FSN White Paper
“Maximising the value of Enterprise Business Systems through Integration”
An examination of the importance of interoperability to organisational productivity and responsiveness when living through a period of rapid change.
CONTENTS
INTRODUCTION – THE DRIVERS OF CHANGE
THE CHANGE MANAGEMENT CHALLENGES OF THE HOMOGENEOUS (ERP) APPROACH
THE CHANGE MANAGEMENT CHALLENGES OF A HETEROGENEOUS (‘BEST OF BREED’) APPROACH
Unnecessary accounting complexity
Limited user productivity
Incomplete compliance and performance management
Limited operational efficiency
Inability to respond to change
HOW THE CODA-LINK ARCHITECTURE OVERCOMES THE LIMITATIONS OF A BEST OF BREED STRATEGY.
The role of the unified ledger
The role of CODA-LINK and its 5 components
The advantage of the common user interface
Pulling it all together
CUSTOMER STORIES
Screwfix
Avis Europe
SUMMARY
INTRODUCTION – THE DRIVERS OF CHANGE
For nearly two decades businesses have been accustomed to constant growth in gross domestic product and a positive trading environment. Now that the economic pendulum has swung in the opposite direction organisations have to acclimatise themselves to challenges of a different kind. But growth and contraction are two sides of the same coin – both involve managing change – and both require deft management and a skilled response to maximise the business opportunities.
A buoyant economy brings the challenge of managing growth in all of its guises from simple increases in transaction volumes and organic growth in products and services through to enlargement as a result of diversification, acquisitions and globalisation.
But arguably the growth of the last two decades has masked much more profound changes, i.e. structural changes that have affected whole swathes of industry as they come to terms with the networked economy. The business models of inefficient businesses that up until now were swept along by a tide of unremitting consumer demand have been cruelly exposed by the downturn and many household names in the automotive, publishing, retail, media and airline industries are struggling or have all fallen by the wayside.
The notion that businesses, even very big businesses, can execute strategies entirely on their own terms is misplaced. Most organisations operate in a fragile ‘ecosystem’ of multiple stakeholders and dependencies. For the last two decades businesses have been driven by the “maximize shareholder value” mantra, but such single mindedness is being challenged by the networked economy and organisations of all kinds are waking up to a wider range of responsibilities and relationships with suppliers, customers, employees, regulators and other stakeholders.
As a consequence business processes are being stretched beyond traditional corporate boundaries and there is increasing pressure to interleave enabling systems with, for example, a wide range of external supply chain, e-commerce, CRM and even Cloud based applications.
Although IT cost reduction in a downturn is tempting and nobody disputes the need to eliminate unnecessary cost, blanket reductions can be counterproductive. The networked economy and the complexity of relationships that businesses need to oversee make trimming costs and maximising value from existing systems much more complicated to achieve.
“IT investments deliver more value to a company’s top and bottom lines - by creating new efficiencies and increasing revenues – than any savings gained from traditional IT cost cutting1.”
Therefore the key to sustaining performance and systems longevity turns on the agility of underlying systems, for example, the ability to absorb change on the fly, their interoperability with other environments and the ease with which applications can be integrated. So how well have businesses coped with these new demands?
THE CHANGE MANAGEMENT CHALLENGES OF THE HOMOGENEOUS (ERP) APPROACH
Whatever one's views of ERP systems (Enterprise Resource Planning) it is undeniably a fact that they have made a very made a very deep impression on the corporate landscape for transaction processing. In the early to mid-nineties, multinational organisations welcomed the broad reach of ERP applications and in the run-up to the millennium spent vast sums of money on re-engineering their processes, implementing new systems and establishing shared service centres. A homogeneous approach to IT strategy based on a single significant transaction platform deployed across the organisation allowed rapidly growing multinationals to exert control, standardise processes and reduce average transaction costs.
Since those heady days, the ERP bubble has burst and private sector organisations are now facing the twin challenges of a low growth environment whilst meeting the competitive demands of the networked economy. On the other hand, public sector organisations are equally challenged by government reform, pressure on budgets and the need to embrace e-citizens.
