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There used to be a time when the finance team only needed an accounting system and a spreadsheet to fulfil all the needs and expectations of the organization. However, things have moved on and the role of finance has changed.
The technology evolution has been driven much of the change, acting as an enabler to improving the efficiency and effectiveness of the finance team. It has also been a catalyst for change, transforming what the finance team can and is expected to deliver.
In this article we look at the key processes that are fundamental to every finance team and how technology can be used to improve the performance.
Key finance processes
When we break down the operating activities of any finance team, we find multiple processes that occur on a daily, weekly or monthly basis. These processes can be grouped into four main areas of operation:
- Core accounting transactions
This is the obvious place to start as basic accounting is required by every organization. At a minimum, this ‘core’ includes accounts payable, accounts receivable, and general ledger accounting.
The two genres that meet this accounting need are finance / accounting systems, or Enterprise Resource Planning (ERP) solutions. Accounting systems concentrate on the core requirements highlighted above. Examples include Xero and Quickbooks which are used by millions of organizations worldwide. ERP software extends beyond core accounting, supporting human resources, manufacturing, supply chain, services, procurement, and potentially more. ERPs are commonly used by manufacturing and distribution companies. Examples of vendors in this space are SAP, Oracle Netsuite and Microsoft Dynamics 365 Business Central.
Many accounting systems have developed ‘ERP like’ capability through other solutions and applications that can be easily integrated. These ‘add-ons’ broadly align with modules delivered as standard in ERP solutions that address key finance processes. Examples include:
- Procure-to-pay - allows organizations to automate their entire P2P cycle and gain complete control over the procurement process.
- Order-to-cash - allows organizations to automate their entire O2C cycle and gain complete control over the sales process.
- Supplier invoice management – concentrates on a specific, and often painful, part of the P2P process. This software helps organizations manage the workflow of invoice receipt, processing and authorization.
- Expenses management – enables the pro-active control over employee expenses, authorization and coding.
It could be argued that there is very little difference between the functionality on offer in an ERP solution compared to an accounting system with integrated add-ons. The conundrum faced by organizations is understanding how much value can be derived from the functionality on offer in core solutions and the additional capability on offer in the more niche and specialized software.
- Reporting and analytics
We have bundled reporting and analytics together as they are often spoken about in the same breath. Most accounting and ERP solutions offer reporting capability either as a module, application or an Excel add-in. However, this does create a restriction in that often only the data held within these systems is accessible for reporting, thus potentially excluding non-financial and other operation data. This results in a level of manual work to bring data together for reporting.
This problem is often solved using a Business Intelligence (BI) solution that can access multiple data sources. Most well-known BI solutions come with connectors to common underlying finance and operational systems. In today's technically advanced platforms, access to data should not be a problem. Also, a BI solution allows a higher level of analytical capability (“slice and dice”) and data visualization, improving efficiency and the ability to add valuable insight and value. You can also improve report understanding by adopting a reporting standard, such as International Business Communication Standards (IBCS), although not all vendors offer this capability.
An underestimated, and often highly manual part of the reporting process is that of report pack production. This could be a period or yearend report containing numbers and narrative or a presentation containing the same, with multiple collaborators. The common method of delivering this is use of the Office tools (Excel, Word and PowerPoint) and a lot of ‘cut and paste’ and checking. An alternative is to use Disclosure Management software that is designed to automate this ‘final mile of finance’ and to gain a high level of control and audit trail over multiple users.
- Budgeting, forecasting and planning
This genre of software helps finance teams manage and control the critical planning, budgeting and forecasting processes. Often the domain of the Financial Planning and Analysis (FP&A) team, it is likely to enable elements of, what is widely considered best-practice, including; multi-user cross-departmental collaboration, complex and sophisticated driver-based models, multiple scenarios/versions, continuous (rolling) planning, and workflow and automation.
A core role of FP&A is to report and analyze results e.g., actual versus plan. Consequently, software solutions deliver planning, analysis and reporting within a single Corporate Performance Management (CPM) platform.
There can be significant benefits in using a CPM solution rather than a spreadsheet. These include efficiency improvements, increased control and resilience as well as an increase in reporting and planning quality. This can add significant value to an organization.
