process Automation

• Solution providers have been noticing the market need for • Robotic Process Automation (RPA) in its basic form is the innovations and offer solutions to improve the efficiency and automation of manual processes by replicating repetitive compliancy of the financial close process as well as tasks with a computer-based application improvements in management reporting and analysis and • RPA (commonly known as “robot” or “bot”) are computer external financial reporting and disclosure coded software programs that perform these repetitive rule- • Solution providers develop a single solution or offer a platform based tasks using cross-application macros to automate all or solution (suite) which integrates a range of finance processes parts of an end-to-end cross-functional process and controls • RPA tools evolved quietly over the last decade, but have now • Platform solutions have workflow integrations, use vendor- reached a level of maturity where process automation is supported integration technologies, and are positioned as possible at a significant scale2 components of a "solution“, rather than as stand-alone • Automation technology providers range from RPA focused products in the vendors' portfolios1 vendors to others having a wide and diverse portfolio. • The marketplace comprises of1: Examples of RPA vendors are: Blue Prism, Automation o ERP vendors, e.g. SAP and Oracle, offering Financial Anywhere, UiPath and Redwood Corporate Performance Management (FCPM) solutions in- • RPA vendors are evolving to provide consulting services along and outside their ERP customer base with technology services, and offer solutions which broadly o Traditional on-premises vendors, like Tagetik, offering comprise three fundamental elements2: modified, or new, cloud-based solutions and pure play o A set of developer tools SaaS1 o A robot controller o Niche players, such as Insightsoftware.com, offering o Software robots themselves cloud or SaaS solutions outside the ERP suite. These solutions are often purchased due to corresponding functionality not being available in the buyer's integrated financial management or ERP suite1

1 Source: Magic Quadrant for Financial Corporate Performance Management Solutions, Gartner 2 Source: Automate this: The business leader’s guide to robotic and intelligent automation, Inc., May, 31, 2016 Service Delivery Transformation, Deloitte, 2015

Financial Close solutions Gartner’s Magic Quadrant

• Gartner’s Magic Quadrant presents a global view of the primary Financial Corporate Performance Management (FCPM) vendors from a market perspective • Solutions support the office of finance's accounting processes toward the financial close, as well as targeting improvements in management reporting and analysis and external financial reporting and disclosure

• Blackline* and Workiva do not have financial consolidation as part of their solutions, but are Leaders in disclosure and reconciliations/close management • Leaders provide mature offerings that meet market demand and have demonstrated the vision necessary to sustain their market position as requirements evolve • Challengers have a strong ability to execute, but may not have a plan that will maintain a strong value proposition for new customers • Visionaries align with Gartner's view of how a market will evolve, but their ability to deliver against that vision is less proven • Niche Players do well in a segment of a market, or they have a limited ability to innovate or outperform other vendors in the wider market

* In September 2016 Blackline acquired Runbook Source: Magic Quadrant for Financial Corporate Performance Management Solutions, Gartner Inc., May, 31, 2016

© 2016 Deloitte The Netherlands Robotic Process Automation – Vendor landscape The RPA vendor landscape is highly fragmented with no clear market leader. Some are focused only on RPA, others have a diverse portfolio

Robotic Process Automation*

Mimics Human Actions Mimics Human Judgment Augments Human Intelligence Robotic Process Intelligent Artificial Automation Automation Intelligence

AutoMate Blueprism‏ Automation‏ IBM Anywhere Kira Arago Watson

Automic Narrative Pega Science

systems UiPath‏ Wipro Holmes

TCS Genfour Redwood‏ ignio

Celaton instream IpSoft Open Amelia BluePond Connect iDavatars

RPA vendors Vendors with niche applications Diversified vendors with presence in automation

Source: HFS Research, Deloitte Analysis, Hoovers.com

* The intent of this selection is limited to the illustration of software vendors operating in the market, and is not meant to compare product capabilities or to recommend any particular solution

RPA is… RPA is not…

Computer-coded software Walking, talking auto-bots

Programs that replace humans performing repetitive Physically existing machines processing paper rule-based tasks

Artificial intelligence or voice recognition and reply Cross-functional and cross-application macros software

Sample functions

Manual process Judgement process

Opening email and attachments Scraping data from the web

Logging into web/enterprise Connecting to system APIs applications

Moving files and folders Making calculations

Copying and pasting Extracting structured data from documents

Filling in forms Collecting social media statistics

Reading and writing to databases Following “if/then” decisions/rules

11. Process developers specify the detailed instructions for robots to perform and 1 Process Developers 2 Robot Controller 4 Business Users “publish” them to the robot controller repository

22. The Robot Controller is used to assign jobs to robots and to monitor their activities

33. Each Robot is located on an organization environment – which may be virtualized or physical (i.e., desktop computer) – where it interacts directly with business applications

44. Business users review and resolve any exceptions or escalations

55. Robots are capable of interacting with a wide range of applications

3 Robot 5 Applications

© 2016 Deloitte The Netherlands 17 RPA software leverages existing technology to shift performance The priority to automate and the potential to automate have met, and organizations can now reap the benefits of RPA

All processes across functions that are rules-based and Expected cost savings and other benefits from RPA repetitive; Shared Services is a good place to start (illustrative) looking