Whilst many CEO's seized on ERP as an enabler of business transformation, relatively few businesses have undertaken change on this scale post-millennium. So it is only now, in a period of dramatic change and tighter budgets that the true cost of ERP is being exposed. Organisations that benefited from ERP systems when contemplating massive change, now find themselves less flexibly positioned in the face of relentless change. Where ERP systems were once regarded as technology ‘investments' they are increasingly viewed as sunk costs, since every incremental change requires fresh investment.
“The initial investment to acquire and implement an ERP system is substantial. But even after the system is up and running, the costs continue to mount as the business evolves, requiring the ERP system to evolve as well as keep pace.2”
“CFO Research Services looked specifically at the costs of modifying ERP systems in companies with annual turnover in the range of $100m to $1billion. The study found that a typical company in the survey spent an average of more than $1.2m each year to maintain, modify and update its ERP system. Over half of the 157 respondents to the survey estimated that internal costs (salaries for IT, finance, user training, project management) alone are between $100,000 and $500,000. Add in external costs (IT vendors, contractors) related to ERP modifications and annual maintenance and the total weighted average annual cost of serving ERP comes to a hefty $1.24m.2”
Worse still, homogeneous IT strategies based on wall-to-wall ERP systems and self-sufficiency did not envisage the need to step outside of the ERP environment. In fact integration with other systems was positively discouraged and regulated through the practice of ‘certified adapters’ which limited customers’ choice of third party systems in the hope that their needs could be satisfied from within the current ERP stable.
THE CHANGE MANAGEMENT CHALLENGES OF A HETEROGENEOUS (‘BEST OF BREED’) APPROACH
Companies that pursued a heterogeneous (Best of Breed) IT strategy were often better able to satisfy their needs through purchasing specialised applications that solved particular business problems. These could be in order to harness some specialised vertical market capability such as retail point of sale, engineering and warranty servicing or perhaps to take advantage of functional capability around business intelligence, or performance management applications, for example, budgeting, planning and consolidation.
However, nobody could have anticipated the full extent of growing business complexity in recent years and the number of different business applications that might be required. With insufficient integration tools this has left some businesses with a sprawling patchwork of partially integrated applications and duplicated databases. In the main spreadsheets, databases and manual workarounds have been used to pave over the cracks in business processes and information exchange, rendering Best of Breed strategies unable to respond comprehensively to change.
Yet the heterogeneous approach, based on a ‘Best of Breed’ strategy is still widely favoured because of the choice it provides and the better potential to respond to constantly changing markets. If the limitations posed by poor levels of integration can be overcome then the Best of Breed approach provides an economically, operationally and organisationally attractive way forward.
So what are the limitations of a Best of Breed strategy and how can they be addressed? In practice there are 5 critical limitations:
Limitation 1: Unnecessary accounting complexity
Unfortunately, flexibility and complexity often go hand in hand. The ability of a business to choose from a wide range of applications enables it to choose the system which best fits its needs but often introduces accounting complexity.
For example, outsourced expenses management, purchasing portals and e-commerce applications all give rise to additional accounting entries and the need for sub-ledgers to control employee expenses, e-commerce creditors and debtors. Yet companies are often forced to deal with these issues as discrete accounting ledgers each with their unique account codes, validations, business rules and analysis codes.
Regardless of whether integration is manual or fully automated, the existence of sub-ledgers outside of the ‘core’ financial systems gives rise to reconciliation challenges, (transaction matching and journal entries) especially in high volume environments.
Limitation 2: Reduced user productivity
Organisations often underestimate the human effort involved in assimilating software from multiple vendors with different user interfaces. Furthermore, the simple notion that applications provided remotely over the web must provide an easier ‘user experience’ is misguided.
Native applications from different software authors inevitably have their own design concepts and approach to navigation, so manoeuvring between one application and another is neither intuitive nor productive. Though these issues are manageable on a small scale the difficulties are significant when managing several different applications, making it difficult to train users and move them between one functional area and another, for example, to respond to peaks and troughs in workload.
