Can Accounting Systems be TOO Integrated?

Systems like SAP, Oracle Financials and PeopleSoft attempt to integrate all aspects of a business, regardless of the number of countries, industries, product lines they operate in.  They address all areas of the business, from accounting, to manufacturing, to planning, to human resources, to management.  There is no question that large corporations have benefited from this integration, but is it possible that we’ve gone too far?

The larger the computer system, the higher the cost of change.  For example, one of my clients was an international oil company which wanted to experiment with a new subsidiary.  The company found it cost effective to do a whole installation of Microsoft Dynamics (and throw it away when the experiment proved to be a success) than to integrate the new subsidiary into their main system right away.

But, more importantly, large systems become increasingly complex, reducing their ability to adapt to change.  I don’t have an inside track, but I have noticed that my telephone company’s billing system seems to be unable to keep up with changes in cellphone services and fees.  In any competitive industry, even large companies need to be nimble and respond to changes in the marketplace quickly.

Finally, there is the “best of breed” problem.  You may have the biggest, most integrated system, but there are other systems that handle specific functions better.  You then are faced with the choice of the one-vendor-solution versus assembling a system from the best of breeds by several vendors.  So, you get your basic General Ledger, Accounts Payable, Banking and Accounts Receivable from one vendor, your Point-of-Sale system from another and your document imaging from a third.

A good example of this type of thinking was a client who wanted to connect his ordering system to his web site.  Both systems claimed to be able to handle the sales tax, but in testing, the engine in the accounting system proved to be more robust than the web site.  The client decided to process the order in the web site, but have it pass the information to the accounting engine to calculate the taxes and send the result back to the web site.  The result was a better system with no tax discrepancies.

Not JUST an Accounting System

Alice* shared one of her constant frustrations in a meeting about their accounting system.  She is an accounting supervisor in a medium sized company with offices across the country.  Her problem is the staff in other departments saying that the computer system belongs to the Finance department, so they don’t have to take responsibility for the quality of the information.  It’s not their responsibility if the information in the accounting system is wrong or out of date.

Accounting systems used to be confined to recording entries, producing invoices and making payments.  Current accounting systems integrate into other business software, so that the Sales, Purchasing, Manufacturing, Distribution and Human Resources systems are now part of the “Accounting System.”  More and more, other systems, such as Document Imaging and Customer Relationship Management, are integrating with the accounting system.

In a world where computer reporting is expected to be detailed and instantaneous, there is no room for error.  In short, EVERYONE owns the data.

By the same token, information needs to be shared.  There should be no arguments about who “owns” the data.  If it is needed in decision making, it needs to be made available to the decision makers, regardless of their department.

The more that operational data gets married to the financial data, the more focused the reports and the better the decision making.  The more integrated the systems, the easier it is to marry the data.  But can systems be too integrated?  Stay tuned for the next blog!  


* Not her real name.

Whose System is it, Anyway?

There are many stages a computer system goes through during an implementation.  At first, it is just an idea perhaps starting with frustration with the current system or a sudden new requirement that the current computer (if there is one) can’t handle.  At this point, all you know is that you need a new system.

The Hunt

Then you start looking.  Maybe you ask colleagues.  Maybe you initiate a Request For Proposals (RFP), asking a number of vendors a series of questions about what their system can do, and inviting them to bid on your business.  Maybe the system has already been chosen for you by a parent company.

Then come the demonstrations and the system becomes more real.  You compare different products.  You talk to consultants and the customers they offer as reference sites.  You do your homework and you make your decision about which system to buy, but it’s not your system yet.  Even though you may have signed a contract, taken delivery of the software and paid for it, your staff has not taken ownership of the system.

The Implementation

Next comes the detailed planning, the configuration, the set-up, the training and the conversion of the data from the previous system.  What can the new system really do?  What fits and what doesn’t?  You add additional software.  Maybe the new system doesn’t have Electronic Data Exchange (EDI) for orders and payments to large retail companies, so you add an EDI package.  Maybe you need workflow to handle your online orders or document imaging to get rid of the tedious searches through filing cabinets, so you turn to iDatix.

