The Use of Technology in Finance, Research Paper Example

Technological change has been vital for economic growth in every industry in the current global economy. Every facet of business of every business interaction has been influenced over the course of time by technological advancements. From today’s supercomputers calculating arbitrage opportunities to the invention of the wheel that allowed ease of movement facilitated a global market where goods and services are melted into the economic world of supply and demand. The faster a business can provide the consumer with a good or service with the customer’s specifications the more opportunities there are to earn more revenue and shareholders wealth. There are multiple advantages for utilizing technology to enhance financial management and business practices.

Technology has been connecting people since the beginning of information transfer need. With the utilization of the internet with business applications transferring information has never been easier. Although the world is not physically smaller the opportunity to share information has made market globalization a realization. Information technology has brought the financial worlds closer together and has in certain circumstances brought markets into the global economy. Portfolio diversification and globally hedged investments are now possible by allowing financial programs and investment firms access to foreign markets from the consumer’s home at any time (David 2009). Boundaries are blurred and language barriers are overcome through linguistic applications and centralized programs allowing 24/7 interaction between consumers and businesses.

Communication is now cheaper, faster, more efficient and accessible by almost every person globally. In today’s age of technological advancements, messages to people in the business’s organization, to their suppliers or to their costumers instantaneously in order to received guidance, feedback or any other business critical communication. Financial management was brought from an afterthought in business decisions to the forefront by allowing the information and analysis to be utilized and performed in near real-time with the most up to date and accurate financial data available. The correct financial data could be the difference between solidifying a competitive advantage and losing an opportunity against a competitor.

Technology has also allowed the business day to extend from the archaic nine to five to a non-stop 24/7 environment where business decisions are made at all hours of the day and night. Technology also allows communication and data transfer instantaneously across borders, time zones and oceans to provide the right data at the right time. Financial markets are staggered across the globe and in previous decades it was not until information was reported after the fact that the markets in Japan and their financial moves in the market were interpreted and analyzed by the early risers on United States east coast.

In the early predecessors of the internet technology and financial management went hand in hand. Financial institutions were leaders in the forefront of the global economy. Banks created connected mainframe computers to interchange financial data allowing free flow of data between machines. As a result of the interconnected mainframes the demand for interconnected personal computers internally and consequently externally arose. This network of computers grew exponentially through the use of local area networks, internet and wireless connectivity. So it is fairly obvious that technology has had a significant impact on business practices and their ability to do more by expanding the opportunities during any time of day globally. In essences technology has made the world smaller and the day longer. Investments in financial systems to allow a full wing-to-wing perspective of the business will allow businesses to garner a competitive advantage their respective industry. Financial management technology is more than a calculator and form viewer.

As technology increases, the scope and benefit of financially driven data systems exponentially increases. As with any new system there is an investment cost associated with it. The decisions made to invest in certain technologies such as a certain supplier of a financial system, i.e. Oracle or SAP, could either make or break the company’s quarter or year if not executed properly. The cost and investment made for this technology parallels that of a manufacturer’s new assembly line or that of a bank or lending institution to take on riskier high interest loans to increase their available investment capital.

Financial management and the finance industry utilize technology on a daily basis and have developed an inherent reliance on the availability of data and the financial programs to conduct business. Financial management, analysis and information distribution are all conducted on technologically based applications that have simplified the financial management and analysis process that allows vast amounts of financial data to be manipulated and utilized to transform data into useful information to facilitate business decisions. Financial modeling has benefitted greatly with the advent of financial modeling and forecasting models. Businesses can perform in depth forecasting models with an infinite amount of variables to move the business from a reactive nature to a proactive and forward leaning business model. Technological advancements have also allowed the information to be in the palms of the leadership’s hands to have the financial information during critical business decisions which lead to either business’s bright tomorrow or dark ending.

Technology has also in some instances flattened the organizational hierarchy bringing the CFO, Chief Financial Officer, closer to the front lines of the business. The CFO’s scope has expanded beyond the role of ensuring the accuracy of the numbers to a role encompassing the compliance of the business, financial management, risk mitigation and a full understanding of accounting principles and changes. The CFO’s role now includes a broader understanding of the business and how the financial management and decisions impact more than just the financial outcome of spend or investment but all a view of the overall business portfolio and implications of asset allocation. Through technological advancements the CFO has visibility to the business as a portfolio with regard to economic impact analysis and asset distribution among investments, cash flow and liabilities.

