Digital transformation has become a cornerstone of modern business strategy; it reshapes industries and redefines operational paradigms. For the finance function, this shift promises enhanced efficiency, improved decision-making, and a more strategic role within organizations.
However, the journey toward a digitally transformed finance function is fraught with challenges.
From resistance to change and legacy system limitations to cybersecurity risks and skill gaps, finance leaders must tackle a complex landscape to unlock the full potential of digital tools.
The Promise of Digital Transformation in Finance
Digital transformation in the finance function involves integrating advanced technologies—such as artificial intelligence (AI), cloud computing, robotic process automation (RPA), and big data analytics—into traditional financial processes.
The goal is to streamline operations, enhance data-driven decision-making, and elevate the finance team’s role from back-office support to strategic business partner.
According to a 2023 KPMG study, 59% of finance managers at companies with revenues exceeding $1 billion already used AI tools in their tax or financial processes, signaling a strong trend toward adoption. Furthermore, global spending on digital transformation is projected to reach $3.4 trillion by 2026, reflecting the scale of investment in this shift.
Yet, despite the promise of increased efficiency and profitability, the path to transformation is not straightforward.
A 2021 BCG study found that only about one-third of organizations successfully achieve their digital transformation objectives, with the failure rate remaining stubbornly high at around 65%. For finance functions, the stakes are even higher due to their critical role in managing sensitive data, ensuring compliance, and driving organizational strategy.
Key Challenges in Digital Transformation for the Finance Function
1. Resistance to Change
One of the most pervasive challenges is resistance to change from both employees and stakeholders. Finance teams, often accustomed to established workflows, may view new technologies as disruptive or threatening.
A 2024 survey by Grant Thornton revealed that 30% of mid-market finance leaders cited “poor stakeholder alignment” as a top challenge, underscoring the difficulty of rallying support across the organization. This resistance is compounded by the need for cultural adaptation—digital transformation isn’t just about tools but also about shifting mindsets.
For instance, employees may fear job displacement due to automation. While RPA can handle repetitive tasks like invoice processing (reducing processing time from 45 days to 5 days for innovative firms, per a PwC study), it requires staff to pivot toward higher-value analytical roles. Without proper communication and training, this transition can falter, stalling transformation efforts.
2. Legacy System Integration
Many finance functions rely on legacy systems—outdated software or infrastructure that struggles to integrate with modern digital tools. These systems, often built decades ago, are incompatible with cloud-based platforms or AI-driven analytics, creating significant roadblocks. Upgrading or replacing them is both costly and time-consuming.
The challenge is particularly acute in traditional financial institutions like banks, where legacy architecture limits agility. Newly available tools can mitigate this issue, but the transition requires substantial investment—global spending on digital transformation reached $1.8 trillion by the end of 2022 and is expected to hit $3.4 trillion by 2025, much of it directed toward overcoming such hurdles.
3. Financial Constraints and ROI Pressure
Budget limitations pose another significant barrier. The average IT department allocates only 26% of its budget to new technologies, with the rest consumed by maintenance, according to a 2021 survey of over 3,000 IT professionals. For finance functions, justifying the upfront costs of digital initiatives—such as cloud migration or AI implementation—can be daunting, especially when immediate returns aren’t guaranteed. Grant Thornton’s 2024 CFO Pulse Survey found that 31% of finance leaders identified financial constraints as a top challenge, often exacerbated by pressure to demonstrate rapid ROI.
This focus on short-term gains can lead to underfunded projects. Experts recommend building budgets with strong contingency plans, yet the rush to show cost savings often results in unrealistic expectations, turning moderate-risk projects into high-stakes gambles.
4. Cybersecurity Risks
As finance functions digitize, they generate and manage vast amounts of sensitive data—personal information, transaction records, and financial forecasts. This makes them prime targets for cyber threats.
The financial services sector, in particular, faces heightened risks due to its data-rich environment; IBM’s 2023 survey found that healthcare and financial organizations incur data breach costs three times higher than other industries.
Implementing robust cybersecurity measures—such as encryption, multi-factor authentication, and AI-driven threat detection—is non-negotiable but adds complexity and cost to transformation efforts. Balancing innovation with security remains a tightrope walk for finance leaders.
5. Skill Gaps and Workforce Readiness
The rapid pace of technological change demands a workforce equipped with digital skills, yet many finance teams lack the necessary expertise. Skills in data analytics, AI, and cybersecurity are in high demand, but only one in three organizations finds it easy to develop these capabilities, according to a 2018 McKinsey study.
Upskilling existing staff or hiring new talent is essential but resource-intensive. The shift also requires a cultural focus on data-driven roles—such as data scientists and analysts—over traditional accounting functions, further complicating workforce planning.
6. Complexity and Lack of Leadership Alignment
Digital transformation is inherently complex, often spanning multiple departments and requiring coordinated efforts. McKinsey’s 2018 survey found that 75% of organizations undergoing digital transformation involve multiple business units, compared to 64% for traditional transformations.
For finance functions, this means aligning with IT, operations, and executive leadership—a task made harder by competing priorities. The 2024 Grant Thornton survey noted that “lack of bandwidth” tied with financial constraints at 31% as a top challenge, reflecting the strain on resources and focus.
Leadership alignment is critical but elusive, especially in smaller firms with less formal governance. Mid-market finance leaders ranked stakeholder alignment higher than their counterparts at larger firms (over £1 billion in revenue), where it fell to seventh place, highlighting scale-related differences in managing transformation.
Overcoming the Challenges: A Path Forward
While these challenges are formidable, they are not insurmountable. Finance leaders can take proactive steps to mitigate risks and drive successful transformation:
- Foster a Digital Culture: Address resistance through transparent communication and comprehensive training programs. Highlighting success stories—like how automation slashed invoice processing costs from £12.40 to £1.94 for innovative firms—can build buy-in.
- Prioritize Incremental Wins: Start with pilot projects to integrate legacy systems with modern tools, gradually scaling up to minimize disruption and cost.
- Invest Strategically: Allocate budgets with contingencies and focus on long-term value over short-term ROI, leveraging the projected $3.4 trillion global investment by 2026 as a benchmark.
- Strengthen Cybersecurity: Embed security into every stage of transformation, using AI to proactively detect threats and ensure compliance with regulations like IFRS 9 and 17.
- Upskill and Reskill: Partner with training providers or hire specialists to bridge skill gaps, aligning workforce capabilities with strategic goals.
- Align Leadership: Establish clear roles and shared objectives across departments, ensuring IT and finance collaborate from the outset.
Conclusion
Digital transformation and the finance function are evolving rapidly, offering new opportunities to drive organizational success. However, challenges such as resistance to change, legacy systems, financial constraints, cybersecurity risks, skill shortages, and operational complexities continue to hinder progress. According to a 2025 Imaginovation report, while 92% of finance leaders have initiated digital transformation, only 11% consider themselves advanced, with success rates around 33%. As finance transformation trends reshape the industry, businesses must embrace strategic planning, adaptability, and innovation. Overcoming these obstacles will enable finance teams to not only navigate digital disruption but also emerge as key drivers of efficiency and growth in today’s competitive landscape.
