Look to hosting, standardisation, automation - and beyond SAP
Finance directors need to know plenty about technology as their companies emerge from the economic downturn. Anthony Plewes gives five tips for preparing for growth.
Information technology plays a key role in the finance department - and with companies looking to expand as they come out of the recession, never has it been so important.
So how can FDs make the best use of IT?
As businesses grow and explore new markets and activities, the challenge for the finance department is how to keep control of costs. The key is to create a standardised financial IT infrastructure that is agile enough to support the business' growth and provide business intelligence to the desktop.
Here are five keys to success in today's economy:
1. Harmonise financial processes
As the role of financial information technology should be to support financial processes, the first crucial action is to standardise financial processes across the organisation. Larger organisations need to minimise the number of chartered accounts or global entities, and harmonise financial processes. For some projects, this can be as simple as making sure that the approval processes are the same for all departments before rolling out a company-wide expenses system.
However, for international companies it might not be possible to completely standardise financial processes across the organisation. Mike Giles, financial director at international law firm SJ Berwin, explains: "We try and operate as a single firm, but as CFO, I know we have to file our tax returns in France according to GAAP [generally accepted accounting principles]. I rely on my local finance teams to find out what their needs are and I try and incorporate those needs into my global strategy and systems, otherwise I need to find a workaround."
Giles currently uses duplicate accounting systems in some countries but hopes eventually to harmonise it all on a single system.
2. Standardise on a single global instance of financial IT
With harmonised financial processes in place, it's much easier to standardise on a single global instance of a finance package. Even if companies aren't running different software packages, the chances are that they are running different versions and that these are hosted locally.
"Take ERP: some companies have 14 different instances," says Tony Chauhan, European IT practice director at advisory firm the Hackett Group. "Having too many instances means there is no real data flow in the organisation. There is a need for them to have a single global instance, or regionally at the very least. This drives greater transparency for the organisation."
For many companies, choosing their financial software is a fairly simple process. Sometimes there's a package designed for their industry vertical, such as Elite for law firms, or they use an ERP package such as the one from SAP, and the financial function of that is a good fit. However, Ben Barry, managing consultant at consultancy Xantus, warns that companies should be careful of buying SAP for the sake of it.
"SAP is a Rolls Royce solution but it is big and expensive and takes long to implement," he says. "Sage is emerging as a real competitor to SAP in some scenarios. One client of ours is divesting a business unit, which they will run more cheaply than their parent company. They are looking at Sage as a general answer to the SAP quandary and they are still a very big business in their own right."
While SAP can take nearly a year to implement, Sage can be fully functional in around a month.
3. Consider the benefits of new technology
Of course one way to cut down the length of implementation is to look towards using a hosted solution. . .
Toy developer Bluw is one company that took that step. Growing from a small base to having offices in China, the UK and US, it needed a hosted package that met both its needs in finance and CRM.
"We ended up going with NetSuite primarily because of the cloud aspect and its scalability. It was also cheaper than SAP at the time," explained Ian Harkin, Bluw's financial director. "Not having the application on our server meant we didn't need to worry about where we moved to: it was always there in the background and fully backed up. It also allowed us to support our office in Hong Kong where we do a lot of invoicing in HK dollars and US dollars and gave us have visibility in terms of control from the UK."
4. Look to automation
The key activity for FDs looking to control costs is automation, says Joel Roques, managing director of European advisory at the Hackett Group. He believes finance departments are starting to reverse the trend for transactional process offshoring that has served them well over the past decade. "We are now coming to the next stage, where FDs are actually asking themselves whether it should in fact be automated. Thirty per cent of world-class organisations see the future in tools such as automatic invoice matching and payment allocation tools."
Tools such as these help FDs digitise the whole financial process, from e-invoicing to payment allocation, with the so-called three-way match (invoice, PO and receipt). Through automation the whole process is sped up and errors such as duplicate payments are virtually eliminated. This happens much more frequently than most companies let on, with the Hackett Group estimating that errors can go to as high as five per cent of payments.
The RFU, the governing body of rugby union, is looking to automation to improve its processes by moving from a manual-based purchasing system to an automated web-based workflow system. John Moulson, FD at the RFU, says his organisation is rolling out the project based on Compleat slowly, starting with a department that was using a manual system and finishing with the rugby departments. This will give all departments access to purchasing functionality online, including the community team for grassroots rugby.
"Wherever they are based, they can access the system and create a purchase order for 100 rugby balls, which will be approved by their boss and sent out to the supplier," explains Moulson. "The goods come in, they receipt it and then we can pay the invoice. We don't need to send it out to somebody to sign, so it cuts out a lot of time and paper flow, and we have less arguments with suppliers over lost invoices."
Ultimately the system will give the finance organisation more control, such as through enforcing budget checking, so that users are warned about going over budget before ordering. It will also allow the RFU to standardise on suppliers and gain economies of scale by channelling users towards 'approved' suppliers.
5. Move from transactions to intelligence
The other benefit of moving towards automation is that the finance department is freed up to focus on higher-value activity - and the most important of these is business intelligence.
"There is a lot of investment happening in technology solutions in finance around data warehousing and business intelligence to allow better forecasting, analysis and business support," says Hackett's Roques. This intelligence is crucial for companies as they look to expand after the recession, because the business will be able to rely on solid financial figures and forecasts to back up their strategic planning.
According to SJ Berwin's Giles, the firm is focusing strongly on business intelligence through its Redwood BI tool, which allows it to put information directly into the hands of the people who will be able to make best use of it.
"It allows us to move away from paper-based reporting and put more information onto the desktop of the fee earners. They will have drill-down facilities so that they can dig down deeper into the data that they are receiving," he says.
And by giving this information directly to the end-user, the business is able to become more agile. In essence, much as in IT, the right technology helps align the finance department with business needs.