Automation or Information?Reducing Uncertainty in a Changing Business Landscape

According to PYMNTS Intelligence’s recent Certainty Report, one-third of middle-market companies in the United States operate in a highly uncertain environment. Uncertainty is problematic for businesses because it hinders their ability to make informed decisions, plan effectively and achieve their objectives. Uncertainty also involves risk, as firms may face unexpected events or outcomes that can lead to financial losses, reputational damage and other adverse consequences that threaten a firm’s viability. In the study, CFOs cited missed opportunities, diminished profits and an inability to grow their customer base as the most common adverse effects of uncertainty, costing them an average of $21 million over the past 12 months.

CFOs are implementing a variety of strategies to improve predictability in their operations, from hiring and training staff to upgrading software and introducing process automation. Indeed, automation presents a convincing case as the key to gaining a competitive edge in today’s digital-first landscape, as it can help streamline workflows, reduce manual effort and improve efficiency and customer service. However, what is the specific role of automation in reducing a firm’s uncertainty? Is uncertainty a process challenge — or is it a data challenge? These were some of the questions PYMNTS Intelligence set out to answer in the Certainty Report.

• What Drives Competitive Uncertainty for Businesses?
• Reducing Uncertainty: A Case for Automation — or Data?
• The Vote Is In: Analytics, 9 to 1
• An Insider on How Analytics and Automation Work in Concert to Reduce Uncertainty
• Mitigating Competitive Uncertainty: A Question of Informed Decision-Making

What Drives Competitive Uncertainty for Businesses?

Speed to market is a fundamental variable driving uncertainty about a firm’s competitive position, but eliminating this uncertainty altogether is unlikely. Instead, firms need a strategy for managing uncertainty.

Speed to market is the top driver of uncertainty about a firm’s competitive position.

According to the Certainty Report, a firm’s competitive position in the marketplace was one of the top three sources of uncertainty for firms in the previous 30 days, following only customer demand behavior and supply chain integrity. Drilling down, the researchers revealed that 56% of CFOs who cited competitive position as one of their top sources of uncertainty identified speed to market as the biggest contributing factor. This stands to reason, as firms that can bring new products or services to market quickly can gain a competitive advantage by being the first to market, capturing customer attention and loyalty, and potentially setting industry standards.

However, the pressure to move fast can also introduce uncertainty, as firms may need to make decisions with incomplete information or take on more risk to accelerate development and launch timelines. Conversely, firms that are slower to market may face uncertainty around whether their offerings will still be relevant or differentiated enough by the time they launch. They may also struggle to catch up to competitors who have already established a foothold with customers. The “right” speed to market, important as it is, obviously is a moving target. How, then, can companies manage the resulting competitive uncertainty?

Reducing Uncertainty: A Case for Automation — or Data?

While process automation is invaluable for improving operations and boosting competitive position, it is not the top tool for managing uncertainty.

Automation, however essential, plays a limited role in minimizing firms’ uncertainty.

Process automation can reduce manual effort and the risk of human error, but it does not directly address the root causes of uncertainty or provide guidance on how to navigate ambiguous situations. While process automation can be an invaluable tool for improving operations and boosting competitive position, it is insufficient on its own to alleviate uncertainty.

CFOs’ strategies in the PYMNTS Intelligence research supported this view. At 44%, incorporating process automation was CFOs’ top technological strategy for addressing uncertainty, followed by upgrading software, at 39%. However, the overwhelming majority — three-quarters — of CFOs turned to data collection and analytics as the number-one strategy for mitigating unpredictability in the previous 30 days.

Managing uncertainty requires up-to-the-minute information.

Informed decision-making is at the heart of reducing uncertainty. Analytics allows firms to gather and analyze data from widespread sources to identify patterns, trends and potential risks that may impact the business. Investments in analytics can help firms manage the uncertainty around speed to market and make more informed decisions about product development priorities, launch timing and go-to-market strategies. Firms can also decide to build more flexibility into their processes to allow for course corrections as market conditions evolve.

The Vote Is In: Analytics, 9 to 1

By leveraging analytics for forecasting, scenario planning and real-time monitoring, CFOs successfully reduced uncertainty for their businesses.

Analytics was an overwhelmingly successful strategy for reducing CFOs’ uncertainty.

CFOs in the study perceived analytics as a more effective tool for the specific purpose of reducing uncertainty compared to process automation alone. This is because analytics provides more targeted insights to inform decision-making in the face of uncertainty. In confirmation of the strategy’s effectiveness, using analytics for forecasting and upgrading software led to greater predictability in nine out of 10 cases in the study.

By leveraging analytics for forecasting, scenario planning and real-time monitoring, CFOs can pivot nimbly as conditions change. Analytics also permits finance leaders to test hypotheses, measure the impact of different actions and learn from past experiences to improve future outcomes. The data clearly suggests that firms need to combine process automation with analytics and data-collection strategies to adapt in the face of ambiguity.

