Ardent’s FinTech Influencer Series highlights innovative voices in the world of Accounts Payable (“AP”) automation. This series is the go-to spot for progressive thoughts on how technology, transformational thinking, and revolutionary ideas are changing how AP work gets done. Continuing our FinTech Influencer Series, today we are speaking with Mike Ehrenberg, Technical Fellow, Microsoft.
Ardent Partners: Welcome Mike and thank you for spending some time with me today. Let’s jump right in. What are the big trends that Microsoft sees driving business outcomes in the ‘Office of the CFO’ and how has the role of the CFO changed over the past several years?
Mike Ehrenberg: It’s a great question. We (Microsoft) produce a broad set of business application solutions. And we very much think about our customers in a sense as different rooms of a house. One of those rooms is finance, which we’ll call the Office of the CFO. And then we think about the other rooms like sales, customer service, etc. These are all different process areas within the business. The anchor in each room is typically a member of the C-suite who’s in charge of that room and does the solution buying for that space.
So, when we think about the Office of the CFO, the conversation is about the CFO as the buyer or principal buyer of the solutions within the process areas that are central for them.
From a trends perspective, there are a few key things that we focus on. The first of those is automation. There are a significant set of processes in finance where the core systems are in place to do things like General Ledger (GL) or Accounts Receivable (AR), etc. But there are still too many manual processes associated with these core systems —and, quite honestly, too much paper (or the electronic equivalent) used to get data into those systems. And so, as we look at the way CFOs are trying to drive a transformation to modern finance, a big pillar of that is automation. Automating repetitive tasks creates capacity for people to do work that creates more value.
This is one of those places where the problems have existed forever. But technology today is more practical and accessible. For instance, technology can now recognize documents to extract data, automatically drop that data into a workflow, and use machine learning (ML) to identify opportunities for automatic invoice approvals as well as other invoices that need an exception handling process.
The Office of the CFO is an area with the opportunity to transform and drive efficiency and provide a more current view of what’s going on in the business. We are seeing an explosion around automation. Enterprises can leverage automation without having to replace the core systems that are deeply entrenched and already in place.
Another core trend we’re increasingly seeing is the CFO role has changed. The CFO is not just the person that’s responsible for closing the books, ensuring compliance, paying the taxes, and driving financial reporting. In addition, the CFO is now a member of the strategic team that is driving the business. And so, instead of focusing on where we are currently or the audit trail of how we got here, the CFO is now taking a more forward-looking and predictive approach. How can I do things from a financial point of view to enable what I want to achieve with my selling function or distribution function? That engagement of the CFO, as part of the strategic, forward-looking aspect of the business, is driving an increase in the need for capabilities around financial planning but also overall sales and operations planning that are supported by finance.
A third trend is that compliance and regulatory requirements are getting more complex and more fluid with every passing day. The geopolitical issues in the world over the last year or two have resulted in the introduction of more rules around sanctions, reporting and disclosure, reporting and compliance, export restrictions, and who can I trade with, etc. And much of this falls on the Office of the CFO. And so, there’s a need for more tools and more capability in that space.
Ardent: What impact has the changing role of the CFO had on the accounts payable function?
ME: Accounts payable is a place where automation can really pay dividends. We see a substantial number of cases where enterprises have staff manually handling invoices and frequently unable to keep up in peak times. Because the work is quite repetitive, accounts payable is an ideal area where automation can help.
There are a few areas of automation where the technology has matured in the industry, making it more practical. The first is the ability to do document recognition where paper, or electronic versions of the paper, are still used. The technology relies on AI to recognize documents, identify the key fields, extract those fields, and enter them into a system, which is extremely beneficial.
The second thing is integration technologies between companies. It is the ability to electronically exchange that information, or, in some cases, even change the flow of the information so that a company can present an invoice to a supplier, and say “This is what I think I owe, does that work for you?.” This transfers the burden of the matching and approval processes. This is one of several ways where advances in integration can help improve the process.