- Financial consolidation
For those organizations with multiple subsidiaries, there may be the requirement to deliver group financial statements. This consolidation process may include multiple contributors located in multiple locations working on disparate accounting or ERP solutions. Many organizations still use spreadsheet models to perform the consolidation process. These models can become incredibly complex and cumbersome and highly inefficient to maintain.
If this is the case, it may be of benefit to utilize Financial Consolidation software that is designed for the specific needs of this process. Not only will it significantly improve the efficiency of the process, but it will also reduce the risk of error. If this is the combined with a Disclosure Management solution, you can deliver a fully automated consolidation and report production process.
Other finance tasks and processes
There are many other repetitive tasks and processes that are performed within the finance team. These differ by factors such as size of organization, industrial sector, or regulatory authority. As a result, software genres have developed that solve specific requirements. Here are a few examples:
- Account reconciliation software automates and standardizes the reconciliation process to produce high-quality and accurate financial statements.
- Treasury Management software automates an organization's financial activities like cash flow, assets, investments and foreign exchange.
- Tax compliance software is used by finance teams to calculate and prepare tax returns, ensuring compliance with all relevant tax laws and regulations.
- Audit and compliance software helps finance teams ensure compliance with all relevant regulations and internal policies, as well as manage the internal auditing process.
In addition, there are other software solutions that can have a positive impact in finance. One prime example is the Financial Close genre of software, providing solutions that manage the period end / year end close with workflow and reconciliation functionality. Another more generally used software is Robotic Process Automation (RPA) that makes it easy to build, deploy, and manage software robots. This can be used to automate many of those low-level and repetitive tasks and processes that exist within finance.
Which technology does your finance team choose?
This is one of the most challenging questions to answer. One of the first conundrums is whether to take a single-platform or best-of-breed approach. A single platform may provide a range of functionalities covering multiple processes. However, does the functionality on offer meet your specific needs? If not, are you prepared to compromise?
With advances in technology, it has become easier to integrate solutions. Many have application programming interfaces (APIs), which is a set of definitions and protocols for building and integrating application software. Therefore, integrating a best-of-breed solution into your technology stack is no longer as difficult as it once used to be. In fact, when if you scratch below the surface, you may even find that the single platform that is being marketed to you is in fact multiple solutions knitted together in just this way!
There are two areas of finance where the single platform or best-of-breed debate is common; CPM and ERP solutions. As a minimum, CPM platforms deliver budgeting, planning, reporting and analysis. In addition to these core functions, many CPM vendors also offer financial consolidation as part of their ‘one-stop-shop’. The question is do you opt for a single platform CPM solution, or do you integrate a CPM solution with a best-of-breed financial consolidation solution? This will depend upon the functionality on offer by the single platform solution and whether it meets your specific needs. Will this one platform consolidation solution meet your specific needs and complexity today and address these as your company grows - is it future proof?
There is a similar debate around ERP solutions. Beyond their core transactional capability, ERP vendors will often offer elements of reporting and analysis, budgeting and even financial consolidation, and solutions and modules for other key processes. Again, what is on offer, and does it meet with your current and future requirements?
Conclusion
There is no doubt that technology can be a key enabler to improving the performance of the finance team. As technology continues to advance at a rapid rate, the number of software solutions that can help to achieve this transformation will continue to increase. Whilst this evolution can only be seen as positive, there is a sharp increase in the level of complexity and difficulty in identifying the right solutions for your organization.
There can be benefits to a single platform approach and it is tempting to buy into the dream of a ‘one-stop shop’ approach that purports to deliver everything the finance team requires. But, if the technology fails to meet your requirements in specific areas, any benefits accrued will quickly dissipate. If this is the case, best-of-breed software designed specifically with that problem in mind may be the desired approach.
There is no silver bullet, no solution or combination of solutions that will meet all your needs and requirements, satisfy all the users and guarantee to improve the performance of your finance team. And just because a solution works for one organization, does not mean it will work for you and your unique set of circumstances. It is vital that you understand each key finance process and assign a level of criticality indicating a willingness to compromise. You can then map these requirements against the functionality on offer by any vendor. This will give you the greatest chance of successfully building a technology stack to support improving the performance of the finance team.
