A fascinating report, entitled “Empowering Modern Finance” highlights the highly fragmented systems architectures that have evolved in the on-premises world. The report, prepared earlier this year by Longitude Research in association with Accenture and Oracle concentrates on larger companies (mainly above $500m revenue) and shows that only a mere 19% of business have managed to standardise on just one ledger system. In fact 32% have two to five; 24% have between six and ten; 17% between eleven and twenty systems and 8% have even more than this.
And it’s a similar story when looking at budgeting, planning, forecasting, financial reporting and governance risk and compliance. Gary Simon, FSN’s managing editor ask; are companies presently embarking on a cloud computing route to satisfy their needs about to repeat the same mistakes of the past?
Few CFOs, if any, would dispute the advantages of standardising on a small number of applications to support core financial processes. Standardisation drives out huge efficiency and productivity gains as businesses are able to streamline key processes, improve staff mobility and reduce training and error rates. It is also costly to maintain disparate systems and to provide bespoke interfaces between them.
So why have companies ended up with such a hodge-podge of business systems? Wasn’t ERP supposed to fix all of that by providing a single all-embracing environment which could satisfy not only transaction processing needs but also an enterprise’s information needs as well?
Some of the answers lie deep in the annals of history. ERP systems in the nineties (many of which are still around) acquired a reputation for being costly to acquire and maintain as well as phenomenally expensive and time consuming to implement, usually involving legions of consultants. Think back to the Big 4 accounting firms and Systems integrators with their large SAP ad Oracle implementation practices.
In fact implementations were so burdensome that many companies which started with the ambition of rolling out a standard ERP around the world gave up in the face of mounting costs and disappointment. As a result smaller operating divisions often ‘escaped’ the clutches of a group-wide ERP initiative by choosing less onerous packages from large national suppliers, niche vendors and a whole group of smaller ERP, vertical market and financial systems that had sprung up to fill the vacuum, for example, Agresso, CODA, Navision, Axapta and so on.
A rash of acquisitions and mergers in the boom years of the nineties were also partially to blame. It was difficult to deploy a standardised approach using cumbersome ERP systems, so newly acquired businesses were often left to continue on their own independent path post-merger rather than conform to a group standard.
Enterprise performance management (EPM) suffered a similar fate. For a short while a large number of Best of Breed vendors for budgeting, planning , forecasting and consolidation thrived but these were quickly swallowed up in the last decade as global software vendors sought to emulate their ‘success’ in the ERP market (and lack of success in information management) by assembling EPM suites.
Now, disillusioned with the cost and complexity of EPM suites many businesses are investing in, for example, cloud-based budgeting, planning and forecasting applications. But there are growing signs that businesses are replicating the problems of the past by buying into packages that will solve one particular problem rather than taking a more holistic approach. Worse still, the low cost of entry of cloud computing means that almost any department or functional area can purchase a software licence for its favourite software with the swipe of a credit card.
Unfortunately, the concept of a two-tier approach to Cloud computing, where companies have a foothold in the cloud and also on-premises in the hope that applications can be integrated across the two environments, is further encouraging a fragmented approach. So what is the solution?
It’s still early days but we are beginning to see the emergence of platforms or ‘ecosystems’ in the cloud. Although these ecosystems can at first glance look like a loose collection of vendors who happen to be serving up their solutions superficially in the same cloud space, the benefits run deeper than that. The Force.com platform is among the best known platforms and includes in the financial space the likes of SalesForce (CRM), FinancialForce (ERP), Rootstock (manufacturing) and Anaplan (Performance management) to name but a few . Each of these applications share the same development environment and database allowing deep integration from day one. On the face of it users have the best of both worlds, on the one hand securing inter-operability between applications and on the other hand having the freedom to choose the best applications to meet their needs. And because of the ease with which cloud applications can be deployed and generally their affordability, large multinationals can justifiably limit the number of solutions in play across the enterprise.
Netsuite is another platform that offers a similar range of capability in its platform for example, NetSuite’s own financials, Adaptive Insights for budgeting, forecasting, planning and consolidation as well as HR systems such as epiphany.
But the market is changing and the large global software houses such as Oracle and Infor are starting to offer more solutions in the cloud as well, in effect transporting their existing on-premises applications and re-purposing them for the cloud.
Looking beyond the immediate application under consideration to the wider ecosystem has significant implications for the future. With all roads leading to the importance of the platform, CFOs need to be wary of one-off decisions that could lead them down a dead end.