Another area that has become more practical and realistic are the tools now available for process automation and robotics. Such tools enable orchestration of flows and provide good APIs, while also leveraging RPA that can automate the keystrokes on the keyboard where APIs don’t necessarily exist.
At Microsoft, this is an area of great innovation for us and we are having great success. The availability of image recognition, workflow automation, robotic process automation, as well as API and integration technologies, has really provided the ability to take payables and change it from a people-involved, manual process to an automated approach. Now, people can focus on handling the exceptions where an invoice doesn’t match the expected parameters.
Within the Office of the CFO, automation of accounts payable allows more efficiency, timeliness, and consistency in the application of rules and decisions. There is now more time for staff to dedicate to forward-looking, more complex areas in need of attention.
Ardent: What’s on the agenda and the top priorities for the Office of the CFO?
ME: Number one is knowing the state of the business in real time. And this requires automation of AP to remain current and not be surprised by something that’s been in the AP inbox for three weeks. With automation, you can do things like close a period more quickly because of better controls and faster approvals.
Today, there is an increased focus on compliance and regulatory rules, and automation ensures we’re up to date on those frequent changes.
And lastly, automation can help you be more strategic.
Automation can provide you with a more accurate and up-to-date view of your financial state. This is a big part of enabling all the aspects of planning for what you want to do with your business. If you want to move into new markets, grow your salesforce, or increase production, all of those things require money. Finance can now be a strategic part of the planning process rather than simply reporting on it after someone else made the call.
Automation frees up capacity in the CFO’s team to focus on the more proactive and strategic priorities. Business Intelligence (BI), data visualization and artificial intelligence (AI) technologies provide the tools to turn the raw data in financial systems into insights which the CFO can leverage to drive those strategic actions. At Microsoft, we invest in industry leading BI and AI tools, and we are integrating them into our Dynamics 365 solutions to empower CFOs and their teams to achieve more.
Ardent: How will automation affect the CFO’s role in the future?
ME: I can use automation to be faster, cheaper, and more consistent, while also utilizing people for more interesting and strategic endeavors. We see that everywhere. Because of the progress around document recognition and robotic process automation, we’re seeing this to a large degree in AP and finance. It is freeing up people to do other things. There’s no compromise. More speed and accuracy and less manual intervention.
Ardent: With all that’s going on in the world today with the quiet quitting, the Great Resignation, and low unemployment rates, does automation help mitigate some of the dynamics from the outside world?
ME: Absolutely, 100%. It enables you to know that those parts of your business are going to continue to operate and allows you to think about hiring elsewhere. The other thing that automation does is capture knowledge.
Automation can capture that historical or domain knowledge. For example, knowing that a certain supplier always pays two days late. There’s all this sort of institutional knowledge that people have in a business within every function. And when you automate, it allows you to capture that knowledge in the system before people leave the company.
Ardent: Has the adoption of automation freed up AP to focus on more value-adding, strategic activities?
ME: Most definitely. There are three things at play here. One, it frees up time. Second, there is a more current view of your business because automated invoice processing is up to date. And third, it provides a more accurate view of what is occurring because of more consistent rules in place. All three put AP in a better place to be predictive and forecast-focused.
Ardent: Shifting gears a bit. What is Microsoft’s view of the partner channel? And can you also talk about Microsoft’s ‘Better Together’ approach with its partners?
ME: Partners are an extremely strategic part of our business. We very much believe in employing a partner-centric approach to the market. There are a few principal areas where the partner strategy makes a significant difference. First and foremost, it’s about reach and the ability to connect with thousands of customers or potential customers around the world in different locations. Microsoft is a very big company, but it doesn’t make sense for us to scale and have resources to touch every customer in every geography and every functional area. Our partner channel is extremely diverse. Some of our partners focus on a functional area or geographic location, while other concentrate on different types of businesses. Our partners give us the ability to reach those customers —as well as prospects —in each of those areas. And so, the partner channel is an extremely important aspect of defining our addressable market.
