McKinsey on AI’s Three Key Phases for the Finance Realm

A traveler’s guide to AI for the CFO.

McKinsey is out with a new outlook on how CFOs should immerse themselves – and their companies – into artificial intelligence, operationally, strategically, and financially.

The global management consulting firm does so in its “Gen AI: a Guide for CFOs” handbook released this week.

Written by company partners and analysts (Ankur Agrawal, Ben Ellencweig, Rohite Sood, and Michele Tam have byline credits), the entire handbook is worth a closer look for CFOs.

That’s particularly the case for finance executives looking to answer the question posed by McKinsey: How should CFOs approach generative AI-enterprise-wide and in the finance function—and what can they do right now to rapidly climb the learning curve?

In particular interest is the section on Gen AI and the Finance Function, which describes three key phases to AI’s ascensions that all corporate finance executives should know about.

This from the handbook:

“For many finance functions, Gen AI will be table stakes—one among several of the essential tools that every effective, forward-looking finance function will use. The technology has the potential to save meaningful amounts of time and resources. That in itself is a reason to move forward—and why most, if not all, finance functions in large enterprises will likely be using Gen AI in significant ways within the next three to five years.”

To properly conceptualize how Gen AI has grown and what the means to the corporate finance suite, McKinsey points to three “AI growth waves” that define the technology as a whole in the past several years.

— “The first wave is to establish a digital foundation; in our biennial survey of global CFOs completed in late 2023, about two-thirds of respondents reported that their functions were digitally connected and using data for the basics such as visualization in dashboards,” McKinsey states.

— “The second wave, clearly underway, is analytics empowerment; about half of the CFOs reported that their functions were already using advanced analytics for discrete use cases such as cost analysis, budgeting, and predictive modeling,” the handbook notes.

— The third wave will make extensive use of robotics and AI. “Very few companies are at the third wave yet,” McKinsey says. “But bold CFOs put their finance team in the best position to learn to work with these tools as the technology gains momentum.”

Leaning In On the Three AI Waves

Understanding the magnitude of those waves and how they’re intrinsically linked should help CFOs who are either just starting out with AI tools and technologies or who are already in the later stages maximize their company investments in the technology.

“CFOs typically aren’t software engineers, let alone practiced experts in predictive language models, but they don’t have to be,” McKinsey states. “Their first step should be to try out the technology to get a feel for what it can do—and where its limits are at the moment. Solutions such as Open Ai’s ChatGPT are available online, and other applications (including McKinsey’s Lilli) are already in use.”

CFOs should kick some tires and try out intriguing AI tools out “to get a feel for what it can do—and where its limits are at the moment,” the report states.

The handbook cites these specific “try-out” examples.

— Try experimenting by uploading publicly available earnings call transcripts from your competitors and asking the AI tool to produce the five most-asked questions—and to suggest answers.

— Upload your company’s and its competitors’ financials, and ask the gen AI solution to take the perspective of an activist investor: “What elements of your company’s performance would an activist home in on? Depending upon the sophistication of the gen AI solution, CFOs can also upload invoice and payment data and ask it to create charts that visualize the information—including a request for the one, most important chart,” the report notes.

McKinsey states that finance executives can best understand AI firsthand by using it firsthand. That, the report says, enables CFOs to “not only better understand what gen AI is but also more rapidly grasp near- and immediate-term opportunities.”

Again, the entire handbook is worth a read. Find it on the McKinsey platform here.

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