IDC’s Research Specialist on Why 85% A/R Automation Projects Fail

[KEVIN]: I think one of the big takeaways we’ve learned over the course of talking with potential customers and users of A/R software, including those that are CFOs, or controllers responsible for many financial functions, is when they talk about the digital transformation they often they get a sense of anxiety about it. It’s sort of a big topic but what we’ve found is that the ones who are sophisticated about it have realized it’s a collection of smaller projects. It’s digitizing your invoicing or billing process. It’s adding a digital assistant to your collections clerk’s toolbox. It’s having the ability to take credit card payments, virtual card payments, keycard payments. It’s those kinds of small steps that lead to moving the needle when it comes to the bigger metrics like DSO or working capital.

[SAYID]: What I think of the number one reason when I think about digital transformation is actually your customers and what your customers expect, right? It is now, as an experience, very different from what they got ten years ago. Put yourself in your customers’ shoes and [think of what] you expect from your vendors, right? Our customers expect faster, cheaper, better ways to get credit, receive invoices, and Kevin as you mentioned, to make a payment even if they have to arrange for some big payments. So that’s my number one.

The second reason and this is true even before Covid – is when CFOs were asked to ‘do more with less’. They and their teams were being asked to reinvent themselves as industry after industry was getting disrupted. We saw this [almost everywhere]. Think of e-commerce: Amazon disrupting retail, or electric vehicles; Tesla disrupting Ford and GM. In some sense, digitization of finance function is part of the broader digital transformation mandate coming from the board level down.

[NATALIE]: Yeah, I agree with you both, and I think in my role, (I interact with a lot of the end-users), is to see why a lot of executive-level folks start these digital transformation projects at the board level but then forget how this transformation project impacts people. Whether [they are] internal stakeholders or your customer, like Sayid said. I think it’s really important to have a clear understanding of the impact of these projects on your internal teams and have some kind of change management program to help reduce the risk and ensure you’re successful.

[KEVIN]:  Yeah, I agree. I’ll echo a little bit of what Natalie just said about the change management aspect of digital transformation. Digital transformation is like a moving goal post, the idea of this would be different 10 years from now than what it is today. It’s more of a destination as something you can achieve than [checking it off from your to-do list]. It’s an ongoing process, and so what you have to do is exactly what Natalie was saying. Think about the change management and changing the behavior around the tools to really ensure the idea and the journey of digital transformation are absorbed by the folks who are absorbing this software.

[SAYID]: I’ll pick up where Kevin left off. I think the number one reason for that 73% you just mentioned is probably underestimating and not proactively planning for the level of commitment and the level of alignment needed from the top-level executives to analysts. This is not just about technology but also about reimagining the process and reimagining the roles of people to higher value-added work. That level of upward thinking, planning, and alignment is very critical and underinvested in.

The second reason is that many companies are probably embarking on such a project for the first time. This may sound a little selfish from your perspective [but it means] leveraging the experience and expertise of folks who have already been through such a journey and “been there, done that” with similar companies to yourselves. It might be something that is very critical, be it in helping you reimagining processes or planning the right phased approach to deploying technology.

This helps you realize the value of that technology faster, versus putting effort into time-consuming and lengthy projects. So that’s the second thing I would say – leverage help and expertise that is around you before embarking on a project that’s probably the first time for you.

[KEVIN]:  I love everything that was just said right now. All of it was spot on and, at the end of the day, accounts receivable is a very people-centered, people-forward process. It’s actually people reaching out to other people, establishing relationships, and maintaining relationships. You can make an argument that another name for accounts receivable automation software would be accounts relationship management software because it’s so much centered upon relationship building and maintaining.

Because of the people-centric nature it really is about buy-in, right? You have to establish attainable goals and you have to have tools that are easy to use because a collections agent will be using them for a large part of the day, so they should be easy to use. It has to be flexible and easy to change because not everybody from department to department, from business unit to business unit, does things quite the same way.

But I think overall the real meat of the problem is when it comes to implementing digital transformation. Those expectations have to be managed by the company, the people adopting the tool, and the folks who are building that tool. It’s that relationship that’s often a point of friction in these digital transformation projects. I think what the uncertainty has shown us is that more and more success for vendors will be based on taking the role of mentor and a sort of guidance counselor, coach, and advisor. [They will take on] all of these sorts of roles they can tap into and really sort of manage the expectation and then deliver on those expectations on the project going forward.

[NATALIE]: One of the biggest risks preventing a digital transformation from being successful is poor user adoption. As we’ve talked about, having a formal change management framework is important and there are some best practices I could share here.

