Strategy & Operations » Leadership & Management » Technology

Plans to celebrate the coming millennium in a haze of champagne have already gone rather flat as many organisations struggle to ensure their computer systems cope with the year 2000 dating problems. Enter the real party pooper – the projected move towards European Monetary Union (EMU).

Companies already gulping at the size of the bill they are required to sign to ensure their basic commercial applications are millennium-compliant are now swallowing hard at the news that further major alterations may be necessary in order to take account of the proposed single currency.

Those with the most obvious problems are the banks and other financial institutions, who will need to adapt almost all their systems in some way or the other. Their main difficulty remains the political uncertainty which dogs the whole issue, basic considerations such as which countries will be involved and when, are still the matter of fierce debate. On a more practical level, the proposed new currency has no definite name or agreed format at present.

“The single currency will require many interrelating systems across every bank in the UK to be rewritten or significantly enhanced within the same ambitious timescale. If any bank does not have the right systems in place at the right time, its whole business will be under threat. Conversely, for banks which make the best choices, there could be significant competitive advantage. However, there is a real risk of development problems, particularly as there will be a glut in demand for specialist IT skills which will be in limited supply,” cautions John Rushton, a senior manager in the finance sector at Cap Gemini, the UK arm of Cap Gemini Sogeti (CGS), Europe’s largest computer services operation.

There are unwelcome echoes of the year 2000 issue in all this. The tight deadline has led some to place their hopes in communal development efforts, special conversion tools or offshore programming facilities in places where development costs are lower, such as India or Eastern Europe. But CGS’s own report into the IT requirements thrown up by a single currency makes clear that “it would be imprudent for any organisation to hold its breath waiting for solutions any more palatable than a hard slog based on detailed analysis.”

An added complication is that banks will be forced to do this just when their year 2000 projects will also be gaining momentum. Internal resources will be strained, and, with so many organisations looking for help in so many different areas, it may become difficult to get hold of enough extra expertise from the open market.

CGS recently commissioned research consultancy International Data Corporation (IDC) to survey business managers and IT directors at 205 banks in 15 European countries on their views on their preparedness for EMU. On the face of it, the banks feel they have little to fear. The overwhelming majority (91%) are confident their IT infrastructure will be able to meet the timetable for EMU.

However, half of those polled (54%) have yet to formalise a strategy for handling a single currency, and only a small minority (15%) have allocated a budget to effect the necessary modifications to IT systems and business processes. On a country level, the UK stood out in the findings as the one country where 45% of respondents believed their IT infrastructure would not meet the schedule.

And it is not just the banks who face problems. ‘In essence, in the next two years every organisation will have to embrace EMU technology, whether they like it or not and whether the UK is a member or not. If you take the FT100 share list, those companies earn 50% of their revenue overseas and in Europe in particular. It’s not just an academic issue – the fact is, as of the start of 1999 the single currency becomes an entity, so those companies’ computer systems have to react as if it exists,’ maintains Paul Foll, a national director with computer services group CMG.

CMG has recently commissioned a Euro survey of the FTSE 350, the preliminary findings suggest there is some way to go before UK businesses wake up to what lies ahead. Asked to assess the impact of EMU on their IT systems, 61% rated it “not very great”. And if the UK failed to join the EMU on 1 January 1999, the vast majority (82%) felt there would then be very little impact on their IT systems.

“But even if we don’t go into the full EMU, the issues facing organisations are the same. Every multinational in the UK will want to report in the Euro as well as the base currency for comparison purposes, so there will be a need to make changes at the statutory reporting level. Then at the transaction posting level, any company in the UK which has any kind of trade with an overseas company will also need to be able to store information and report in more than just the base currency,” maintains Richard Hawksworth, marketing manager with Hyperion Software.

The situation is further complicated by the lack of clear direction as to the exact timetable for a single currency. Many computer software suppliers are calling on the Bank of England to provide the same kind of detailed guidelines that the Bundesbank, for instance, has been issuing for some time. However, it seems certain there will be a phased introduction of the Euro, beginning with its introduction into settlement systems and culminating in a physical coinage some time in 2002.

“Most software migrations involve taking historical data and converting it to some other format. But with EMU, all sorts of little intricacies creep in. During the transition phase, companies may have to offer documents in one currency while at the same time they may have ledgers which show transactions in several different currencies. Handling a dual currency input to a one currency document is tricky. Without a standardised approach reconciling account balances will be very hard,” explains Tom McDonagh, European program manager with financial software specialists Dun & Bradstreet.

Somewhat surprisingly, CMG’s survey shows most companies (62%) believe it will cost them less than #1m to prepare their IT systems for EMU, and take under a year. “Rubbish, maybe 2% will do it for that sum, but for most it will be rather more. With the year 2000, once you’ve identified the problem, it’s just a question of fixing it rather laboriously. But EMU is much more significant than that. It raises much more profound questions about the business, and about how the organisation is going to react to change,” Foll concludes.

Pat Sweet is a freelance journalist.

Download our Whitepapers
Accounting Software
Finance Process
Finance Process
FD Surveys
Read more