If you’re a senior financial professional in a major company, you probably feel you’ve spent more than a fair amount of time over the past three years dealing with your corporate financial systems, and, in particular, addressing the problems of Y2K and the euro. You probably hoped that you wouldn’t have to give those systems much more thought, at least for a few years. Well, the bad news is, you were probably wrong. After Y2K, pundits predict another frenetic period of change in corporate finance systems. That will mean FDs looking afresh at whether their systems can meet the needs of their business in the new millennium as a host of new issues will need to be dealt with. There’s the added complication that the shape of the corporate financial systems market might change again. It’s significant that the five leading software providers – SAP, JD Edwards, Baan, PeopleSoft and Oracle – were not the main players ten years ago. Dennis Keeling, who as chief executive of the Business and Accounting Software Developers Association (BASDA) knows more about accounting software than practically anybody, has posited “Keeling’s Principle”, which says that a software company declines when the founder leaves. “I can think of no examples in the past 20 years where I am wrong on that one,” he says. “The founders are the inspiration. They are the ones that took the risk and created the new applications. The managers who take over when they leave are not entrepreneurs.” With the founders of some existing leading players looking longingly at the beaches and golf courses of the Bahamas, it could be that the next ten years will see the emergence of new players. But, says Lauren Lachal, a senior analyst at Ovum, the financial systems software market is not likely to change quite as dramatically as in the past, because the cost of entry for new players has risen. Even so, with factors such as e-business changing the rules of the game, nobody can be quite certain what will happen, and this all adds another layer of uncertainty for any FD contemplating a change of supplier. The gurus agree that 1999 has been one of the quietest years for some time for companies changing supplier or upgrading their existing software. “There was a lot of change over the last two or three years, mainly because people had to decide whether to change or upgrade their system to deal with the year 2000 problem. Since the installation time of corporate software is significantly long, most of that purchasing was finished by the end of last year,” says Keeling. But, as Lachal points out, it’s next year – when users start to think about the future once more – that the market will shake up again. “That’s when the up-and-coming suppliers will really show through and the others who have stumbled along in the past five years will go down in flames.” It’s not a promising prospect for the FD trying to make reliable plans for the future. At the same time, there are business drivers in most companies that will force FDs to look afresh at what they get and what they need in the future from their finance systems. Not least of these is the migration of major financial software systems across platforms. It seems many major companies are steadily migrating towards Microsoft NT. With this in mind, the degree of success that financial systems suppliers have in delivering NT versions of their software is not an insignificant factor to consider when taking decisions. Some, such as SAP, have made a better fist of it than others, including JBA, Computer Associates and Geac, who are said to be having difficulties moving from the mainframe. However, it is not only technical issues that will be driving change post-2000. Depressingly, some of them seem to have been on the agenda for years and there are clear symptoms that point to a need for a change of tack. Take the question of management information, for example. Despite years of management and executive information systems, it’s still possible to find plenty of companies that can’t get the information they need to support decision-making. As Lachal points out: “A lot of systems have been designed to get data in. They need a lot of convincing to get the data out.” But some FDs have made a rod for their backs by ‘copping out’ out of developing proper information retrieval systems. Instead, they have interfaced the finance system with bolt-on packages, which too often don’t provide precisely the information they need anyway. Even the move by some multinationals to ERP-based systems over the past three or four years has only partly solved the problem. A typical tangle that companies find themselves in might involve consolidating central accounts with local accounts, linking with purchasing and order processing, hooking into a manufacturing system – and then trying to extract relevant data. The sign of trouble is when the figures require manual reworking. Another symptom of a need for change is when financial systems are constantly under pressure to provide operational support – let alone management information – to an organisation that is rapidly altering shape. David Hellier, a senior business consultant with JBA, says that one of the key issues here is that more companies are looking at their organisation’s structure globally. They may decide to conduct manufacturing in the Far East, warehousing in the Netherlands, run trading companies around the world and crystallise profit in different jurisdictions for tax reasons. Not only that, but they may want to change the details of that organisational structure regularly – not only as they grow organically into new markets, but as they take part in M&A activity. “It’s important for financial systems to be able to adapt to a changing environment, cope with complex multinational structures and meet the requirements of providing shared financial service capabilities,” says Hellier. As euroland develops rapidly after the millennium, it’s likely that these issues will become even more pressing, because companies will be focusing on trading in a single market and will be getting involved in the predicted upswing in M&A activity. What is perhaps most significant, is that all these worries come against a background of reports that say around 95% of data input into computer systems has been printed out by other computers. And it’s in this area that the biggest changes might be on the way. Keeling, for example, points out that although IT has made no or very little contribution to office productivity for the past 10 years, e-business could revolutionise financial systems – but only if FDs and others give serious thought as to how e-business can improve internal operations as well as dealing with customers. “Large organisations spend millions putting in a computer system, yet they communicate