Embracing digital solutions: Optimizing operations while managing risk

Jun 11, 2020
Digital transformation

Middle market organizations are increasingly implementing digital transformation initiatives to strengthen operations in multiple key areas of their businesses. While digital transformation may seem daunting, it does not always have to be a significant challenge or expensive, as time and ideas are often the most substantial investments. However, your organization should understand that when taking advantage of digital transformation techniques, you can 't lose sight of potential related risks introduced into your business.

Regardless of your industry, an effective digital strategy essentially redefines how processes are enabled at your organization. From enhancing inventory operations to implementing new ways to measure employee productivity, leveraging innovation can help you increase velocity, reduce costs and ultimately do more with less.

For example, many middle market companies are implementing predictive analytics platforms to gain a higher level of business insight from their existing data. Digital solutions can support these initiatives, providing early risk warning alerts for financial, back office or quality monitoring systems. You can recognize patterns and forecast future outcomes, foster best practices, anticipate what could go wrong and identify emerging issues before they become a major concern.

RSM 's recent Digital Transformation Survey shows the value that finance executives see in such big data applications. One-third of CFOs surveyed responded that they currently use big data tools, including predictive analytics and user behavior analytics, with the remaining two-thirds considering implementing such platforms in the future.

Consider weather predictions and forecasts. As meteorologists capture more data, they get better at predicting the weather. Digital technology can provide similar benefits within your business; the more you can capture and learn from data, the more quickly you can take advantage of opportunities and proactively address risk. Learning from failure is a key for successful businesses, and enhanced analytics can create “fast failure” situations that are enabled by access to rich data, helping you understand why a process failed and make necessary adjustments for the future.

With these benefits in mind, companies are leveraging several business intelligence (BI) and predictive analytics platforms. For example, manufacturers can take advantage of programmable logic controllers (PLC) and machine-level capturing to understand more about their operations and business demands. From a service perspective, organizations can leverage these tools to track assets, generate work orders, and connect user and customer sales data to improve replenishment at a retail level—not relying on forecasts but rather on demand signals directly from the customer.

Workflow applications can also help companies use data to create repeatable, efficient, rule-based business processes. Stand-alone workflow solutions are available, but as technology evolves, many modern business applications have integrated user event-driven workflow systems. For example, Microsoft SharePoint is an extensive platform that includes a user interface that can trigger specific actions and events based on your data. In addition, several customer relationship management (CRM) and enterprise resource planning (ERP) systems, such as Microsoft Dynamics 365 and NetSuite, have embedded, comprehensive workflow engines.

CRM and ERP platforms have become key applications for middle market companies due to their potential for increased functionality and insight. In fact, in the 2018 Digital Transformation Survey, 95 percent of CFOs mention CRM as an important digital strategy, followed closely by ERP at 94 percent.

Effective BI and workflow applications can combine to create intelligent workflow within your business—using targeted information to revolutionize your business operations. However, instead of suffering from a lack of data as in the past, companies now must determine how to use volumes of data to drive decision-making. You must understand the problems you want to solve and the data points you want to collect to effectively automate key business processes.

Robotic process automation (RPA) has also become a key tool to help organizations drive business automation and increase efficiency. Many companies are already using RPA applications including Automation Anywhere, K2 and Blue Prism to automate finance and accounting functions, but that functionality is also extending to other areas of the business, such as streamlining human resources. RPA can bring more efficiency to almost any business process with greater accuracy and extensive analytics capabilities.

While it steadily becoming more popular, RPA still presents a significant opportunity for companies that have or will soon incorporate the technology. RSM 's survey finds that only 6 percent of middle market CFOs currently use RPA, but another 22 percent are considering implementing it within the next year.

Many organizations automatically equate technology advances with large investments, but taking steps toward digital transformation does not always carry a huge expense. For example, companies can utilize social media platforms to create groups that can gather unfiltered, targeted insights directly from customers or employees. Sometimes, going digital may mean thinking about doing different things. However, more often than not, addressing digital transformation is about actually doing things differently—and in many cases minor adjustments to people, process and technology that can ultimately translate into big impacts.

However, while middle market companies can become caught up in the promise of digital transformation, they cannot forget about risks related to change. New innovation may require process and internal control changes for which companies are not prepared, resulting in exposure to risk that may not have been considered or properly mitigated. Potential risks include increased exposure to hacking and noncompliance with privacy regulations, including non-U.S. guidelines, such as the newly adopted European Union 's General Data Protection Regulation (GDPR).

Digital transformation can have a huge positive impact on your business, but a measured approach with the right advice and strategy involving risk management upfront can help innovation support your core operations and mitigate enterprise risk. The key is to involve technology risk professionals in the strategy, design, development, implementation, testing and ongoing support of digital transformation. For example, considering and enabling embedded access, and security and privacy controls within applications, should be a minimum for any digital platform implementation.

The RSM survey found that security is a potential area of improvement for many middle market organizations. Security threats can increase with digital transformation initiatives, and only 44 percent of CFOs surveyed have cyber and digital security initiatives aligned with their digital transformation strategy.

If the digital framework involves third parties and cloud computing, then the risk considerations should account for third-party assurance or certifications such as SOC1, SOC2, PCI, ISO 270001, etc.

In some cases, because some digital solutions can be inexpensive, employees can implement individual or department-based initiatives that may not be in alignment with your enterprise strategy or could potentially create security challenges. They may automate a process with good intentions in an attempt to improve efficiency, but they may not be fully aware of the impact that their effort has on activities further downstream within the business process. Educating your employees about your digital transformation stance and strategies, and what solutions are endorsed and discouraged, can help your organization maintain a consistent and secure digital framework.

Digital technology can enable you to gain greater efficiency and productivity across your key business operations. However, you should understand potential solutions and how they can align with your organizational strategy and goals, as well as the potential challenges that can come with change. Managing operational innovation and risk is a delicate balance, but the right digital strategy with high impact ideas can create a competitive advantage and serve as a catalyst for both continued growth and a culture of innovation.

RSM contributors