What is digital transformation in finance?

As per the Ministry of Economy, Trade and Industry (METI), digital transformation refers to the transformation of products, services, and business models to meet the needs of customers and society. It also involves transforming business operations, organizations, processes, and company culture to establish a competitive advantage by leveraging data and digital technology in response to the rapidly changing business environment.
This definition encompasses two distinct definitions of digital transformation. The first definition pertains to innovation in business models utilizing digital technology, which aims at restructuring the business. This includes service design such as fintech and big data-based digital marketing. The second definition focuses on innovation in business processes and work styles through digital technology, including resolving back-office pain points.
The focus of back-office digital transformation, particularly in the financial sector, aligns with the second definition. To specifically focus on finance, we refer to this innovation as "DX Finance." Further discussions on DX Finance are presented in the following sections.

Innovative patterns and examples in "DX Finance"

Looking at "an innovation in business process and workstyle using digital technology", we have outlined strategy examples and three innovative pattens to achieve "DX Finance";

1. Business process transformation with digital tools

A variety of digital tools have been developed to help organizations improve routine business processes. This method aims at operational innovation by combining those cutting-edge tools;
e.g., paperless office, digitalization, AI forecast s, chatbots for accounting inquiries, API usage to reduce manual process

2. Workstyle reform

This method includes accommodating communication style and/or new team management under remote working environment;
e.g., visual task management tools, collaborative real-time editing

3. Cutting-edge business creation

This method aims at generating a new flow of general and/or financial operations by using cutting-edge technologies.
e.g., implementation of an intercompany transactions processing system for the receivables (AR) and payables (AP) accounts to be generated automatically, bond management on the blockchain

A growing number of companies are putting more efforts on those innovations such as paperless office. On the other hand, there are not many successful examples of using big data from the consumer behavior database into marketing activities although the method is widely recognized.
More companies are accelerating the digital twin technology or the integration of finance and other areas with the aim of achieving AI-driven business management. However, there are only a few success stories in "DX Finance" – this is probably because many of the finance departments are generally pursuing DX Finance with outdated mindsets.

How to promote "DX Finance"

What are the keys to successfully accelerate digitalization in finance departments? There are three points to consider;

The first key is IT literacy. Past projects related to ERP or accounting/business management software system development were generally led by IT departments while finance departments participated as one of the project members. In addition to having a few interactions between the two departments, lack of opportunities in leading tech projects has prevented finance professionals from excelling at IT literacy and internal software systems - this is why financial departments tend to be left behind from the era of digital transformation in many cases.
Consequently, talents capable of promoting "DX Finance" with a strong intent are scarce, and that is one of the reasons which hinders success cases. It is despite the fact that finance departments are responsible for critical internal data such as official financial reports and performance index used for decision making in corporate management.
Accounting data is generally not easy for secondary use because it contains a variety of financial terminology and concepts to sort the transactions in most cases. Companies thus need to develop and foster talents who have in-depth knowledge in the fundamentals of both accounting and IT areas, and who are capable of driving digital transformation with IT literacy.

The second key is a sense of ownership. The question is to what extent finance departments have participated in the IT-driven projects with a sense of ownership until today. From my experience, there were many cases where finance departments passively participated in internal meetings and just answered with "yes" or "no" to tentative proposals made by IT departments and system vendors.
In light of the growing popularity of digital transformation and as "2025 Digital Cliff [2]" suggested by Ministry of Economy, Trade and Industry (METI), IT talent shortage is emerging. As long as companies keep their passive attitude towards digital transformation, it is difficult for them to create an opportunity to try something new and they will rather miss opportunities to gain a competitive edge in the market. In addition, IT department tends to hesitate to approach “DX Finance” as it is harder to obtain tangible results compared to initiatives towards performance improvements and/or cost reductions.
To enhance the value of the finance department and improve business management, it is important to induce voluntary initiatives as well as a sense of ownership, and establish a framework to gain enough supports by IT department whenever necessary.

The third key is a company culture. Since finance is a relatively specialized area, it frequently happens that finance employees remain in the same department for many years, which is likely to cause organizational inertia. As a result, the department is often recognized as a small, conservative group with little change as it prioritizes individual optimizations that largely depends on personal knowledge and experiences.
Companies may be required to change their current business practices and operations drastically during the process of "DX Finance" and they should be prepared to take on challenges. Without a company culture to accept such changes, there is a risk where the expected transformation cannot be achieved as the initiatives could stop halfway.
Finance department is ideally supposed to lead in-house innovations and it is important for them to have an attitude to accept changes at least. Since a company culture cannot be built in a day, it is essential for company executives including CFOs to keep communicating their willingness to change and establish the ingrained culture to accept innovation.

Conclusion

In summary, this article discusses the definition of digital transformation in finance followed by three keys to success in "DX Finance";

・Secure finance talents with profound IT literacy
・Help finance departments gain a sense of ownership to drive DX
・Nurture company culture to accept changes caused by digital transformation

Each key takes time to accomplish and most companies may need to challenge "DX Finance" before all the keys are ready. However, it is essential to work on all three factors from the mid-term to long-term perspectives while simultaneously promoting "DX Finance" in order to keep achieving business results.