New approaches in digital finance benchmarking
As the finance industry pushes deeper into digitalization, the quantity of statistical data is exploding. Data can be leveraged through key performance indicator (KPI) monitoring and visualized reporting, or be curated from external sources to benchmark your finance operations as well as your competitors’ capabilities.
The benchmarking process is vital as it helps assess the relative efficiency and productivity of your processes against leading competitors within your industry. Benchmarking helps to appropriately target your finance investments—revealing areas in which you lead, and areas where you fall short of the competition.
Let us explore methodologies for benchmarking finance operations, and how new technologies can increase your financial maturity level.
What are the benefits of benchmarking finance?
Financial benchmarking helps businesses define fact-based short- and long-term financial goals. It is often the case that targets are set by opinion, only for the business never to achieve them. The same applies when meeting targets too quickly, reducing foresight and dampening progress by lowering expectations.
By leveraging benchmarking for finance, enterprises can better analyze competitor successes to guide their own internal targets. This prevents disappointment when unrealistic targets are ineffective while providing sufficient challenge to motivate and drive workforce productivity.
Benchmarking finance also offers guidance around technological maturity. Modern finance software can offer functionality like artificial intelligence (AI), robotic process automation (RPA), and optical character recognition (OCR) for paper documents, to name a few. By assessing the technological maturity and comparing to competitor's finance operations, you can identify areas for improvement and drive increased productivity and operational efficiency.
Finding data for benchmarking finance
Most enterprises are unlikely to share detailed information about their finance areas, technologies, and strategies. However, —a leading US-based digital transformation consulting firm—has created the ™ or DEEM. This allows clients to view anonymized data from its sister company Trasers, where more than 5,000+ individual companies across .
The model compares respondents across five DEEM stages of maturity, helping enterprises understand their current positioning and identify pathways to increase the critical role of digital maturity.
Areas of interest for benchmarking finance
Finance is an integral part of business management, encompassing supplier relationships, customer relationships, workforce management, tax, compliance, and regulatory systems.
To start, an enterprise should focus on benchmarking these key areas:
- Gross and net profit margins – In basic terms, profit margins are determined by subtracting costs from sales revenues. Gross profit would consider the cost of producing and distributing a product against revenues generated. Net profit would include all business costs, including tax, payroll tax, sales tax, and more.
If competitors have a higher margin on equivalent products or services, this may indicate two things. First, expenditure is too high, with inefficient procurement processes and excessive overhead. Second, the prices you charge to end-consumers may be too low.
The New York University Stern School of Business offers relevant data on average margins by industry sector, with more detailed reports showing competitors in each industry. Using data, you can determine whether you align with industry norms, exceed them, or lag behind.
- Cost per employee – Salaries are among the most significant expenses incurred by businesses today. They include basic salary rates, payroll tax for social security, 401k contributions, and supplementary benefits like healthcare insurance—all of which contribute to Cost Per Employee (CPE).
The Bureau of Labor Statistics (BLS) offers monthly reports containing detailed CPE information, albeit with three months of reporting latency. Alternative data sources could be leveraged for near real-time responses to CPE trends in the market, but the BLS offers reliable data across a broad range of industries and career levels.
Full financial maturity - 1% of enterprises
At a technical level, the most mature finance operations rely on analytics, visualized reporting, and AI/RPA automation and orchestration.
Using analytics as an example, there are four stages of technological maturity:
- Descriptive – In this case, the analytics tool simply describes what happened.
- Diagnostic – Along with descriptive functions, diagnostic analytics also shows you why an event happened.
- Predictive – Along with descriptive and diagnostic, predictive analytics tells you what might happen in the future after considering trends and current state of a system, process, or workflow.
- Prescriptive – This is where fully mature financial operations peak. Along with descriptive, diagnostic, and predictive capability, prescriptive analytics tell you how to respond for maximal benefit. The analytics tool calculates hundreds or thousands of possible resolution pathways, prescribing an optimal solution to meet the business or technological challenge.
Prescriptive finance analytics can be considered a virtual consultant for critical financial decisions. This augments your workforce by providing always-on, real-time strategy optimization recommendations. An enterprise at this level is moving away from relying principally on the highest-paid person's opinion (HiPPO), and toward adopting a data-driven methodology for critical decision-making processes.
This article was contributed by Paul Brunda, VP and Benchmarking Practice Leader, Trianz
Amber Group Valued at US$1bn in $100m Funding Round
Amber Group, a cryptocurrency financial services firm, has raised US$100m in a Series B funding round at a pre-money valuation of $1bn.
The funding round was led by Chinese investment firm China Renaissance, and other participants in the Series B include Tiger Brokers, Tiger Global Management, Arena Holdings, Tru Arrow Partners, Sky9 Capital, DCM Ventures and Gobi Partners. Existing investors Pantera Capital, Coinbase Ventures and Blockchain.com also joined in.
Michael Wu, co-founder and CEO of Amber Group said in a statement that the funding would be used to “expand global operations to meet client demand and develop market solutions for the world’s leading crypto investors and companies.”
“We’ve had record months over the past quarter across both client flow and on-exchange market-making volumes,” Wu said in a press release. “Our cumulative trading volumes have doubled from $250 billion since the beginning of the year to over $500 billion.”
Cryptocurrencies are becoming increasingly popular, with many people investing, although not everyone seems to know what they are investing in. Using survey data collected from 750 investors earlier this year, Cardify found that only 16.9% of investors who have bought crypto “fully understand” the value and potential of cryptocurrency, while 33.5% of buyers have either zero knowledge about the space or would call their level of understanding “emerging.”
Who is Amber Group?
Amber Group is a global crypto finance service provider with a presence in Hong Kong, Taipei, Seoul, and Vancouver. Founded in 2017, Amber Group services over 500 institutional clients and has cumulatively traded over $330 billion across 100+ electronic exchanges, with over $1 billion in assets under management. The company said that its assets under management, or AUM, reached $530 million in 2020, representing a 275% increase from the previous year.
Instead of being a cryptocurrency exchange that allows users to trade individual digital coins, Amber Group CEO Michael Wu said the company is bringing a “private banking experience to the everyday customer.”
Their goal is to optimise investment flexibility, maximise investment returns and deliver long-lasting value for their clients. In 2019, Amber Group raised $28 million in Series A funding led by global crypto heavyweights Paradigm and Pantera Capital, with participation from Polychain Capital, Dragonfly Capital, Blockchain.com, Fenbushi Capital, and Coinbase Ventures.