The euro experiment may fail. The currency may collapse. A country such as Greece, or Ireland, or Italy may decide to default on its debts or leave the euro. A return to the drachma, or the punt, or the lira could yet become a necessity. Peek-a-boo! It’s time to stop hiding behind the sofa. Because even if European politicians don’t want to remove their blinkers and acknowledge the need for a ‘plan B’, just in case the unthinkable happens and they have to ditch their grand plan, businesses must assess the risks they face and start making contingency plans.
‘Companies must not ignore worst case scenarios,’ suggests Nuno Fernandes, professor of finance at the International Institute for Management Development, in Lausanne, Switzerland. He is full of hope for the future: ‘I believe that the euro will survive’ he says, but Fernandes is urging those that could be affected if it doesn’t to plan for the possibility. ‘Business leaders must realise that there is a real threat of the euro breaking up and of several euro zone countries reverting back to their former currencies,’ he says, and not having a contingency plan is ‘bad risk management’.
The professor recommends a seven-step process as the basis for contingency plans. This includes planning for an even more severe liquidity crunch, focusing on your core business and the sort of investments that can safeguard this, strengthening your balance sheet, carefully managing your exposure to foreign exchanges, incorporating a reconversion of currencies into your strategic planning, monitoring your supply chain, and assessing the balance sheet impact of a prolonged recession. It’s not pretty, but needs must.
Fernandes’ seven-step process for contingency plans doesn’t specifically mention software and systems, but that doesn’t mean he thinks you can afford to ignore them. ‘I think people in the finance function should be considering the potential implications for their finance systems and the various systems that feed into them,’ he says. ‘The challenge is to assess the impact on the value chain,’ he says, ‘and thus develop a scenario analysis on how payment systems, internal control systems, etc, should function,’ in a range of euro-related scenarios.
So after doing a risk assessment to identify all of the software applications and systems that could potentially be impacted, your next port of call might well be the developers and providers of the software applications you rely on. After all, you need to know if their software will need to be modified, how quickly and easily this can be done, whether you will need utilities and services for tasks such as data conversion, and how much this is going to cost you – as the answers will inform your contingency plans and any change management projects.
When FSN recently did a very unscientific straw poll of business software developers, most were ‘bullish’ about how well their software could cope with single currency disasters. They are not worried and neither should you be, apparently. Though they seem less sanguine about legacy systems and e-commerce systems. ‘A lot of software has been built on the basis of a single currency, and does not allow users to change the base currency,’ says Dean Dickinson, managing director, with Advanced Business Solutions (Public Sector & Enterprise) – excluding ABS, of course.
Not all payment processing will be a problem. Bottomline Technologies says its systems are ready and waiting. ‘Exchange rates are always changing, so flexibility is built into our systems, and currency is just an ISO code,’ says Richard Ransom, payments product marketing manager at Bottomline. ‘We batch process data from ERPs and other finance systems,’ he explains, and as long as Bottomline knows about any changes to the format of the data it can easily accommodate them: it’s just a case of tweaking a few parameters.
For some developers of accounting, enterprise resource planning (ERP), payroll, procurement, and other finance-related systems that are affected by the fate of the euro, a collapse or an exit may be similarly simple to accommodate; for some it may not. ‘I think it’s a case of when Greece leaves the euro rather than if,’ says Neil Robertson, chief executive of Compleat Software, but as its spend control software is multi-currency, be believes that minimal changes would be necessary. ‘There’s a small workaround, and it’s very easy to do,’ says Robertson.
ERP developer Unit4 has also assessed the potential systems implications and deemed them manageable. ‘Our our systems stood the test of time going into the euro, and dealt with the triangulation challenges, so we could do it all again should the need arise,’ asserts Tonn Dobbe, VP product marketing, and handle any euro-related changes to its software. ‘Significant changes can be made to applications, business processes and procedures relatively painlessly, so long as we understand any new legislative or regulatory requirements and the related timescales,’ he says.
But the future of the euro looks less clear now than it did in the run up to its introduction. A long lead-time gave countries and businesses opportunities to plan, and some of the euro-related nightmare scenarios now lurking in the shadows could reveal themselves at any moment. So how well your finance systems could cope will, admits Dobbe, be down to good old-fashioned planning and execution. ‘Preparedness is key when any game-changing issue raises its head, and we are keeping our eye on the developments across Europe, as any vendor or supplier should,’ he says.
Some software developers do foresee their clients needing help with some of the practical software challenges that could arise. ‘The functionality already exists to maintain multi-currency records,’ says David Taylor, VP, strategic market development, with Trintech, the financial compliance software developer that specialises in ‘the last mile of finance’. But as he explains: ‘There may be a need to assist corporations with some one-off events upon the introduction of new currencies resulting from a country or countries separating from the euro.’
Not all systems make it easy for users to change their base currency, and even businesses that are using systems that can trade in multiple currencies could have a few problems. ‘Issues may arise when it comes to historical information and areas such as outstanding debts,’ says Stuart Anderson, director of sales and marketing at Pegasus Software. ‘We would have to work with our partners and customers to develop utilities to assist in the data conversions needed to allow them to continue to trade and operate,’ he says.
Timing will be a critical factor. Even users of the most flexible and adaptable business systems out there could end up reverting to spreadsheets – if only temporarily. ‘When organisations go through major changes in areas such as regulation, their systems often struggle to cope, so they use spreadsheets until their vendors catch up,’ reports Ralph Baxter, the CEO of ClusterSeven, a data management and spreadsheet specialist. So as well as the existing spreadsheets that will need changing, as he adds: ‘An exit or collapse could create a huge tranche of new spreadsheets.’
Pegasus’s Anderson is well aware that producing the required conversion software cannot be done at the drop of a hat. ‘It could potentially become a complex area to develop,’ he says, and even when it is available, its use will create some practical post-conversion challenges for businesses. Tests will need running on currency values, base data, and feeder systems (which could be in the black hole of legacy systems). So if you haven’t already done a risk assessment or made any contingency plans, you might want to get the ball rolling.