Limitation 3: Incomplete compliance and performance management
Combining management information to deliver performance improvement and insight through an organisation is significantly more challenging in a ‘Best of Breed’ architecture with its multiple vendors, applications and data sources. It can put a significant strain on the accurate and timely collection of management information as well as compliance with statutory reporting disclosures.
In recent years the problem has become worse because of the increasing breadth of statutory disclosure requirements, brought about by the EU Accounts Modernisation Directive in Europe and Management Disclosure and Analysis in the US which compel companies to collect information (both financial and non-financial) from a wide range of data sources.
Furthermore, the increasing frequency of reporting demanded by regulators together with accelerated timescales for filing and publication of data has placed an additional burden on already strained data collection systems. As such, a Best of Breed approach which does not place a high priority on tight integration jeopardises not only the timeliness of reporting but also compliance and control.
Limitation 4: Constrained operational efficiency
Structural change and the networked economy pose an interesting dilemma for the Best of Breed approach. Paradoxically the need to manage different stakeholders (suppliers, customers, employees) has not only driven diverse business needs which suit a Best of Breed approach but also highlighted the need for tight integration - which does not suit a Best of breed approach.
For example, the ability to share information instantly with customers and suppliers over the web is vital to efficient logistics and supply chain processes but the smoothing of these processes to manage inventory levels, unfulfilled orders, stock-outs, wastage and business disruption is difficult to achieve without tight integration.
The result is that a Best of Breed policy which is not accompanied by efficient integration can act as a severe brake on an organisation’s responsiveness and competitiveness.
Limitation 5: Inability to respond to change
Rapid change is a constant feature of today’s economy regardless of whether it is expanding or contracting. So whether companies are selling services or products flexibility is key to maximising the benefits and the integration between different applications has to be amenable to change, upgradeable and provide a consistent level of control.
The Best of Breed approach allows businesses to take advantage of business change but is not fully effective unless the components of the underlying infrastructure can work seamlessly together.
HOW THE CODA-LINK ARCHITECTURE OVERCOMES THE LIMITATIONS OF A BEST OF BREED STRATEGY.
Anticipating change rather than merely responding passively to market developments is something that finance systems specialist CODA has built into its architecture from day one. Developed from the outset to support a Best of Breed strategy its ability to support complex financials allied to a unique applications architecture has stood the test of time and overcome most of the limitations normally associated with the Best of Breed approach.
Ahead of its time, a design developed more than three decades ago combines several features which support and enhance a successful Best of Breed strategy, namely:
- A unified ledger system that reduces accounting complexity and eliminates the need for sub-ledgers
- Support for a common user interface which enhances the user experience and productivity, providing consistency across the Best of Breed environment.
- A variety of integration options designed to accommodate a range of business requirements from batch uploads of static data to real time data interchange with web based applications
- A control environment that enforces the rigour of validation and business rules to provide a robust platform for reporting and compliance
The role of the Unified Ledger
At the heart of CODA’s enterprise business system is the concept of the ‘unified ledger' which helps to simplify multi-source transaction processing whilst simultaneously opening up the possibility of more sophisticated analysis. Whereas most business software packages were developed with separate modules governing the main accounting ledgers and sub-ledgers, CODA’s single ledger design, accompanied by extensive user definable analysis enables the package to satisfy complex accounting requirements and fulfil a wide range of industry needs.
The unified ledger design is inherently versatile. Firstly it reduces complexity and eliminates unnecessary integration since all transactions are physically recorded in the same environment. This reduces the interface cost, since a single ledger means that users do not have to interface to different ledgers in different formats. Secondly, it allows the addition of user defined transactions to be readily absorbed and reported on – again avoiding the need for sub ledgers. Thirdly, by accommodating all changes in one environment it ensures a common user interface for all transactions types added to the unified ledger. This architecture results in an adaptable and dependable core which enforces common standards of control (through consistent data validation), is infinitely extensible and easy for users to understand.
The role of CODA-LINK and its 5 components
“As IT becomes tightly integrated with processes, breaks in workflows often get built into systems and diminish productivity. A telecommunications company has started to attack such issues by building high-value but inexpensive LINKs between multiple silos of information. The value came from integrating information flows at key points, not from creating new systems1.”
