Euro IT Focus - Playing a game of watching and waiting

The deadline for the launch of the euro in the eurozone is drawing ever closer.

But it seems the number of European companies which have so far converted their accountancy software packages ahead of the 1 January, 2002 deadline has prompted serious worries among officials in every European state.

A meeting of leading European software figures last month at the European Commission in Brussels revealed the take-up rate of the euro by businesses in the euro-zone – especially SMEs – was ‘appalling’.

Pedro Solbes, finance commissioner, reported that the Commission was not seeing the results it had anticipated. Results are gathered by the Commission using VAT and Customs returns as leading indicators of euro usage – and so far only a small percentage of companies are making those returns in euros.

Although some larger companies have already undergone the conversion process, only 0.2% of companies in the euro zone have actively changed over to the euro and a mere 0.6% of transactions are made in euro – with some companies still to receive a euro invoice.

But why is it there appears to be such a low interest from companies in converting their software? One theory is that companies are not sure which software vendors offer guaranteed compliant software to the market – especially if software houses have not put forward their product for independent testing.

Basda – the UK accountancy software trade organisation – has for the last 18 months carried out EMU accreditation testing in conjunction with the Dutch member firm of Ernst & Young, following mounting pressure from end users.

The first companies to have software packages accredited in January last year included Baan, CODA, TAS Software, Navision, SAP and Scala. Some 29 companies have now passed the multi-currency EMU accreditation. As well as testing the software for euro compliance in conversion, rounding and triangulation, using their own euro test data, Ernst & Young also assessed the quality of the supporting documentation and the development organisation. In order to achieve accreditation, the software developers had to met the requirements in all of these areas. In March of this year Basda launched the next level of its EMU accreditation programme which covers base currency conversion. To achieve the second level of accreditation the software must: provide a comprehensive base currency conversion routine which produces accurate conversion of all monetary amounts held in the financial ledgers; provide for rounding adjustments to be posted to a separate account; and, show a full audit trail of the conversion. Companies including Baan, Scala, SunAccount and Oracle are among those who have passed the second level. Basda spokeswoman, Wendy Haylock, denies the association was unhappy with the number of companies that have applied for the testing. ‘There is a feeling within a lot of companies that they can forget this issue until the last minute. However, companies should be aware that even for smaller companies it will take at least three months to complete the compliance process. ‘Added to this is the fact we are still living in the shadow of Y2K, and that many people really do not want to know about another software problem. After the anti-climax of Y2K many managers believe they can get away with it,’ she adds. Another explanation of the lack of interest in compliance can be explained by the unpopularity of the idea among consumers. Some companies which are looking to tackle the issue of compliance have been prevented from doing so by their customers.

Deutsche Telekom recently tried to convince its customers to rebuild their systems in euros – but they did not go for the idea.

And as a result the company was left with the risk of losing market share if they forced through the unpopular idea.

Meanwhile, some companies are trying to hold out on conversion until June 2002. This has met with strong disapproval from Goran Tidstrom, vice president of FEE, who believes it will be impossible to maintain accounts in a national currency after 1 January 2002, without leaving companies open to weakened financial control and an increased risk of fraud.

However, Haylock says the conversion time even for small companies is considerable: ‘The downtime for conversion can be spread over a long period of time and converting ledgers can be done over a weekend. However all the feeding software such as manufacturing systems can take months to convert and check.

‘The euro problem is three times as bad as Y2K. Three times as difficult, time consuming and costly,’ she says.

However, Comshare spokesman, Nigel Youell, says: ‘For UK companies the euro is not an issue. For the big multinationals it is, but for the average UK company the pound is the currency we work in and the euro is merely a foreign currency. Our products are euro compliant but we have not found it to be a huge issue.’

TAS Software managing director, Theo Van Dort, believes the euro issue is still viewed as an overhead, especially among the smaller companies.

‘Until the euro is in circulation, small businesses will put off conversion as long as possible. The main problem at this stage appears to be a lack of information on the specifics.

‘We will counter this by writing to our customers in summer encouraging them to carry out a dry run and check with their accountants and with us.

‘However a separate issue is payroll and accounting decisions will have to made at the beginning of next year, before the new tax year in order to meet the euro deadline, otherwise a raft of issues will be thrown up.

‘Our message is to begin converting from the spring onwards and not wait until the end of the year, when it may be too late.’

