The Best-of-class Financial Systems Strategy

The Best-of-class Financial Systems Strategy: An Alternative to ERP Platforms

This white paper features insight from the UNIT4 group (which includes the CODA Financials software suite) about the issues facing companies that need an adaptable financial system but not necessarily a full-blown enterprise resource planning (ERP) solution.
Also featured in this white paper: TEC's suggestions for identifying financial system functionality that will support your organization's changing processes. The latter portion of this white paper includes a descriptive checklist for soliciting such information about enterprise software solutions.
TEC recognizes the thought leadership role and industry expertise of the UNIT4 group. However, this document should not be construed as an explicit TEC endorsement of the CODA Financials software suite.

Introduction

For better or worse, most companies have purchased financial software from large-scale enterprise resource planning (ERP) platform suppliers over the last decade. But as companies search for ways to lower costs and respond to a difficult business climate, the merits of implementing large-scale ERP platforms have come under closer scrutiny. This paper will examine an alternative approach that may be more appropriate and strategically sound for many companies: a best-of-class systems strategy.
With that notion in mind, this paper will contemplate the following questions:

• Have ERP platforms grown too unwieldy for some organizations?
• Does ERP make sense for all types of business, especially in today's fast-changing and frugal business environment?
• Are ERP platforms being sold to companies that simply don't need it?
• Have technological advances eliminated some of the reasons for ERP platforms in the first place?
• Is the drive for competitive differentiation causing companies to develop more of their own operational systems, thereby eliminating the value of ERP?
• What does a best-of-class strategy entail, and what are the advantages?

 

The Morphing of ERP—Evolving from Applications to Platforms

ERP systems have grown in depth and breadth over the last 20 years, offering a wide variety of applications ranging from accounting to warehousing. However, ERP now embodies much more than an application suite. ERP has evolved into a development and operating platform, with a full stack of modules, tools, and middleware. For some, this evolution has not been beneficial for a number of reasons:

• Although ERP is touted as a single architecture, ERP applications usually contain different generations and sources of technology. Third-party applications are acquired and amalgamated into the platform, sometimes by name only. In total, this makes the environment complex for the customer and difficult to change over time.
• Complex layers and mixtures of technology require specialized consulting and technology expertise to deal with the complexity. This has made ERP difficult and costly to change as the business changes.
• ERP suppliers have become system integrators. The sheer size and number of applications makes moving all the applications forward a difficult task. Application functionality often lags.
• And finally there is a prevailing attitude that ERP costs are getting out of hand. Some call it a backlash against "Big ERP."

Adding insult to injury, while customers have been amidst layoffs, ERP continues to be a gravy train for ERP suppliers and consultants alike. Some customers report receiving software maintenance hikes while in the midst of the recession, fueling an antagonist relationship with their ERP suppliers. Customers feel ERP vendors are holding them hostage.

The High Cost of ERP

 

• ERP software is expensive to buy and implement, and expensive to change.
• The inability to change quickly creates business disruption costs that can dwarf traditional costs.
• Difficulty establishing return on investment (ROI) leads in some cases to "reverse ROI" and a high total cost of ownership (TCO).

 

Do You Need an ERP Platform? There Is Another Way...

While ERP platforms provide value for many companies, they simply aren't the best choice for everyone. For instance, if your company requires a relatively limited set of functions, an ERP platform can be overkill and add complexity to an otherwise finite situation. In fact, ERP platforms have been forced into many organizations when a more nimble tool would do the job. This akin to putting a battleship in a swimming pool: it is simply overkill and unnecessary.

The Best-of-class Strategy

The best-of-class approach allows finance organizations to benefit from a highly functional financial application that can be easily changed—without the burden of a full-blown ERP platform. These systems stress application configurability rather than making changes at the database or application tool levels (which is typical of most ERP platforms). Changes are placed in the hands of business users rather than technical or consulting personnel. As a result, implementations are faster, ongoing changes occur rapidly, and the TCO can be dramatically lower.
To make this approach viable, best-of-class financial application providers take great care with their integration capabilities, so companies can easily integrate financial software with the other applications running in the business. The advent of extensible markup language (XML) and Web services has eliminated many of the fears that created the need for ERP suites in the first place. Best-of-class applications of all types can be coupled in a federated approach to running the business, with Web services and XML providing a common language and a secure way to perform real-time integration across a mixed application and IT environment. Ironically, integration was originally one of the main advantages of going with one enterprise-wide ERP platform, but in many cases today, integrating foreign systems into a monolithic ERP platform can be extremely cumbersome.

The Best Candidates for the Best-of-class Approach

 

Companies investing in vertical or special operational application packages

In these environments, companies aren't able to find the vertical functionality they need in generic ERP platforms, so they purchase a best-of-class vertical solution that can be integrated with a best-of-class financial system. The example of trading systems at financial services organizations comes to mind.

Companies that develop custom or company-specific applications

These days, nearly every company is in the software business in one way or another, developing mission-critical applications to differentiate themselves in the marketplace. Companies from FedEx and UPS to Walmart are in the software business as much as the logistics business. Once again, best-of-class financials plug perfectly into this environment. ERP systems can be a liability in this environment as they are designed to integrate internally into the platform and other proprietary ERP applications, with less consideration given to foreign application coexistence.