Integration is a widely used term yet it covers a multitude of different technical implementations. At its most basic, integration covers the transfer of information between one application and another but there are a number of considerations that should colour the technical solution, for example;
- What sort of volumes of data need to be transferred?
- Is the interface bi-directional or simply in one direction?
- What validation rules govern the accuracy of data transfer between one system and another?
- How can one ensure that the data transfer is always complete
- What processes are in place for information that is rejected?
- Who owns the interface and how readily can it be maintained?
- How urgent is the data transfer, for example, an overnight batch transfer or in real time – as it happens?
- How amenable is the interface to changes in data definition or upgrades in applications software on either side?
“Integration” in its broadest form is the foundation of the CODA-LINK architecture. This suite of technical options is widely used internally by CODA as part of its own development approach, so it provides the widest and most complete view of integration possibilities building on the native validation and business rules in the CODA application suite.
In essence this means that whatever integration is built, to or from CODA, all of the data transfers can be exposed, if required, to the rigour of CODA’s inbuilt validation routines to ensure that data flows are complete and accurate. It also ensures that web browser interfaces conform to a CODA standard and that all interfaces established using CODA-LINK are guaranteed to continue functioning regardless of upgrades in the CODA Financials suite. This can be true whether the integration is built by CODA itself, its customers or third party developers.
In broad terms the CODA-LINK architecture is comprised of five main technical components that ensure a comprehensive integration approach
- Table LINK
- Callable LINK
- XML LINK
- XMLi LINK
- Web Services
The different technical components allow businesses to choose which method is used to integrate, allowing them to adapt the approach so limitations in 3rd party applications or legacy system which have moved forwards or offer newer integration methods can be easily integrated. In addition, existing integration skills can be used from a business where users can choose not necessarily the most up to date method, but that which is the most cost effective.
Table LINK
Table LINK provides a practical way of importing data in bulk via a set of published database tables. These database tables can be populated by end-user applications and then the CODA application can be called up to pull the data into the CODA application. This ensures that the CODA provides full validation of all data before it is allowed into the CODA database. This mechanism is well suited to the non-urgent batch posting of high volumes of financial documents as well as static data such as customers and suppliers.
Callable LINK
CODA offers a set of standard calls that expose the actual applications to programmers. The library functions are fully documented, backwards compatible and supported as part of the product set so that users can write custom integrations and even custom user interfaces.
XML LINK
XML LINK facilitates developments in web based communications and E-commerce. It provides a single application programming interface (API) which defines the way an application program may request services from CODA libraries. It can be used for all interfaces to the CODA-Financials business server from other modules in the CODA product set, partner products, any application used by a customer and custom designed user interfaces. The API is also used for all new CODA user interface developments as well as being fully documented and published for external use.
XMLi
The CODA XMLi product is available for users wanting to perform API integrations with CODA application servers. The API gives complete coverage of the application in terms of the business processes it contains. This API is also used internally for web server to application communications. As such it is developed and tested alongside the development and testing required to deliver CODA’s web browser client.
Web Services
The last component of the CODA LINK architecture is Web Services. The use of web services supports the ability to upgrade CODA without the need to change users’ screens as well as the ability to use the same development methods regardless of underlying technical platform. Furthermore web services support a wide range of integration possibilities irrespective of the physical location of the applications and a single point of maintenance for financial business rules and security.
The overall impact of CODA’s integration capability is to provide a broad range of possibilities (including Microsoft Office Integration) that support individual requirements without having to step outside of a structured, controlled and supported environment. Once committed to an interface an organisation can upgrade and continue to develop without being constrianed by technology. The user can decide on the appropriate level of technical sophistication to deploy in the full knowledge that the interface will provide ongoing comprehensive validation, abide by business rules, enable a consistent user interface and can be supported.
The advantage of the common user interface
As noted earlier, a successful best of breed strategy depends on more than a technical solution for integration. The ability to create a consistent user interface is critical to user productivity, yet the LINK between productivity and the humble user interface is frequently overlooked.
