FT.com / Home UK / UK - Financial Management

FT.com / Home UK / UK - Financial Management

Financial Management
By Rod Newing

Published: June 11 2007 17:41 | Last updated: June 11 2007 17:41

The finance function is no longer full of “bean counters” keeping the score by producing historical accounts three weeks after the end of each month. The department now works in partnership with the business to set strategy and objectives and then help to make sure they are met.

“The world of the chief financial officer (CFO) in leading organisations has changed dramatically,” says Steven Culp, European lead for the finance consulting practice at Accenture, the professional services firm. “They have changed from being a back-office keeper and provider of numbers and analyst, to having their feet under the table with the chief executive and chief marketing offers to actually take business decisions.”

Accurate recording of transactions is still essential and is part of the accounting system, which for most companies is a module of the enterprise resource planning (ERP) system. These use industry best practice templates to bring efficiency to the back office financial processes. Full integration with other modules supports competitive advantage by enabling innovative cross-enterprise business processes.

Paul White, however, director of the Dynamics product group at Microsoft, points out that most accounting systems were implemented between five and seven years ago. And while the business has moved on, but the system has stood still.

“Companies do all sorts of weird work-arounds to fill the gap,” he says. “They use spreadsheets, databases and small applications to record transactions entering and exiting a new business process. Over time, these represent a significant drag on the business because they cost time and money to use, maintain and support. It is an invisible cost, because they are not formal adopted business systems and it is all done by users ‘under the radar.’”

The accounting software may have been upgraded to a much more powerful and flexible version. If so, the processes must also be changed to take account of new functionality and to replace these add-ons.

Accounting systems have never been good at reporting past financial performance, let alone monitoring the leading operational indicators that drive profit. This task has traditionally been addressed by a succession of software approaches, such as decision support systems, spreadsheets, executive information systems, online analytical processing (OLAP), business intelligence and now performance management. This latter software covers a range of financial management processes, including reporting, querying, modelling, planning, budgeting, forecasting and financial consolidation.

But a recent survey by Parson Consulting and the Conference Board, a research organisation, shows that only about 50 per cent of companies consider their performance management processes to be successful or very successful. Almost 80 per cent are not able to overcome problems before they impact the business.

Part of the problem has been that organisations have become too dependent on spreadsheets. “It is ludicrous that large organisations run key financial processes based on spreadsheets,” says Ian Charlesworth, principle analyst at Ovum, the consultancy. “They are insecure and lack data quality and data integrity disciplines.”

Although many performance management systems have their own interface, most of them will allow users to access the database dynamically from within a spreadsheet. “The humble spreadsheet has been a valuable tool and we are not going to get people in finance departments to move,” says Mr Charlesworth. “They are too cosy and understand them too well. Spreadsheet proliferation needs some control behind it and performance management system users can still work in their favourite spreadsheet environment, but the organisation can apply more discipline, structure and security.”

Organisations will inevitably be faced with more financial compliance demands, but accounting and performance management software vendors work hard to ensure that their systems help their customers to comply with a wide range of legislation and regulations. Dennis Keeling, chief executive of the Business Application Software Developer’s Association, advises organisations not to spend an inordinate amount of time trying to understand how legislation will affect their systems. It is far easier to update them, which will automatically implement all the legislative and regulation changes. The cost of upgrading is usually covered by the annual maintenance agreement.

“Remaining on the same version or system may become increasingly less sensible or possible,” he says. “Modern financial management software is flexible, adaptable and easy to upgrade. Future changes will be accommodated in business software, so this will future proof the systems. Just as most organisations update their payroll systems each year, they will do the same with their financial systems.”

Performance management software is a major part of the business intelligence software industry, which uses the same technology to support marketing processes, such as campaign management and data mining. This industry has been consolidating over the last few years, led by pure-play “super-vendors” Business Objects, Cognos and Hyperion and application vendors like Infor, Microsoft, Oracle and SAP. The recent agreement for Oracle to purchase Hyperion must now cast doubt on the future of the business intelligence industry.

“The domino effect now has an unstoppable momentum,” says Mr Charlesworth at Ovum. “What has been a very strange market will rightfully be integrated within applications and systems. The functionality does not exist in its own right, but as part of a management or business process. Business intelligence and performance management will become an invisible component of application suites.”

Even these large application suites face new challenges, as more efficient ways of managing them emerge. Many organisations are already outsourcing them. All the main vendors are in the process of adapting their software to be delivered and rented over the internet, and NetSuite was designed from the outset to deliver its functionality this way.

CFOs are now working with operations to ensure that business processes are efficient and bring competitive advantage. Most of all, they are helping to set the right financial objectives and then ensuring that operational performance is optimised to deliver the required financial performance. They are also ensuring that better decisions are made, costs are minimised and that a company complies with a wide range of regulations.

“Financial systems are bringing greater levels of control, automation and auditability to financial processes,” says Mr Charlesworth. “This brings the same discipline and rigour that you would expect from any other process in the organisation.”

Accenture’s Mr Culp sums up the supporting role of the software. “Although each vendor has strengths and weaknesses,” he says, “the business processes and the decisions you make around them are more important.”

Copyright The Financial Times Limited 2007