At this point, you examine your internal processes.  You look for formerly manual steps that the system can now do.  With the workflow system now reminding people to submit their expense forms, move the person who used to phone all the salespeople to a higher value task, such as following up on customer payments.

By this time, your staff should start to feel like they own the system, that it is their responsibility to make it their own and work with its strengths and weaknesses.  Unfortunately, after many years of implementations, my experience has been that they often don’t.  All of a sudden, the old system looks better.  The new one seems clunky.  There’s always something that worked better before.  The staff doesn’t remember the issues they had when the old system was new.  They don’t remember the workarounds they had to come up with.  They don’t have enough time or patience for the new system.

Naming the Beast

Accounting systems are complex.  In a medium sized implementation, there may be over 500 data files.  In a large one, there are literally thousands.  When you layer on tax requirements, Generally Accepted Accounting Principles, industry standards, vendor/customer complexities, etc. etc. even the best planned systems require extensive work to fit.  One simple thing you can do to help your staff take ownership and really commit to the new system is to name it.  It sounds like a small step, but it underlines the fact that it has been customized for your company.  The system is no longer SAP, Oracle, Microsoft, Sage or even Quickbooks, it is yours.  So, if you were the Leamington Manufacturing Corporation for example, you might call your system Lexie (Leamington’s EXtended Information Environment) and have one of the more artistic members of staff find a suitable image.  Give the system a good start by throwing a party, and when people complain, make sure to take their complaints seriously, but also ask them to have patience with Lexie.  After all, she is the newest member of the team.

Re-posted with the kind permission of iDatix:  http://www.idatix.com/insider-perspective-whose-system-is-it-anyway/

The Cost of Data Entry

 Ah, I remember those days well.  As a young auditor, looking a little uncomfortable wearing a suit every day, I was asked to audit the Accounts Payable department of a national retail chain.  The office was in a low rise building in the suburbs and the Accounts Payable department took up a whole floor.  That’s right, row after row of middle-aged women with comptometers, which were large, manual calculators.

Their job was to check all of the calculations on the invoices received from vendors and then batch the invoices for data entry.  The women (and they were all women in those days) down in data entry were not supposed to even think while they entered the invoices.  They were supposed to be like human computers and just key in the data, only looking at it if it didn’t agree to the comptometer total that came with the batch.

Funny story:  one of the older women in Accounts Payable liked me because I was careful about putting all of the invoices I selected for audit testing back into the right files.  She invited me out to lunch one Friday with “some friends from other departments.”  At the restaurant, she introduced me to the new credit manager, a woman about my age.  Then she looked at her watch and said that she had forgotten to do something important, and that we should go on without her.  Lunch turned out to be just the two of us.  The credit manager was deeply embarrassed and told me how the ladies in Accounts Payable thought she was much too pretty to be single, so they kept setting her up with eligible young men.  I’d love to be able to say that we were married the following year, but such was not to be.  The lunch ended quickly and we went our separate ways.

Data entry has changed a lot since those days too.  We expect the people who enter information to understand and correct the transactions, as well as flagging any that need further follow up.  Data entry is a more responsible position than it used to be.  Personally, I think that’s a good thing.  It’s a more rewarding experience to be involved in the business than to just sit there doing mindlessly repetitive tasks.
Data entry is also disappearing.  When we receive cheques, for example, they are entered via a scanner, which reads the bank’s magnetic encoding, as well as attempting to read the sender’s address information.  The data entry clerk reviews and corrects the information before posting the cash receipts, a much faster process.  Other companies, more advanced than ours, get rid of paper altogether by using Electronic Data Interchange (EDI) where all of the payment information is received from the vendor and the payment is wired into the bank account, freeing up staff to do more value added work, such as following up on outstanding payments.  So, instead of having a room full of data entry clerks, you have none.

Grow the Business, Not the Administration

Charity for the homeless Focus Ireland has tripled in size without increasing its finance department thanks to accounting software from Exchequer.

This item in Ireland's Technology News Service, SiliconRepublic, caught my eye because this is the message accounting software vendors have been preaching for years.

The appeal of the Exchequer product was chiefly the flexibility of reporting it allowed. The ability to upload information directly from Excel and InfoJournals on to the Exchequer system was of great value.

“For our payroll needs alone that saves about one week in working time per month,” says [Finance Director Louise] Callaghan.