Secondly, our partners, particularly the ones that build intellectual property (IP), can be specialists. And by being specialists, they can be subject matter experts in an important but often narrow area. For instance, in payables, our partners know what’s really going on in the payables space. What are the questions that that finance users are asking? What are the problems that keep them up at night? Are there regulatory things coming that I need to be aware of? Our partner model allows us to have specialists in these areas.
We’ve been talking a lot about the finance function but let me give you an example from another part of our business. Microsoft’s product is very good on the manufacturing side with traditional discrete manufacturing, but also process manufacturing like food, chemicals, and pharmaceuticals. We have partners that take what we do there and specialize the food part for just customers in the dairy space There are unique things in a dairy business all the way down to the percentage of milk fat that affects how it’s accounted for from a financial perspective. A depth of expertise is required that we can’t have at Microsoft for every vertical in every geography. It is not possible for us to be an expert at everything.
Thus, our focus is let us be great at the functionality that’s horizontal that everybody needs. Let us be great at the things that address a whole industry like all of manufacturing, retail, distribution, or project-based businesses. But let’s rely on partners and ISVs to specialize in functional areas that are new, emerging, unique, and really require that ability to get super specialized. Our job is also to deliver technology that allow our partners and ISVs to extend our solutions in a seamless way.
In accounts payable, one of the partners we work with is SignUp Software, and they are particularly expert around AP automation. It was critical that we build a product where the SignUp solution feels to the customer like it’s a seamless extension of our product and not like their finance users are doing some stuff in SignUp and then doing some stuff in Microsoft Dynamics and kind of feeling stuck working with multiple products. We have a responsibility to build a platform and a go-to-market solution that works well for partners. Our strategy is very much one where partners provide that geographic reach to customers of all sizes that we could never touch on our own as well as the ability to be functional experts in a specific domain.
Ardent: How does Microsoft working in unison with the ISVs benefit both you and the customer? And how easily can you illustrate the upside for your customer base?
ME: We’re open and transparent with our ISVs about what we’re doing and what we’re not doing. The goal is really to let them be ahead of the curve with what we’re doing. They can fill whitespace where we’re not investing, while avoiding investments in areas we’re about to address in our core products.
So, we really drive our whole business around making the ISVs more effective because we believe it provides a more effective solution for the customers. Earlier I spoke about the incredible complexity of dairy accounting. If you are not in a dairy business, it doesn’t help you if we have that specific functionality in our product. In fact, it probably adds complexity and gets in the way. Thus, our model is designed around extensibility by ISVs. Each customer gets a solution that’s more precisely fit to what they need, while reducing the complexity for everyone. This is very much a strategic bet for us that the right answer is Microsoft providing horizontal and industry solutions while relying on ISVs to provide the last mile either in new functional areas or in vertically specific offerings.
Ardent: How does Microsoft see things being ‘better together’ with the ISVs that offer AP automation solutions that are able to enhance, extend, and improve the functionality that Microsoft provides within their offering?
ME: The place where Microsoft is investing and can hopefully move the needle forward together with them is in the use of our AI technology. We want to improve the document recognition piece and the ability to look at a piece of paper or fax or .pdf image where the technology recognizes an invoice from a specific supplier, including the location of the product, price, and tax fields and can automatically input that data into the system.
Most of our AP partners use third-party OCR’s or other document recognition solutions, while they focus on the AP automation workflow and business processes. The investments we are we’re landing are for the most part about saying, hey, let’s use Microsoft’s AI to do an even better job with that document recognition piece. However, we still need and depend on the ISV partners to have that more complete view of the automation around the process.
Often, automating these processes means communicating with other systems besides MS Dynamics. This usually occurs when it is a business that has multiple ERPs through acquisitions. The business can implement a common AP automation solution that talks across those systems. We are trying to provide the technology to make that possible, for example with Power Automate’s capabilities for orchestration and robotic process automation, but the ISVs and partners must drive those initiatives with specific customers. It is a good cooperative relationship that creates opportunities for the ISVs and partners but definitely brings a better solution to the customers.
Ardent: Thank you Mike for your time and sharing your insights on the AP automation ecosystem.
