For many years the focus of the Fast Close process and group financial reporting has been on accelerating the delivery of statutory financial results to stock exchanges and relevant filing authorities such as the SEC. To date it is the activities that lie between the submission of results by subsidiaries and the final consolidation at the group level that have been most closely scrutinised. But recent developments and newer market entrants have widened our perspective of the process, says Gary Simon, FSN’s managing editor, providing further opportunities for improvement.
A new order has emerged from the ashes of market consolidation over the last two years. By any objective measure the “Big Three”, Oracle, SAP and IBM now dominate the market for group consolidation systems and performance management systems more generally. Successive mergers have swept up many of the independent players and the Big Three now own some of the key assets in this space.
But more interestingly, the ability of SAP and Oracle to offer ERP systems as part of the overall solution has started to redefine the reporting supply chain, after all if you own both the ERP systems and consolidation systems it is only natural to consider strong links between them to smooth out any wrinkles in the group reporting process. But big isn’t necessarily beautiful and while the dominant players seek to integrate their formidable portfolios more agile players are beginning to expose and fill the gaps in the Big Three’s armoury.
In fact the reporting supply chain is becoming stretched simultaneously in two directions. Firstly, the process is being driven back into subsidiaries so that period close in ERP systems dovetails more sweetly with the group reporting process. Secondly, the advent of XBRL and specialised financial statement engines from the likes of Clarity Systems and Trintech are extending automatic workflows well beyond the final consolidation – which has traditionally been the cut-off point.
As global corporations are discovering there are very many local and group tasks around the close process that need to be carefully managed if businesses are to make a profound impact on the quality and speed of the group reporting process. Reconciliations are a good example.
The topic of reconciliations may not set the world alight but if neglected, this aspect of the close process can represent a serious drain on resources and a relatively new industry has emerged to take on this challenge. In broad terms reconciliation capability falls into two camps.
Firstly, there is the need to reconcile/match transactions, for example, bank accounts, which in high transaction volume environments in subsidiaries can become a major burden and secondly, to reconcile balance sheet accounts either locally or at group. Of course not all general ledger accounts need reconciling on a regular basis but for many organisations the sheer scale of the task of managing these reconciliations is off-putting and the administrative effort is burdensome.
One would have thought that ERP systems are more than capable of dealing with bank reconciliations but it appears they are not geared up to managing very high volume requirements (in excess of hundreds of thousands per day) and judging by the success of independent specialist software vendors such as Trintech and Blackline neither are they necessarily meeting the wider need to handle multiple data sources and to provide workflow solutions to resolve mismatches and troublesome balance sheet reconciliations.
At the other end of the spectrum, the so called ‘Last Mile of Finance’ (the processes between the final consolidation and the production of financial statements) has also uncovered weaknesses in the Big Three. Niche vendors such as Clarity Systems are beginning to mop up by providing document management capability which supports the automatic generation of high quality documents and filings straight out of the consolidation system with version control and security over changes.
Somewhere in between, other vendors such as Tagetik seek to provide a more fundamental challenge to the dominance of the Big Three. Unencumbered by legacy systems Tagetik provides a unified environment in which all of the applications leverage the same database and data definitions, improving data quality at a stroke and even enabling commentary to be captured at subsidiaries and retained throughout the reporting cycle.
This brings us to an important question. Does it make sense to pursue a ‘one size fits all’ approach (the Big Three) or should a company pursue a best of breed strategy - picking off the functionality it needs from whoever does it best? It is a thorny question and the fact that it is being asked at all says much about the success of the all-embracing capability of the Big Three. By the time all of the recent acquisitions had been completed and bedded down, the market had moved on and in any event it is probably unrealistic to suppose that any one vendor can satisfy all of a market’s needs.
So what of the future? In any dynamic environment smaller vendors will often prove more agile, developing innovative products and bringing them to market more rapidly than their larger competitors. In many cases the new functionality on offer is complementary to existing Big Three solutions and is designed to coexist with them. Few companies can afford to stand still and so the availability of specialised products which can operate alongside established vendors offers an opportunity for productivity gains. Longer term it remains to be seen whether these new applications which extend the range and usefulness of the group reporting process give rise to another round of acquisitions as the Big Three seek to take advantage of some good ideas developed elsewhere.