. Robots are scalable: easy to switch on and off . A far lower cost than the € equivalent human FTE . Higher efficiency and productivity than human FTE . Reduced error rate . Reduced overhead and fixed €x €1/3x €1/9x costs associated with housing On-shore FTE Off-shore FTE Robotic FTE and employing an FTE Source: Deloitte analysis based on Frey and Osborne, 2014

Characteristic outcomes of process automation

Decouple Improved Flexibility Cost Profits & Consistency quality Reduction Labor

Reduced risk of human Revenue and profit Rapidly scale up or RPA processes activities 15 – 90% cost data entry errors, or the generated becomes less down depending on the in exactly the same reduction opportunity risk to that data of dependent on the ability nature of the business manner, improving depending upon the human corruption, theft to scale labor; issue consistency of output characteristics of the or malpractice automation enhances (volume) without the functions selected for the abilities of current element of human automation resources variability

Process Description Example This process group houses the processes involved • Harmonized chart of accounts supporting enterprise with managing the master data (i.e. maintaining reporting needs (regulatory, management, statutory) Master Data chart of accounts, reporting entities, cost and • Harmonized cost and profit center structure across Management profit centers, industry and company attributes, BU's and managing information interfaces and users • Standardized, workflow enabled access management and access rights) process integrated with HR • Technology enabled detailed close process with calendar, workflow, well-documented activities, Processes involved are ensuring closing readiness, deadlines, pre and post review and accountability. close sub-ledgers, manage intercompany The process can be monitored online throughout the accounting and transfer pricing, execute general organization Close ledger accounting and close, reconcile accounts, • Automated reconciliation process enabled by prepare financial statements, perform reconciliation tools between AP sub-ledger and management review and calculate income tax general ledger provisions • Proactive communication and expectation setting and thresholds (e.g. with exception based reporting) This process group houses the processes during • Input data is populated automatically from source the consolidation process (i.e. collecting data, legal entity ledgers into consolidation books Consolidate eliminating intercompany positions, performing • Eliminations adjustments occur automatically and in equity accounting and establishing group financial a timely manner in the consolidation tool statements and analyzing financials) • Ad hoc real time analytics capability Activities are related to the generation of internal • Fully automated preparation of multidimensional reports to facilitate management’s analysis of management reporting business performance (i.e. generation of • Advanced analytics including visualization to identify performance reports, cost reports, and analytics Report trends and exceptions reports) and activities related to preparation and • Mobile enabled dashboards release of external financial reporting materials • Fully automated preparation and submission of (i.e. preparing consolidated financial statements, financial statements and schedules to external disclosures, and regulatory reports and conducting parties investor relations conferences and calls)

Process Description This process describes the activities related to preparing for the financial close and ensuring a smooth close Ensure Close process. Close readiness activities include managing the close calendar, managing disclosures, managing the Readiness internal and external financial reporting processes, and managing accounting policies and procedures

Activities related to closing sub-ledger accounts such as accounts payable, accounts receivable, fixed assets, Close Sub- inventory, and industry specific sub-ledgers. Depending on the size of the company some of the related work Ledgers may be performed by departments outside of accounting

Manage IC Activities falling under the scope of managing and performing intercompany accounting and transfer pricing Accounting and include: allocation of shared expenses between entities within a company, reconciling intercompany Transfer Pricing transactions, posting of eliminations (to avoid double counting), and the determination of transfer pricing

Execute Encompasses activities related to executing General Ledger (GL) accounting and closing GL accounts. GL Accounting Processes involved are performing accruals, deferrals, provisions, non-standard or non-recurring journal and Close entries, foreign exchange revaluations, review of the trial balance and closing the general ledger

This process group houses the processes involved in management and performance of account Reconcile reconciliations. This includes the implementation and enforcement of account reconciliation standards, Accounts policies, and procedures, and reconciling general ledger accounts and documenting that account balances are accurate

This process describes the activities related to the establishment of business unit or regional level financial Prepare statements. This process includes the preparation of the balance sheet, profit & loss statement, financial Financial schedules, statement of cash flows, and conversion of GAAP into IFRS. It also includes the compilation of Statements notes and comments and performance metrics along with the submission of the reporting package

Perform Encompasses activities related to the review of business unit or regional financial statements by management Management and the corporate office. Management reviews should follow a clearly defined schedule and exception reports Review and manual checks should be used where necessary to validate results

Calculate Activities include the preparation of current and deferred taxes, the calculation and posting of provisions for Income Tax these taxes, the calculation and posting of tax liabilities and assets and the preparation of the provision Provision schedule

© 2016 Deloitte The Netherlands 21 Fred van der Waa Konstantinos Georgakis CONTACT US Partner Senior Manager Finance Enabling Technologies Finance Robotics +31 6 8201 2372 +31 6 5319 4186 [email protected] [email protected]

Sander Mulder Marga Buijs Manager Manager Finance Enabling Technologies Close, Consolidate and Report +31 6 8201 2634 +31 6 1312 1242 [email protected] [email protected]

For more information please visit Finance Transformation https://www.deloitte.com/nl/nlfinance-transformation

Robotic Process Automation https://www.deloitte.com/nl/robotics