with the outside world using pieces of paper. When paper arrives back, they then have to re-enter all the data. Business-to-business e-commerce could make life significantly easier,” Keeling says. Systems changes are also driven by new packages and concepts that suppliers develop. Post-millennium, as FDs start to look afresh at their IT, the consultants will crowd round with recently invented buzz-words. According to JBA’s Hellier, the most important of these will be pressing FDs to consider the ways in which their financial systems can support a much wider range of work tasks across their organisation. The latest of these new tasks is customer relationship management (CRM), which was once a term used by the marketing team. The idea of CRM is that it tells you the value and needs of a customer as and when he or she contacts the company. For example, should a customer’s order be fulfilled even though it has exceeded its credit limit? Or, why was the customer’s order refused even though it had just reduced its outstanding balance well below its credit limit? The key issue that CRM systems address is the link between customer-facing staff and the relevant on-line financial information. Once companies get to grips with the changes they want to make to their systems, they will face the continuing issues of finding packages with the appropriate vertical market functionality, and the problems of bringing major new financial systems up to speed. Several suppliers – SAP and JBA, for example – have a strong vertical market focus, and Ovum’s Lachal reckons many financial systems suppliers will offer ready-to-use specialised functionality that cuts both costs and implementation time for users. Some may offer solutions bundled with complementary products, others may adopt a more consistent service approach to each vertical market. When it comes to implementation of the systems, one potentially worrying trend for FDs is that several of the large suppliers are moving away from implementing systems directly and are taking a third-party approach, a trend that makes a mockery of their claims to want to get closer to their customers. This puts the barrier of a sometimes inept third-party reseller or consultant between user and financial systems company. FDs should consider the implications of this very carefully when they arrive at a decision to change. In the end though, with such far-reaching change on the agenda, it seems that the past three years’ scramble of preparation for Y2K and the euro might at least have been good training for FDs who will be forced into yet more IT decisions. You might not like the idea of going through it all over again, but at least this time you should know what to expect. Then again, this is IT we’re talking about – if there’s one thing we can expect, it has to be the unexpected. LEARN TO TALK SYSTEM SPEAK … As if choosing the right corporate financial system wasn’t tricky enough already, suppliers seem out to bamboozle us with their ever-expanding lexicon of jargon. But help is at hand – here is FD ‘s guide to some of the new and newish terms on the IT block. Activity-based costing. It’s not as easy as learning your ABC, but it is a way to apportion costs for service on non-revenue departments. ABC is usually seen as a hard-headed way to show how much each department paid – or failed to pay – its way. Often teamed up with business re-engineering (qv), it too often became another consultants’ dream that failed to materialise. Balanced scorecard. The idea that you measure a company’s progress by other factors – customer satisfaction, for example – than revenue and profit. But as it all comes down to money in the end, few companies can take their eye off the bottom line long enough to make the scorecard balance. Best of breed. A term that signifies a corporate financial system has all the latest bells and whistles and is world-class. More usually, a term applied by any financial software salesman to the system he is selling. Business re-engineering. The promise that redesigning a company to work across its processes rather than its functions can yield step-change benefits in performance. A few found it worked but for many others it remained just a promise. Customer relationship management. Originally, a concept for marketing and sales folk, system sellers have now decided that the financial team need to know about CRM. The argument: when a customer calls you need to know if they’re a million pound-a-year punter or a time-waster. Only the financial team can get this information to the front line, where the customer is handled. Drill-down. The ability to penetrate top-level figures to succeeding levels of detail to find out who made the mistake. Hardly surprising, then, that enthusiasm for drill-down decreases the further you descend the management pyramid. Most on the lower slopes can still sleep easy though, as companies still find this difficult. E-commerce. Or, sometimes, e-business. Doing business electronically, mostly but not exclusively over the Internet. According to the gurus, the next revolution that’s going to change the world. And perhaps it will. Enterprise resource planning. ERP is based on the idea that financial control of a business should be integrated across multiple sites and geographies. Thus, it’s a way to perform “joined-up management” and can – in theory – deliver huge benefits. Unfortunately, implementations are horrendously expensive and complex, so it’s high-risk strategy. Euro-compliant. What all corporate financial systems need to be if they want to do business with Europe. As Gordon Brown points out, compliance doesn’t signify approval. Those stuck with systems stamped with a Union Jack need euro-migration tools, pieces of software that enable relevant parts of the system to handle conversion to the euro, using techniques such as triangulation (qv). Scalable. The idea that when you buy a corporate financial system for use in head office, you should also be able to use a cut-down version of it in the regional office at Chorlton-cum-Hardy. Not so easy as it sounds and, even when it happens, functionality tends to shrink faster than price. Triangulation. The eternal triangle of the transitional phase of Economic and Monetary Union. The rule that, for countries in EMU, any currency must be converted to six decimal places of the euro before being converted back into another national currency. Vanilla-entry package. The idea that a standard package with a wide-range of functionality should satisfy 90% of the needs of most users. The down-side is that most companies find it’s the last 10% that proves important, which is why users of vanilla flavoured packages don’t have their financial systems needs licked yet.
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