The term “digital transformation” can be frustratingly vague—but in large companies, a digital transformation is essentially the process or “journey” a company goes through to upgrade its IT infrastructure and business systems to meet the growing technical demands of the digital era. For IT and transformation leaders, the stakes are high, and the decisions made during this process can set the stage for future success or unforeseen challenges.Technologically speaking, this journey typically involves organizing a company’s business operations around a cloud-based Enterprise Resource Planning (ERP) platform through which various software tools for the company’s core functions—e.g., finance, tax, e-commerce, sales, marketing, human resources—are integrated and run.
Effective partnership between Tax and IT is essential
Digital transformations often take years to plan and execute, however—so for tax departments, digital initiatives represent an ideal opportunity to assert Tax’s importance to the organization and establish communications with key personnel both at the leadership level and with the IT department, which plays a critical role in supporting the systems used for calculating and managing indirect taxes (IDT).
Tax’s contribution to the planning conversation is important because tax is one of the heaviest users of data in a large organization. And, unlike more siloed areas of a business, tax must pull the data it needs from departments across the organization.
The importance of automating tax calculation on the front end and the need for integrating systems successfully cannot be overstated, as it will relieve IT of managing custom integrations and ongoing maintenance, ensuring tax accuracy and reducing the risk of errors. For these and many other reasons, if a company doesn’t get the tax piece right, it risks setting up a system in which essential tax data is either inaccessible or extremely difficult to obtain, creating a chain of costly inefficiencies that such systems are supposed to eliminate. By prioritizing tax automation and integration, companies can avoid these pitfalls and create a more streamlined, efficient, and cost-effective process.
The IT Uplift
To help organizational leaders understand the complex, multi-faceted nature of digital transformations, the Harvard Business Review (HBR) outlines “The Four Pillars of Successful Digital Transformations.”
The first pillar is “IT Uplift,” which involves upgrading existing IT systems to a more flexible, cloud-based architecture capable of supporting an entirely new ecosystem of business software tools. In HBR’s model, the initial IT Uplift serves as the foundation for everything that follows, so a well-planned Uplift is crucial.
A critical component of the Uplift is integrating tax compliance into the system’s architecture, allowing Tax to access necessary information automatically through feeds from various business functions. Involving Tax from the outset ensures that IT understands and appreciates Tax’s data-heavy relationship with the organization, facilitating a design that meets Tax’s needs.
Digitizing operations: Streamlining processes
The second pillar in HBR’s model is “digitizing operations aimed at optimizing systems to reduce costs, streamline workflows, and identify operational efficiencies.”
Tax departments typically realize the greatest efficiencies from automating IDT calculations and other routine functions, because automation:
Improves compliance with tax regulations that require immediate transfers of indirect tax data.
Frees up staff time that can be better spent on tasks that add value and support strategic decision-making, such as advanced tax planning, scenario modelling, more thorough risk assessments, and analyzing data to identify opportunities for tax savings.
Simplifies audit preparation, tax inquiries, and generating enterprise-level intelligence.
At the employee level, streamlining operations also means fewer mundane tasks, improved job satisfaction, and better customer relations—all of which can boost morale and improve productivity.
For IT teams, the benefits of automating indirect tax compliance include reducing manual workloads, integrating seamlessly with existing systems, and enhancing data security.
Digital marketing: Enhancing customer engagement
The third pillar, “digital marketing,” leverages digital tools and artificial intelligence to enhance marketing strategies, improve customer experiences, and collect valuable tax data.
Tax is an important part of the customer experience, particularly at checkout, where it’s essential for all taxes to be calculated quickly and correctly. Any hiccup in the checkout process could result in a lost customer. Conversely, a smooth and seamless checkout experience can help build brand loyalty and encourage repeat customers.
Data collected from transactions can also be used to analyze customer behavior, predict market trends, and guide targeted marketing campaigns. Indeed, aligning marketing strategies with tax insights allows for more penetrating forms of market intelligence and provides the foundation for more powerful, data-driven decision-making.
New ventures: Innovating for growth
The fourth pillar, “new ventures,” involves using advanced technology and tools to identify growth opportunities, create new products and services, and encourage innovation.
New ventures come with risk, however, and failure to fully understand the tax implications of a new initiative can be costly. Ever-changing rules and regulations mean tax compliance is always a moving target, so involving Tax early in the digital transformation process is the surest way to ensure compliance for all ventures, new or not.
In addition, tax technology enables you to visualize the tax outcomes of your company’s plans. By running scenarios and modeling, the tax team can evaluate how bundling or unbundling products will affect taxes in the new markets you’re targeting. This enables the company to uncover any available tax minimization strategies in those same locations, identifying possible credits and incentives. With this information, tax professionals can recommend and defend tax strategies that directly benefit the bottom line.
Lastly, because you can do all of this natively without additional coding or consulting, you’ll reduce development and tax research costs—better positioning your department as a provider of tangible value rather than a costly bottleneck.
Once operational, of course, any new venture needs checkout processes and all other customer interactions to work flawlessly from the start. Otherwise, the experience for all-important new customers could be compromised, along with the reputation of the company and the brand(s) it is trying to develop.
IT, Tax, and sustainable success through partnership
Every company’s digital transformation is different, but all companies can benefit from partnering with Tax early on in the planning process. Not doing so invites all kinds of risks and problems, not the least of which is the drudgery and expense of having to go back and undo or redo work to address important tax issues that were initially overlooked.
Tax is also crucial to the customer experience. Automating the IDT process is the best way to ensure that customer interactions are seamless and that the resulting tax calculations for any given transaction are fully compliant with local regulations worldwide.
Finally, the common denominator for all digital transformations is heavy involvement from the IT department. Because IT is so central to the transformation process, both IT professionals and Tax leaders need to understand the importance of integrating tax considerations into the fabric of any new digital system. Therefore, close collaboration and partnership between the IT and Tax departments is vital to prevent unnecessary obstacles from hindering the organization’s eventual success.
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