FINANCIAL SOFTWARE SPECIAL - Money market

Consultancy services to the financial sector are enjoying unparalleled growth. The money markets are crying out for the management and product skills provided by consultants. With the weight of work undertaken for Year 2000 applications and preparation for the Euro, consultants are having to recommend mission-critical applications and solutions designed to fix bugs, process transactions and maximise profit.

Here three IT-dedicated consultants give their opinions on how the financial software market is developing and whether or not the booming sector is a bubble just waiting to burst.

David Truman – partner with Ernst & Young

According to Truman, there are three principal issues that currently concern corporate buyers and users of financial software.

Among these, the foremost is, perhaps predictably, the Millennium Bug.

He says: “Many enterprises have already given a lot of thought to how Y2K will affect their financial systems, although few have fully got their act together. Even those with relatively developed plans are going to have to think them through more fully before the end of 1999.”

Another perceived stumbling block is the Euro. Even though the UK will not be in the first wave of EMU joiners, Truman thinks its implications will be more widely felt here than many system managers and finance directors believe.

Also, Truman says, many clients are asking him about moves to implement a shared service centre, so that one finance process governs the whole of an enterprise or group of companies. While there are, he says, gains and savings to be made from such a move, the risks are that an insufficiently flexible and badly planned service centre could actually end up costing money rather than saving it.

He claims that many companies are too cautious when moving to a shared service centre model: “When companies are making changes to their financial systems, most start with something small and straightforward. But even small changes can be surprisingly expensive, and can result in spending a great deal more than the original cost achieving user acceptance and buy-in, and on maintaining the system. It’s better to take a harder line from the start.”

Among financial software vendors, Truman believes that Y2K is also causing long-term concern. Licence sales that would have been spread over the next few years are all being brought forward to ensure compliance before 2000. The current sharp acceleration in application sales growth is possibly giving false hope to vendors. He says “No-one really knows whether sales will hold up after 2000, but the issue is creating lots of nervousness.”

Some commentators claim the market for enterprise financial software is approaching saturation but Truman is not so sure. He says: “If you take all of the world’s big multinationals, you can put alongside each the name of one of the “big five” ERP vendors – J D Edwards, Baan, Oracle, Peoplesoft or SAP. But you can’t really call the market saturated until all of those vendors’ modules are operational in all business units.

In any case, many financial software vendors are now aiming at the middle-sized market. This will mean a shakeout in that middle market, as vendors that have had it to themselves for so long face really big time competition. The process has already started. Take Baan’s takeover of Coda for example.”

Truman observes that many of the bigger financial software vendors are looking for strategic alliances with major management consultancies.

He says: “As vendors seek to expand, they are finding they have not got enough implementation bandwidth to manage this fast enough, so it helps to forge relationships. They are also, by talking to consultants, buying knowledge of markets that are new to them. A complicated web of alliances is building up, which makes in the end for a complicated economy.”

David Jones – director, group reporting services at PwC

Moves towards a common accounting software policy across the enterprise were also cited by Jones as a key user concern.

He says: “It’s good news for ERP vendors as enterprises migrate to an accounts systems that can service a whole group. A global chart of accounts is at least an aspiration of many big corporates if not a full strategic direction.”

He says that even those companies which do not plan to focus around a single ERP solution, may be planning to adopt a global chart of accounts using financial software from multiple vendors. He says: “The jury is still out on whether this is as effective as going for just, say, Oracle Financials or SAP across the whole enterprise.”

Jones says that a recent PwC survey into the plans of major corporates in the US reveals that, out of 150 Fortune 500 companies questioned, 75 have adopted or plan to adopt a global chart of accounts, but that only 25 per cent of that 75 had rolled out one financial software suite across the entire company.

“The rest say ‘choose your own solution’ to their subsidiaries and group member companies, or perhaps ‘pick one out of these three’. In some types of company this makes perfect sense. Some conglomerates are made up of companies with nothing in common and in others subsidiaries are constantly being acquired and disposed of, so why bother with the trouble of one solution for all? It’s really only companies like telcos or motor manufacturers – with only one line of business – where it makes real sense every time.”

The US experience is arguably distant from the European one, warns Jones.

After all, a large corporate in America has one common language and currency across all elements, whereas this is likely not to be the case in Europe.

What price a shared service centre when you are grappling with ever-changing regulations and multiple borders?

He says: “Experience shows that a global rollout of one solution is an expensive option, but nevertheless one that can repay handsomely.

“It does depend on individual circumstances. A company with a particularly disjointed financial software strategy will notice benefits quickly.

But a really big company will find that just as soon as it has finished deploying SAP R/3 at one end of the operation, SAP R/4 is already going in at the other. It’s the old painting of the Forth Bridge situation.”

He also believes that crises like Y2K are affecting the financial software purchasing cycle in some surprising ways. “I know one big multinational which is currently rolling out one particular Y2K-compliant ERP solution now, but already has plans to switch to another after 2000, because that strategically is where they want to be. People are making all sorts of strange short-term decisions.”

Jones predicts continued consolidation among financial software providers.

Larger vendors will continue to acquire smaller ones to get their hands on specific functionality.

Paul Addington – director of KPMG’s implementation consulting unit

Addington sees financial software becoming less and less of a discrete element within a systems strategy, as end user organisations integrate it further with other reporting modules. “There is much more emphasis on greater sophistication in financial reporting from users I talk to.

The financial reporting process now starts when a transaction is made, and is not just a historical record.”

While many enterprises see ERP software suites as the answer to this tighter integration and greater and more detailed reporting power, they are by no means the only answer. “Some are still adopting what they see as best of breed separate systems for different functions, and not spending the huge sums you need to deploy something like SAP across the board.

They are prepared to do without the high level of integration with other software for managing, say, logistics or manufacturing.”

Behind the issue of strategic choice of solutions is the expanding and developing role of the financial director, believes Addington.

“In many cases they play a greater role in controlling an organisation, being seen less and less as guardians of old data. Historically, to achieve this, they have had to invest in all sorts of bits of software in addition to the company’s standard accounts systems. But today’s financial software has a lot of this extra functionality built in, and it lets them report to the board speedily and efficiently. Financial software vendors must continue this integration process.”

One of Addington’s areas of expertise is PeopleSoft, which, he says, is catching up with the broad functionality to be found in other ERP vendor software, like that of Baan and SAP. “As well as developing core products like PeopleSoft Financials 7.5, it has been buying in software for other parts of the supply chain and converting it to PeopleSoft code.”

He says that recent IDC data shows PeopleSoft growing at two and a half times the rate of any other ERP vendor.

Casting ahead, Addington anticipates electronic trading, either as EDI or e-commerce, becoming an important element of financial software functionality.

“Lots of organisations collect payments electronically, but the next step is workflow engines integrated into financial software to make this process automatic. This, and the mining of data over an intranet or extranet, is where many enterprises are going.”

Guy Matthews is a freelance journalist.