There are some inherent risk with technology and financial management’s reliance upon it. With any reliance if and when there is a breakdown in the information technology’s infrastructure or other aspect of information transfer there is a risk potential for not obtaining the right information at the right time to make the right decision. Through the consistent rhythm that is afforded by technology leadership and management are trained to have certain information when they need it and if that information is not available it is seen as a business failure. Technology has presented business men and women a sometimes unrealistic expectation of availability. When a system or program fails, information cannot transfer to the right people, which lead to unrealized opportunities and lost business (Schutzer 2011).

In other aspects rather than providing the most accurate and up-to-date financial information, technology in finance has allowed businesses to create a product or service to the customer sometimes even before they need the product. The Apple corporation lead by the late Steve Jobs had a mantra of not providing what the customer wanted now but anticipating their needs and pushing it to market before the customer knew they needed it (Apple Inc. 2009). The idea behind this is in essence “seeing around corners” and predicting the market. Lead time to bring a new product to market could be over a year in some industries.

Through the enhancement of technology manufacturing globally is commonplace. The trend to outsource or to source out finished goods has increased the demand for on-time global financial information. As the technology increased IT worked to put systems in place to allow the disparate systems to “talk” and transfer data across borders. The advancement has lead a demand for a single source of information in which no matter when or where the information is pulled it is always precise, accurate, standardized and congruent.

Technology also creates a competitive advantage by allowing integration of financial systems and by allowing greater visibility into opportunities, which would in times of less visibility been passed up and not realized. Continual process improvement and leading a business to do operations in faster and more economical methods are always at the forefront of business leaders agenda. In the United States, companies such as Penske and General Electric have devoted financial resources to the betterment of their employees in regard to lean management and six sigma qualifications (General Electric 2012). The objective of these systems and tools are to improve business practices and either create financial opportunities or reduce financial burden of the company.

All of the efforts are there to create an advantage over competitors to gain market share and increase shareholder’s wealth. Financial systems are there also to not only provide a picture of the business’s financial health but also to allow decisions to be made, issues to be solved and opportunities to be identified. The overall objective of financial management and the technological advancements are to transform financial data into financial information. This information is then used to guide and direct the business to areas past the traditional planning horizon making the unforeseeable future a bit clearer.

Finance has changed from traditional booking keeping to cutting edge business critical decision making over the course of financial management and technologies relationship. There has been a long history in the relationship between technology and financial management. Innovation in financial management and financial structure has led to a paradigm shift from financial management as a monthly, quarterly and yearly exercise to a necessary and catalyst decision maker in business opportunities. Rapidly growing social networking sites, mobile applications and a transition from hardware based infrastructure to cloud based, service oriented applications open up more growth opportunities and investment avenues for businesses to partake.

Financial management and technology have grown together over the course of the past half century and as business trends to move faster financial services will rely even more heavily on the counterpart of technology to provide financial information to key business stakeholders. The structure of finance has changed and will continue to change as advantages are developed and regulations are introduced. Finance will continue to utilize technology to maintain its flexibility and agility in business.

References

Apple Inc. (2009). 10-k annual report. United States securities and exchange commission. http://www.wikinvest.com/stock/Apple_(AAPL)/Filing/10-K/2009/F46738048

David, A. (2008). The impact of new technologies in public financial management and performance. Retrieved from http://arxiv.org/ftp/arxiv/papers/0812/0812.1218.pdf

Graham, L. (2008). Internal controls: guidance for private, government and nonprofit entities. Hoboken: John Wiley & Sons, Inc.

General Electric (2012). What is six sigma. Retrieved from http://www.ge.com/en/company/companyinfo/quality/whatis.htm

Office of Economic Analysis, United States Securities and Exchange Commission (2009). Study of the Sarbanes-Oxley act of 2002 section 404 internal control over financial reporting requirements. Retrieved from http://www.sec.gov/news/studies/2009/sox-404_study.pdf

Schutzer, D. (2011). Innovation in financial services. Retrieved from http://www.bits.org/publications/doc/CTOCornerJul2011.pdf