Experience shows that a best of breed policy which favours a technical solution and pays insufficient attention to the user interface artificially re-enforces the functional boundaries between different areas of the business rather than uniting them in a common process. As a result, it is difficult to share information across the functional boundaries and workers in one area of the business lack visibility of the work being carried out in another. If the user interface or ‘look and feel' of the application is different in each module this accentuates the divide.
The CODA-LINK architecture overcomes the limitations of the traditional best of breed approach by allowing developers to create a consistent user interface. This breaks down functional barriers, improves communication and collaboration. At a stroke, it enables staff to be more responsive to each other, customers and suppliers as well as more productive
CODA LINK in action at Screwfix
Screwfix integrates its trade and e-commerce channels
Recognised as being 'Where The Trade Buys', Screwfix is the UK's largest direct and online supplier of trade tools, accessories and hardware products. It despatches tens of thousands of parcels every week for next day delivery to tradesmen, handymen and serious DIY enthusiasts all over the UK from its range of over 18,000 stock lines. A sister company to B&Q and part of Kingfisher plc, Screwfix currently has more than 140 trade counters.
Customer Service is the top priority at Screwfix and its Contact Centre won the European Call Centre ‘Best Customer Experience’ Award in 2006. Having the right information at its fingertips when customers place orders is down to the tight integration of its systems. In this fast moving business to business environment, automated checking of credit account sales orders to credit limits and account balances are essential to approving orders placed at any of the sales channels offered by Screwfix.
CODA Financials, Procurement and fixed asset register form the backbone of the company’s financial management, these systems are also required to LINK into the customer ordering system and other 3rd party systems within Screwfix..
Screwfix relies on CODA’s LINK architecture to integrate its sales order system, with CODA Financials which holds the latest sales ledger balances, and credit limits. Using CODA’s Table LINK capability, orders taken through any of Screwfix’s channel updates the sales ledger system overnight and brings the “available spend” up to date so that Screwfix’s customer ordering system can immediately approve or decline a customer’s sales order against their credit account.
As part of a systems change programme, Screwfix will be taking the opportunity of replacing its current interfaces from table LINK to Coda’s XMLi , to tighten its integration and responsiveness of the system. Richard Shoteh, Finance Systems Manager, Screwfix Direct says, “We are currently re-writing our interfaces using CODA’s XMLi to provide real time access to critical customer information while they are still on the telephone or at the trade counter. In this fast moving and high volume environment we will also be able to automatically debit the order transaction, once orders have been fulfilled”
Pulling it all together
Integration is about much more than the technical feat of efficiently combining applications, improving operational effectiveness and user productivity. Using any of its 5 component methods, CODA-LINK permits an integrated platform which provides the underpinnings of a robust information system and overcomes the duplicated databases that often characterise poorly implemented best of breed solutions.
Data is at the heart of the CODA-LINK architecture. As such CODA’s unified ledger and ability to harness third party systems using CODA-LINK allows business intelligence and performance management applications to straddle all business areas and more readily support information needs within a business based on a simplified data model. This becomes even more important in periods of significant change. The ability to take applications on board and support constantly changing information requests is a welcome by-product of CODA’s integration based architecture.
Avis Europe relies on CODA LINK to effectively manage its core financial system across Europe.
Avis Europe is a leading car rental company in Europe, Africa, the Middle East and Asia, serving customers via the Avis and Budget brands in over 3,800 locations. It serves over 8 million customers a year via the Avis and Budget brands across the network and around 86% of the group’s revenues are generated in the five major markets of France, Germany, Italy, Spain and the United Kingdom.
Finance and administration functions across Europe are served by a shared services centre situated in Budapest which uses the CODA Financials solution to meet the standardised and local processing needs of the 10 largest operations in Europe as well as the corporate headquarters. Central to this standardisation has been the pursuit of a single solution for interfacing to the group’s many legacy systems, especially the rental system, fleet systems and local payrolls.
Mark Kightley, Programme Director for the pan-European implementation of CODA explains that CODA’s LINK architecture has been central to the successful implementation of the shared services centre providing robust and trouble-free interfaces with a high degree of control and validation.