Companies with mixed application and system environments including legacy systems

Most companies have longstanding investments in legacy applications that are the lifeblood of the company. Dramatic changes to these systems could cause massive disruptions. A best-of-class approach allows the company to retrofit and modernize the financials while the operational systems remain in place. As is often the case, these companies have multiple computing platforms and databases, requiring a Switzerland-like ability to remain neutral without disrupting the other systems around it.

Companies using agile software development methodologies

If your company has embraced the Manifesto for Agile Software Development, then your business is an ideal candidate for the best-of-class financial systems approach. Software that is specifically developed with constant change in mind fulfills the requirement for compartmentalized and flexible components that can be quickly plugged into a wider agile development context. This approach is the antithesis to the slow, expensive, Big ERP way of doing business.

Companies that change and integrate new systems often

Acquisitions, new lines of business, and new products can continually drive the need to assimilate new business systems. Best-of-class applications are designed to coexist with these systems as an integral component, using a common integration language without imposing a particular technology or architecture. Since best-of-class systems are not tied to a particular technology stack, most best-of-class systems offer the freedom to use a variety of databases—not just one particular database.

Companies requiring rich accounting functionality (Don't compromise!)

The current economic situation has put intense pressure on the financial departments inside every company. Financial users are trying to respond to increased demands with old, inferior financial software in many cases. This has put them in a stressful situation as they attempt to bridge the gap by working more hours and plugging system holes with spreadsheets, e-mail, and post-it notes. As stated earlier, ERP financial suites can lag in financial functionality because the development focus is spread across a wide variety of applications and platform technology. Because of its focus, a best-of-class financial system typically provides superior functionality such as financial modeling capabilities and the ability to handle complex accounting in multisite, multinational environments.

Companies experiencing constant organizational change

In today's business setting, financial applications must do much more than simple bookkeeping. They must be exceptionally pliant and enable organizations to continually adapt to structural upheaval whether it is caused by a re-organization, merger, acquisition, or new line of business. A financial system must literally account for and expect change, whether it is caused by rapid growth, a new set of controls or closing down a line of business. If your business is undergoing constant change, best-of-class financial applications are the answer.

Shared-services environments

As companies look to decrease transaction costs, reduce overhead, and consolidate cash activities, interest in shared services has accelerated. Shared accounting service operations require three primary capabilities: 1) rich multicompany, multichart, multicurrency, and multicultural software functionality found in only the best financial software; 2) the ability to easily integrate with a potpourri of operational systems; and 3) the ability to simultaneously accommodate these diverse financial and technical environments.
By definition, this environment dictates a best-of-class approach. The application set is finite (finance only), the functional barriers are very high, and the ability to coexist with a variety of operating applications concurrently is critical. On the other hand, an ERP platform in this environment is a poor fit at best. Again by definition, shared services operations don't need the myriad of applications provided by an ERP platform, so the platform itself is nearly useless. Second, the proprietary and inward focus of an ERP platform architecture can be difficult to intermingle with other applications without extensive and expensive modification. In short, big ERP platforms are a duck out of water in this environment.

The Best-of-class Approach: A Strategic Choice

In summary, the best-of-class approach can be more cost-effective and strategic for many companies. Given the state of the business climate, the need to be nimble, and the desire to drive competitive differentiation through systems, the best-of-class approach is worthy of consideration. Full-blown ERP platforms are simply not a good fit every organization. They have become too big, complex, and costly for many situations. Companies in mixed application environments and those requiring just the financial components of an ERP suite are best suited for the best-of-class approach. In these cases, a full-scale ERP platform is simply overkill and may actually become a technical and business liability.

TEC's Selection Criteria: Identifying Key Financial System Functionality in Support of Adaptability

This white paper is a focused discussion on the issues facing companies that need an adaptable financial system, as opposed to a full-blown enterprise resource planning (ERP) solution. As indicated above, this approach is commonly referred to as a best-of-class systems strategy. We'll turn now to concrete examples of cases where a best-of-class type of financial system may be appropriate:

• When massive software and hardware upgrades are unacceptable, but for some reason there is a need for enhancement in the financial and accounting areas. This might be the case for companies that successfully use legacy transaction systems but that need to gain capabilities due to new accounting compliance requirements or business structure amplifications.
• When a company uses unique custom-made ERP, manufacturing execution, or supply chain applications, and considers them to be important elements of its competitive advantage, while still needing to upgrade its financial and accounting systems.
• When for some reason it is unworkable for the company to be aligned with a single technology platform, and when technology diversification is required.

In order to select a financial system that emphasizes configurability and relatively easy adaptability to business changes, financial software buyers must consider additional software selection criteria beyond "regular" functionality requirements. These criteria should reflect a system's ability to adapt to business changes by letting users make adjustments and required system modifications "on the fly"—without expensive development interventions, or massive system shutdowns.
You can use the table of criteria below to inquire whether the vendors you're talking to will be likely to support your needs and continuing changes.
Note that this list is not necessarily exhaustive. The actual number of selection criteria may increase according to your particular business environment and requirements. The criteria provided here constitute a starting point for organizations that are weighing the advantages and weaknesses of full-blown ERP versus best-of-class financial software.
For more information on best practices in software selection, see http://www.technologyevaluation.com/tec-approach/.