An Insider on How Analytics and Automation Work in Concert to Reduce Uncertainty

PYMNTS Intelligence interviews Ari Widlansky, Managing Director and U.S. COO at Esker, on the vital roles of both automation and data analytics in reducing business uncertainty.

“In all cases, process automation and data analytics work hand in hand to improve outcomes for companies that are best-in-class. Process automation allows efficiency gains and the benefits of digitization, but it also requires a more rational management of the underlying data.”

The Certainty Report suggests that data analytics is more effective than process automation alone in reducing uncertainty. Do you agree?

There is not a single solution or one-size-fits-all approach to reducing uncertainty and risk. In most cases, the effectiveness of one approach over the other is based on the cleanliness of the customer’s data. This means having data that is up to date, unbiased and accurate.

However, in all cases, process automation and data analytics work hand in hand to improve outcomes for companies that are best-in-class. Process automation allows efficiency gains and the benefits of digitization, but it also requires a more rational management of the underlying data. For instance, when you automate your accounts receivable (AR) function, you gain exposure to AR data and can begin analyzing it in various ways, such as by looking at payment history and trends, outstanding amounts and collection effectiveness. In this example, AR automation is driving better analytics, which adds additional value for the company beyond efficiency.

With increased costs of capital and the general focus on cash optimization, at Esker, we have been helping customers build dedicated dashboards to detect pockets of opportunity to improve working capital (for example, “Where should I focus to increase the duration of my cash? Where should I focus my collection efforts? Which customer should I ask for shorter terms?”). In addition, to maintain organizational transparency, we make sure data is accessible across all divisions and departments, whether administrative or strategic, such as in treasury. This is especially important for AR teams managing multiple clients daily, as it enables more efficient operations and contributes to the organization’s financial health and stability.

The report found that leveraging analytics for forecasting and upgrading software led to greater predictability in nine out of 10 cases. How does Esker’s platform support forecasting and scenario planning to help CFOs navigate uncertain business conditions?

A significant number of our customers cite Esker’s reporting capabilities as the primary reason for choosing our services. The flexibility and user experience our solution provides allows business users to generate and track key performance indicators (KPIs) without having to invest in separate tools. Having the ability to do this themselves, without going back to the solution provider, allows for quicker decision-making while lowering the cost of ownership. CFOs love the intuitive interface and reporting capabilities it affords them and their teams.

Esker applies its prediction engines to the entire receivables and payables portfolio. A key feature is the ability to provide forecasts for collections and disbursements. For instance, within an AR department, Esker can analyze payment histories spanning several years to predict payment behaviors, the likelihood of credit notes and other factors that are impacting the company’s ability to collect on outstanding invoices.

This access to data and advanced purpose-built artificial intelligence (AI) engines allows us to deliver predictions on all the most critical KPIs and data insights for an organization.

The report estimates the cost of uncertainty to be 4.4% of revenue on average for middle-market firms, amounting to an estimated $21 million over the past 12 months. What is your impression of this? Some of this uncertainty may affect payment options, accounts payable (AP) or receivable, or compliance. How much can a company benefit from more certainty in these areas, and how can it achieve this?

If those are the figures for a midmarket firm, I can only imagine how they translate to an enterprise organization. Uncertainty is one of those factors that an organization can quantify only once the (un)expected events materialize and create a number of hidden costs.

For years, treasurers have been searching for improved visibility to get in front of this, and the work that stakeholders have already put into combating uncertainty must be taken into consideration. AP and AR teams must assess the risk being taken when creating payment rails with their buyers and suppliers because, ultimately, understanding and discussing these risks with partners is a critical step in developing secure payment options.

Then, of course, the improved data visibility and the tools available to our users for monitoring working capital, fraud, security risks and operational efficiency are pivotal. They play a crucial role in mitigating risks like cash shortages, data breaches, overpayments and other potential pitfalls.

What recommendations would you make to CFOs, CEOs or other executives who are trying to reduce the impact of uncertainty on their businesses?

The bottom line is that using too many disparate tools to generate visibility can introduce misses and uncertainty into your business. Executives are always wary of the risks a companywide project could bring. Typically, leaders want to rank their priorities and undertake staggered projects to progressively unlock value where it’s needed most. I would advise facing the challenge of change that’s implied by process automation and investing in the tools that can improve visibility, enhance adoption within the organization and ensure proper support is behind these solutions.

For executives, maintaining close relationships with customers is not just important — it’s how we gain confidence and sleep better at night. Truly knowing your customer is an ongoing activity that requires continuous engagement and ultimately allows for more certainty and growth. At the end of the day, trust the team, their work and the data. Having the right people, processes and technologies in place will allow a company to deliver value by driving operational efficiency and gaining improved insights.

Mitigating Competitive Uncertainty: A Question of Informed Decision-Making

While process automation is increasingly nonnegotiable in an uncertain business environment, executives dealing with the moving target of uncertain business conditions cannot rely on one tool alone. Organizations should automate processes and upgrade software as needed, but they should also invest in analytics capabilities, develop flexible strategies and foster a culture of adaptability and resilience. By proactively managing uncertainty, firms can increase their chances of success in an ever-changing business landscape.