“Data from operational systems updates LINK tables which automatically populate CODA Financials whilst simultaneously providing comfort that the data is valid and complete from an accounting and controls point of view. Maintaining the mapping tables between the various source systems and CODA Financials has been a straightforward task and since the earliest implementation in October 2007 we have been through two planned upgrades of CODA Financials without incident.”
This is particularly impressive since the interface requirements are very diverse. For example, the fleet system handles the purchase of over 100,000 new vehicles every year and Avis relies on CODA LINK interfaces for posting the purchase and asset register transactions. Similarly, the rental system “Wizard” running on a mainframe drives a massive number of revenue, credit card, receivable and customer service adjustment transactions which all have to be reflected in CODA Financials via Table LINK. In fact CODA LINK also played a major part in the successful migration of historic data when the shared services centre was established.
Mark is very satisfied with the outcome. “We have one consistent interface tool across Europe, maintenance and support requires minimal daily IT intervention and Table LINK makes a major contribution to the control environment.”
Summary
The downturn in the global economy represents a significant business challenge which is driving the need to maximise the value from existing systems as well as encouraging organisations to integrate with other home grown and third party applications. But the recession has masked a more fundamental structural change. The networked economy and the emerging complexity of stakeholder relationships is blurring the process and systems boundaries between one organisation and another giving rise to the need for much closer, more controlled and flexible integration.
Monolithic ERP systems have proved lacking and inflexible in a period of change. The cost of maintenance and modifications often prove to be prohibitively expensive. On the other hand best of breed applications are generally not well endowed with integrations tools. As a result, whether companies have followed a homogeneous IT strategy based on traditional wall-to-wall ERP systems or a heterogeneous best of breed approach they are stuck in a rut - unable to respond effectively to changing conditions.
On the other hand CODA has been designed from the outset with interoperability in mind. The CODA LINK architecture combines a unified ledger with extensive integration capability. These overcome the common shortcomings of a best of breed approach, such as accounting complexity, operational limitations, the difficulty of implementing a comprehensive approach to performance management and compliance as well as the vital need to be able to respond to change.
The integration tools are designed to be applicable in a wide range of business environments (batch, real time, e-commerce, high volume) and as the tools are central to CODA’s own development methodology it means that all applications, whether third party or in-house, are able to enjoy a consistent standard of data validation, security and control. What is particularly noteworthy about the CODA LINK architecture is that it can be implemented in sympathy with each company’s technical environment, giving businesses the choice of leveraging older technologies where necessary whilst allowing those companies at the leading edge of say, web services, to take advantage of the latest integration techniques. This means that the life of existing investments can be extended and companies can maximise the value of what they already have rather than starting afresh.
But CODA’s LINK architecture extends beyond pure technical capability. The ability to create a common user interface enables organisations to enhance user productivity, improve responsiveness and derive maximum value from their best of breed strategy.
CODA LINK provides financial executives a ‘no compromise’ approach to application change management.
Note 1 Managing IT in a downturn: Beyond cost cutting, Kaplan, Roberts and Sikes; The McKinsey Quarterly September 2008
Note 2 The high Cost of Change for ERP, CFO Publishing Corporation March 2009.
About FSN
FSN Publishing Limited is an independent research, news and publishing organisation catering for the needs of the finance function. The report is written by Gary Simon, Group Publisher of FSN and Managing Editor of FSN Newswire. He is a graduate of London University, a Chartered Accountant and a Fellow of the British Computer Society with more than 23 years experience of implementing management and financial reporting systems. Formerly a partner in Deloitte for more than 16 years, he has led some of the most complex information management assignments for global enterprises in the private and public sector. His book, “Fast Close to the MAX” was published in 2008.
Whilst every attempt has been made to ensure that the information in this document is accurate and complete some typographical errors or technical inaccuracies may exist. This report is of a general nature and not intended to be specific to a particular set of circumstances. FSN Publishing Limited and the author do not accept responsibility for any kind of loss resulting from the use of information contained in this document.