First of all, there’s assessing the need for change –  determining the impact a digital transformation project is going to have on the people and processes, right? Then, identify that change, specifically what is changing, is it on the internal stakeholders or the customer side, and then develop a change management plan. You want to ensure you have a short-term plan and one that is sustainable for the long term. Identify the internal champions that are going to lead that change; having someone who can just take the ball and run with it and be the leader is going to be so important. People don’t necessarily think about this but this is where it will get your folks excited about the changes that will come to make them look forward to the change.

Also, in the post-implementation phase, ensure you have some type of feedback loop in place so that you can continuously fine-tune. [You should] set some benchmarking to know where you are in your progress and then where you need to put some effort to succeed. Finally making sure, like Kevin mentioned, to have a technology partner who provides that ongoing support for the life of the relationship because the beauty of a SaaS technology and these big digital projects is that it’s constantly improving. [This means] you need to have the means to innovate and continuously optimize or else you run the risk of getting left behind.

[KEVIN]:  I just want to jump into that with the last point. During the MarketScape process, we evaluated dozens of accounts receivables vendors and we talked to scores and scores of end-users. One of the issues they had wasn’t necessarily what the relationship was. It was more the communication about when something new comes up; how that might affect them and how they can benefit from it. It’s the idea that they are going to look to you as a vendor for more than just a tool, and I think that’s an important thing going forward.

[SAYID]:  The one thing I’m thinking of is that, as a CFO, you would naturally gravitate towards the numbers and the targets for your teams and the timelines that you have. That’s super-critical.  But also take the time to talk to your teams. Win their hearts and minds too, ask questions like “what does this transformation mean for the company?” and “what is the need for the transformation?”.  “What is your collective future if this transformation succeeds?” and maybe even “what could be an alternative future if it didn’t?” These are the kind of things you can take up – have an honest conversation with teams about these topics.

The reality is that many CFOs shy away from some of these conversations, probably [because of] a fear of creating a panic about automating jobs. But the successful leaders have also used these as opportunities to upgrade these people’s jobs to higher value-added work. People in their day-to-day operations know that the relationship, as Kevin called out, is very important. For example, in collections, those are core to their function. There are many times when they spend a lot of time, maybe days, on mundane or repetitive tasks like getting data and collating it.

A lot of work like that is happening, especially in the office of a CFO and people are often wishing they had time to get to that higher value-added, more critical work. And there’s plenty of work left in the CFO’s office that is critical. This could be an opportunity to elevate the role of the CFO’s back-office office function and truly impact the business.

[KEVIN]:  Yeah I agree 100% that people are the way forward. I would also say that harnessing data customer data, especially, and providing access to that data right at the point of execution [is important]. A quick example would be that a collections person can now quickly tap into external market data to guide how they handle this particular client. [This enables you to] to empower the collections or billing effort or some other aspect of the order-to-cash process; but also to empower that person with data so they can make the best possible decision.

 I think when you’re establishing relationships with a new vendor that’s going to be one of the more key aspects. Their ability to provide access to powerful analytics and be able to bring that data right to the point of execution; I think that’s really an important takeaway. When you’re searching for software it’s essential it checks all the functionality boxes but one of the more important things is that it has a deep and accessible set of analytics.

[NATALIE]: Kevin, I can’t agree with you more on how important the data is. And my advice to the CFO who is just beginning a transformation project, or is even in the middle of one, is that they really have to have a good understanding of what that end business result is. What you are measuring? A good example is lowering your DSO and reducing your bad debt, but these are the lagging indicators, right? These are going to track whether this initiative is going in the right direction.

Once you know your end goal, being able to align those business outcomes to the leading indicators will help you kind of immediately measure. These allow you to take that corrective action in areas of improvement to ensure that you’re meeting those targets. Some of those KPIs you might have access to or might want to have access to would be the system-usage metrics, [such as] how often people log in and spend time doing the activities you want them to. Also, team performance benchmarks, and lastly, customer insights; knowing that your customer is using the system and that they see an improvement of the experience on their end and that’s what’s makes it all worth it, right?

[SAYID]:   Awesome point there, I couldn’t agree more. KPIs are no less important in achieving goals because, at the end of the day, we’re businesses that have to produce the kind of results we need in these times.

[KEVIN]:  You’re absolutely right, I think one of the hidden powers of moving away from lagging indicators like DSO and moving toward more leading indicators is that teams can often click to see the success. [They can] see that the needle is moving, that their team is moving in the right direction, that they’re doing something right, and they see it quickly, right? I think that goes to our broader point here of digital transformation and the power of it being with the people and the usage.

The heightened pressure from the finance executives to quicken the cash conversion cycle has accelerated the interest in cloud-based digital solutions for enterprises. Even the Hackett Group concurs with the IDC view that A/R leaders should ensure a healthy and symbiotic relationship within internal teams and consider both short and long-term business benefits before making technology choices.

The latest Hackett study about CFO priorities shows the organizations that included the credit function early on in the sales process and can help lower the ADD to 8.4 days compared to those that do not.