Upgrading financial and accountancy applications may not traditionally have been top of the average financial director’s to-do list, but as compliance issues bite harder than ever, software selection is moving up the business agenda.
The challenge in the past was that such tools were not perceived to add competitive advantage to the organisation or boost revenues in the same way that opening a retail outlet or launching a new product or service might.
And because a vast amount of money was spent preparing systems for the potential impact of the Millennium bug, many finance functions have had to make do.
David Bradshaw, principal software analyst at Ovum, explains: ‘Software selection tends to be put on the back burner unless there’s a reason to bring it forward. Good enough is generally enough, so it tends to be out of sight, out of mind.’
The situation hasn’t been helped by the economic downturn and widespread disillusionment with IT in the wake of the dotcom bust, which led to a freeze in investment across many sectors.
But as financial applications have become standardised and more of a commodity, Thomas Poedenphant, managing consultant at Pierre Audoin Consultants, believes there are advantages for those looking for a deal. ‘Prices have dropped and will continue to do so, so it’s a good time to buy,’ he says.
Poedenphant’s advice is all the more relevant in a market that has been subject to heavy consolidation. Oracle’s purchase of PeopleSoft at the end of last year means that, in the corporate market, there are now only two key players – SAP and Oracle. Both will be keeping a close eye on the former PeopleSoft customer base, which also includes users of acquisition JD Edwards’ packages, for signs of dissatisfaction. It means customers here have a strong potential negotiating tool if they decide to revisit existing licensing agreements.
To date, consolidation has been less marked in the small-to-medium enterprise sector, but a big increase in buyouts is predicted over the next couple of years as vendors bulk themselves up to ensure they do not become an acquisition target.
Sage and SSA Software are cases in point, and are already hoovering up a raft of smaller companies on a regular basis.
This consolidation means that the financial strength of an organisation’s preferred supplier needs to be factored into any purchasing or upgrade decision as a potential risk factor.
Currently the biggest driver for a financial and accountancy software facelift is the huge wave of financial reporting rules – from the Proceeds of Crime Act and the need to report suspected money launderers to international financial reporting standards.
‘Regulation is a key issue and necessity is a key driver in getting your systems sorted out if they aren’t up to the job,’ Bradshaw says.
Nick Jarman, head of financial management solutions at Atos Consulting, agrees. ‘Given that organisations have to spend money to ensure compliance, the focus really needs to be on making improvements around the finance function, and there’s generally plenty of scope for improvement,’ he says.
Jarman highlights three key areas where software can help. Much transaction processing work, which includes bread-and-butter issues, like dealing with invoices and paying bills, has traditionally been done manually.
‘But if you can automate as many of these processes as possible by activating the controls that are already there in many of the newer financial applications, you can reduce the number of people in the overall function and re-deploy them onto more valuable analytic activities,’ Jarman says.
Document management and workflow systems can automate business processes. But even though financial applications have improved considerably, Jarman believes that for many organisations, ‘it’s like having a Ferrari and not knowing how to drive’.
‘The challenge facing the accountancy profession is that, as financial applications do more and more of the heavy lifting, people have to know how they work and how things fit together or they won’t get the best out of them.’
The second portion of the financial function ripe for automation, he believes, is controls and compliance. This involves ensuring that the transaction taking place reflects the real business and can be proven to do so.
‘It’s not only about keeping track of activities, but also ensuring you measure the right things and that tests are applied in the right areas to ensure compliance,’ Jarman says.
‘You can’t automate this to the same extent as transaction processing, but you can use the increased functionality of financial applications to ensure you manage the process more effectively.’
The third area that can benefit from an injection of software is business reporting, which is about providing management information to the people who need it, whether they be the board or cost-centre managers.
‘It’s about turning a morass of data into real information, but to do this, you have to find out what information the business needs and so approach it from the point of view of what it is they need to know,’ Jarman says.
Rather than storing data in departmental ‘silos’, Poedenphant says companies must ensure information is presented in a meaningful format, and analysed on an enterprise-wide basis using business intelligence and analytics applications, such as reporting tools or management information dashboards.
Key corporate data can either be centralised into large, but often expensive, data warehouses, or key disparate applications can be integrated using middleware technology.
Members of the finance team not only need a good level of knowledge of the commercial environment in which the organisation operates, but also need a reasonably in-depth understanding of the applications they use on a day-to-day basis, if they are to exploit them to the full.
‘Accountants are having to become increasingly IT-literate and professional qualifications have expanded to cover this,’ Jarman says. ‘The idea of super-users is gaining more currency because it’s becoming clear how important it is to understand financial applications and how they affect both accountants’ job functions and the business.’
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