Few organisations can embark on significant changes to the way they do business without making changes to their financial systems. And, when companies look to change their financial management software, it invariably brings changes to the way the business is run.
These developments can bring considerable changes to the way employees in the finance department work, and could result in their move to an outsourced service provider or even losing their jobs altogether. As a result, how the change is managed is as important – and sometimes more important – than the choice of technology itself.
Moreover, the field of financial software undergoing significant change and innovation. According to industry analysts Forrester Research, the market for financial management applications is growing at 5 per cent a year.
Increasingly, that growth is being driven by companies moving from standalone, or “best of breed” accounting and financial software to enterprise resource planning (ERP) suites: ERP accounts for more than three-quarters of enterprise-level financial systems.
Part of this trend is doubtless being driven by consolidation among ERP and financial software vendors. But it is also being down to business’s need for greater visibility into their day-to-day financial positions, as well as the pressure for greater compliance and accountability from legislation such as the Sarbanes-Oxley Act.
“Compliance is one of the biggest drivers for upgrading or changing a financial management system,” says Paul Hamerman, vice-president for enterprise applications at Forrester. “Companies are also reassessing their financial management systems, driven by the need for greater standardisation.”
This view is supported by research carried out last year by Deloitte, the business advisory firm, and CFO Research Services, the research group. Upgrading financial management systems is widely seen as one way to tackle the increasing cost of running finance departments, an increase Deloitte says often runs to 20 per cent.
And the need to provide access to financial data to non-finance managers is also prompting companies to move towards ERP. According to the Deloitte report: “Companies are adopting systems to support the need for high quality financial information across business units… Many CFOs have had success in implementing ERP systems.”
Ensuring such success means both deciding precisely what needs to be changed, and finding the right people to implement it.
Moving to an ERP system might be a painful process for the finance department. Instead of a dedicated system created for the exact needs and exclusive use of the CFO’s team, ERP is an enterprise-wide system where the financial controllers are but one, albeit important, user group.
As a result, ERP implementation projects may well be a shared board responsibility, rather than that of the CFO alone. The CIO is likely to play a much greater role and may well have to make tough choices in order to balance the conflicting needs of departments that will use the system.
According to Brian Gregory, EMEA senior director for finance and compliance systems at software vendor Oracle, this can come as a shock for CFOs used to keeping the company’s general ledger under their exclusive control.
“Now, a lot of the data that could give rise to material errors, or force a CFO to go back to the markets and amend guidance, is in transactional systems elsewhere in the company structure,” he says. “But if the CFO is to be able to sign off a company’s financial position, they need to be aware of the governance standards applied to transactional systems and the operational data that is collected and managed within the IT framework.”
Fortunately for heads of finance, replacing a conventional, single-purpose financial management or accounting system with more modern technologies, typically based around ERP, does bring real benefits.
These include access to a far wider range of data, a move from batch to real-time processing, and integrated analytics and reporting tools.
Although analytics and reporting is also one of the fastest-growing areas of standalone financial software, company-wide business intelligence projects will provide a greater level of investment in the technology than could typically be justified by the finance department alone.
Having a broader insight into business transactions also helps finance departments move away from a focus simply on the profit and loss, and to potentially play a greater role in the way the organisation is run as a whole. But not everyone, and sometimes not even every CFO, will embrace such change.
Such issues often come to the fore when companies attempt to centralise or consolidate the finance function, typically on the back of a move to a single instance of ERP or financial management technology.
“You may be taking away from finance directors a lot of their responsibility for debits and credits,” says Oracle’s Mr Gregory. “Instead, the CFO is much more involved in managing the business. Some finance directors are not comfortable with that change, but some relish it.”
In the same way that it is hard for finance administrators to implement systems that might replace their jobs, so boards need to be honest about whether the CFO is committed to organisational change – or is the right person to lead it.
Some CFOs will take to the role; in other companies a project team or consultant might be the right choice. And it is critical for the CIO to be involved in decisions at an early stage, as he or she may well have to act as an “honest broker” to resolve inevitable conflicts between departments when it comes to designing and rolling out a new system.
Whoever leads, the business will need a clear change management process. At the same time, implementing a financial management system in isolation will not provide the best results for a business. Changing technologies provide an opportunity to update business processes, but this needs to happen before the financial system is updated.
“It is essential to address business processes,” says Sharon Crawford, of IT industry analysts Quocirca. “Otherwise, the same broken business processes end up being the same broken business processes, only faster.”
