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Prioritizing technology enablement is key to optimizing costs throughout the enterprise given the interrelated nature of cost optimization and technology.
Moving beyond traditional cost-cutting approaches: More value is generated by investments in advanced technologies and tools when there is minimal technical debt created by outdated legacy systems.
Bottom line: CFOs need to lead the way in their organizations to drive technology modernization, technology enablement and cost optimization initiatives, with the mindset of sustaining a continuous journey emphasizing high certainty of realizing tangible value.
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Is your organization prioritizing technology enablement? Doing so is key to optimizing costs throughout the enterprise given the interrelated nature of cost optimization and technology.
In recent years, leading CFOs spearheaded efforts in their organizations to move beyond traditional cost-cutting approaches (reactive and more indiscriminate) to focus on cost optimization (targeted spending reductions paired with investments designed to maximize business value). This should be the year that finance leaders inspire their companies to embrace continuous cost optimization underpinned by technology modernization and enablement, and fueled by well-governed data and analytics that harness the full value of AI and other advanced technologies.
The case for continuous cost optimization driven by technology
Cost optimization is crucial to business performance. Continually reducing spend while making smarter investments to drive profitability growth enables organizations to become more resilient and agile. However, research reveals that cost optimization efforts need substantial improvement in most organizations. A 2024 survey of global finance leaders and professionals found that most cost optimization efforts—from third-party spend risk assessments and robotic process automation (RPA) initiatives to headcount reductions and outsourcing/offshoring strategies—failed to achieve meaningful, measurable progress in the previous 12 months. On the bright side, a majority of CFOs and finance leaders reported in the survey that they made significant progress with cost optimization through technology rationalization and utilization of cloud-based systems and, for those who used it in finance operations, AI.
These positive results point to the path of greatest potential success. How can CFOs and their organizations elevate the performance and outcomes of cost optimization initiatives? The solution is deceptively simple: A majority of cost optimization enablers consist of advanced technologies and tools. Leveraging the full power and value of AI, machine learning, RPA, cloud-based systems and the analytics that support strategic sourcing initiatives requires a receptive technology environment.
The bottom line: More value is generated by these investments when there is minimal technical debt created by outdated legacy systems. This tees up the importance of technology modernization strategies, which reduce technical debt while supporting investments that advance cost optimization efforts.
Technology enablement in action
As organizations strive to achieve higher profitability through topline growth and strategic cost optimization, they must first ensure technology investment and modernization plans are aligned with business strategy and objectives. Such alignment better positions them to identify new opportunities and manage potential risks. The CFO should have a significant voice in this discussion, in collaboration with the CEO, CIO and other C-suite colleagues with skin in the game.
In our view, the most effective technology modernization efforts:
- Clarify the risks of sticking with the status quo. The costs of failing to modernize a technology environment can be severe: falling short of key business objectives, higher operational costs and process inefficiencies, subpar customer experiences eroding revenues, talent attraction and retention difficulties, and ultimately the loss of competitive advantage and shareholder value. In rapidly evolving markets, companies hamstrung by the proverbial ball and chain of legacy technology environments and systems cannot possibly sustain the pace of competitors that leverage more advanced technologies.
- Identify a broad range of options and timetables. Technology modernization takes many forms, and the approach undertaken for it should be considered carefully with an eye toward maximizing value and reducing financial risk. It does not necessarily mean, for example, a complete ERP transformation. In addition to updating existing software to the latest versions and/or migrating systems to the cloud, organizations can build or buy new solutions that reflect the latest application development approaches and trends (e.g., microservices architecture, containerization and serverless computing). Another technology modernization approach could involve third parties—for example, acquiring another company with a modernized application stack, which can quickly deliver benefits via an effective integration effort. Also consider that in most cases, a phased approach to technology modernization may be preferred to a massive transformation project placed on a tight, rigid schedule.
- Prioritize data quality and management. Data-driven analytics are a powerful tool that can help finance groups and the broader enterprise facilitate real-time collaborations, digital on-demand planning, integrated driver-based machine learning models, predictive and prescriptive insights, self-service reporting across mobile platforms and much more. Of course, this assertion presumes that the data used is not incomplete, disorganized, distorted or inaccurate. CFOs need to be an advocate in positioning data governance and management as a high-priority component of modernization efforts by ensuring that the following questions are asked and addressed: What data do we need? Do we understand the sources of this data? Do we have control over these sources? Do we need to apply any transformations or normalizations to this data (i.e., cleanse, structure and scale the data into useful formats to make it more suitable for analysis to support decision-making)? Do end users trust the data for their use and reporting?
- Leverage core technology principles to drive continuous modernization. Under the hood, technology modernization is driven by a handful of technology building blocks, including a simplified and decoupled architecture, support for modular and agile deployment, scalability and security (which enable rapid, secure deployments and updates), and as noted above, a unified and well-governed data repository that helps establish a single and reliable source of truth across the organization. CFOs need to ask their CIOs about the degree to which modernization efforts employ these enablers. Technology modernization initiatives should also prioritize the incorporation into IT solutions of real-time and event-driven processes, user-centric design, and compliance considerations.
Enterprisewide technology modernization activities also cover finance systems and applications, which is why finance technology roadmaps must be kept current. To that end, CFOs will want to consider prioritizing technology investments (cloud-based financial systems, AI, machine learning and advanced analytics) that not only drive efficiency and innovation but also contribute to subsequent cost optimization progress.
Finally, to no surprise, AI needs to warrant close consideration from CFOs. In the past year, more finance groups have moved beyond using generative AI to improve the efficiency of compliance and risk management activities to deploying generative AI solutions throughout the order-to-cash cycle and in expense management initiatives—and are posting lucrative long-term returns as a result. Those experiences, enjoyed by organizations that have moved beyond talking about AI to deploying it, need to be leveraged by the companies already in the game and recognized as the way forward by those just getting there. As promising as AI tools are today, agentic AI may soon generate even more business value as companies deploy digital labor to scale new operations and businesses quickly and more cost-efficiently.
Fewer growth opportunities are available to organizations taxed by legacy systems, data quality issues, integration difficulties and the technical debt those burdens inflict. That’s why CFOs need to lead the way in their organizations to drive technology modernization, technology enablement and cost optimization initiatives, with the mindset of sustaining a continuous journey emphasizing high certainty of realizing tangible value. Accordingly, proposed investments in selected use cases should be supported by a compelling business case articulating the value and ROI that will be delivered.
This article originally appeared on Forbes CFO Network.