ONE IN FIVE BUSINESSES WILL NOT BE READY

As the deadline for euro compliance draws ever closer, big business appears to be leaving preparations very late.

According to a recent survey from software giant IBM, only two per cent of Europe’s large organisations are currently in a position to begin trading in euros – with some 70 % of all IT applications still in need of modification.

In addition, as many as 20% of those companies surveyed do not believe they will be ready for the deadline of 1 January, 2002. The causes of these low levels of activity are varied. Perceived complexity of projects and apparent lack of preparedness among both customers and suppliers appear to be the stumbling block for many companies – while others simply deemed it a low priority within their business.

A further 10% of those surveyed cited lack of staff enthusiasm and focus on euro-related projects as a demotivating force.

There is also evidence that many organisations have underestimated the scope of work necessary to be fully ready for the euro, despite widespread acknowledgement of its critical importance.

Although 20% of the respondents consider the euro to be the most important project in which their organisation is currently engaged, figures show that barely nine per cent of respondents have actually completed all the essential phases.

Even large organisations have left the preparation late, and according to the findings only a small proportion plan to complete ahead of time in order to capitalise on the pan-European opportunities open to early adopters.

In contrast to the forces which drove the early leaders to convert to EMU, many companies surveyed seem to be motivated solely by accountancy issues, simply aiming to implement the bare minimum of changes in order to comply with government legislation.

According to John Downe, customer programmes leader of IBM’s euro global initiatives, this is a short-sighted approach. ‘Many organisations now realise that implementing euro preparedness is more complex and time consuming than they first thought. As a result they are diverting funds away from their EMU projects to concentrate on what they perceive as more tangible concerns, such as ERP and e-commerce,’ he says.

‘This strategy is a mistake as it completely ignores the tremendous business opportunities available to the early adopter in an increased single market, particularly in terms of a consistent multi-country e-business strategy.’

Despite this seemingly reactive trend, results still highlights that the issue of EMU demands significant board level attention across virtually all organisations questioned.

Research also uncovered a far higher level of understanding of the business implications surrounding euro conversion, with the majority of respondents (90%) now understanding that it means more than simply handling another currency.

With this in mind, and as a result of the survey, IBM have been able to create a Benchmark which is now being shared with all the participants to enable them to better understand how they compare with their industry and/or country.

The intention is to replicate the survey in approximately six monthly intervals which will allow participants to track their progress.

EURO READINESS: A SOFTWARE VENDOR’S VIEW

From a software vendor’s point of view, being euro ready, or compliant, was a necessity. Despite the hype during 1998, very few facts were available for those designing systems. If we, the system developers were in the dark, then the consumer definitely needed help in determining fact from fiction when investing in new software.

Basda quickly identified the needs of its members. By lobbying the necessary organisations and voicing the concerns of the software developers, it forced a definitive set of rules particularly regarding triangulation (currency conversion).

As a member of the Basda organisation, Navision Software supported the introduction of the Ernst & Young/Basda accreditation scheme for accounting solutions and was pleased to be among the first to receive the accreditation logo. This gave our customers and prospective purchasers confidence in their chosen supplier.

Since its introduction in 1999, the euro has yet to become the force it was expected to be, and there is no real explanation from the banks and money institutions regarding its weakness.

Bank of England figures indicate take up by companies in the first wave has been very slow, and the projected timescale for ‘switch to euro invoicing’ is now late 2000 or even 2001.

Only 20% of large companies have euro accounts, nor are the full range of facilities likely to be available from the public and finance sectors until the end of the transition period.

As far as end-users are concerned, euro compliancy is now a ‘check-mark’.

Anyone purchasing a system today assumes the vendor will meet all legislation requirements both now and in the future. Maybe this is thanks to organisations like Basda who strive to maintain standards among its members.

Navision was one of the first to gain the coveted EMU accreditation from Basda, and has already demonstrated its new technology platform to many partners.

As a player in the mid-market our commitment to future technology can be seen in our new developments using XML, Biztalk and WAP technologies.

E-business for our clients will mean business as usual – just as it did for Y2K (Navision Software products were Y2K ready from the first release in 1987). Similarly, our clients can be sure that regardless of whether or when the UK takes on membership of the single currency, their investment will be repaid by a smooth transition, and the experience of our partners from countries where the transition is well advanced.

– Sandra Giddings is a product manager at Navision Software UK Ltd