Even if you have an older system and don't want to go through a whole system conversion, you can probably make a significant improvement to your system by:

1. Purchasing flexible, general purpose report writing software such as Crystal Reports.
2. Reorganizing your Chart of Accounts so that the details needed for reporting are kept separate and not added together.

But don't try to do everything at once. Find the area that is most in need of updating and work there. Also, don't try to go back and change history, implement the changes from now forward. After all, Focus Ireland had been using its new system for six year before the article was written. The savings didn't happen over night.

What Would You Do With a Half Hour?

Re-energizing the accounting staff is a major part of re-energizing your system. Here's a question to ask them: "What would you do if your work took a half hour less each day?" After you weed through the joke answers, you'll find people who have great ideas about addressing those important but not necessarily urgent tasks that are dropping off the list because of a lack of time.

Now, take those good intentions and strategize with the staff member about how THEY are going to recover that time. Look for ways that you can leverage your existing technology to achieve them. Make sure the strategy is documented on the employee's goals for their next review.

Result: they will feel empowered, listened to and more energetic. Oh, and you just might end up with a better accounting system!

Turn Arounds: 1. Stop the Bleeding

This is an occasional series about the accounting side of business turnarounds, where a company makes a serious effort to get back on its feet.

Two things that all turnarounds have in common: high stress and low money. Even if you are backed by someone with deep pockets, you have to prove your worth first.

Clearly the first step is like triage in a war hospital: determine what injuries need to be examined first. Start with the cash inflows and outflows. What cash needs to be paid immediately, what deferred and what cash can be collected? Ensure that the procedures are in place to update those lists daily.

The next priority for the accountant should be information: who needs what reports when? Ensure that operations (e.g. the warehouse, the factory, the sales locations etc.) are getting what they need, so that the business can continue to run. Check that the other stakeholders are getting what they need, particularly the funders such as the bank and active shareholders. Make an appointment to see each funder personally, particularly if you have been parachuted into the situation. Your goals are

1. To establish or maintain a good relationship,
   
2. To demonstrate that the situation is under control and
   
3. To establish a line of communication so that the stakeholder knows when to expect updates on the situation.
   

Don't forget financial reporting, particularly to the government. Companies in trouble often have poor internal financial reporting. Set a target, such as having the monthly financial reports available in 5 business days after the month end. Setting and meeting targets will go along way to re-establishing trust in the financial statements.

Equally important is the accounting team. They will need to be re-energized. Accounting is often the unsung hero of the company: if you drop in late at night and there is one light on in the office, chances are it will be the accountant. To the extent that you are able, tell the accounting team on what the plan is. You want to fight rumors with facts. Create a calendar of all the tasks that need to happen in accounting each week, month, quarter and year and ensure that someone is responsible for each one. Look for chances for people to take on additional responsibilities. You may not be able to pay them more, but you can certainly recognize and praise their efforts. One failing many accountants have is the tendency to take too much on ourselves and burn out.

Next installment: Technology Triage.

Specialized vs. Multipurpose Software

"Overseeing and managing costs on the construction of a new facility with eight buildings is much too complex for traditional accounting software," said Jerry Fye, deputy director of finance for the Austin Children's Shelter, in a release.

Foundation Software, a developer of customized software for construction contractors, donated software, training and support to allow the Shelter to manage its construction project.

This raises the question of when to go with "traditional" or multipurpose software and when to go with a system designed for a specific purpose or industry.

If I were developing software for a specific industry and I wanted it to link into an accounting system, I would NOT try to reinvent the wheel. I would build the links to one or more packages that are popular with the companies in my target market. Rather than build yet another general ledger for medium sized businesses for example, I would bridge to Great Plains or Navision (Microsoft Dynamics GP or NAV). That way I get to stick with what I know (e.g. construction projects) and take advantage of someone else's success.

This goes for custom development as well. One of my clients was in the entertainment industry and wanted to sell tickets to customers online. Part of the project design was to integrate tightly to the accounting system so they would not have to re-key the transactions. They also decided that they did not want to have to do the programming to calculate all the taxes when the accounting system (Great Plains) already did such a good job of it. So they had their web site pass the information to the accounting system once the customer had placed the order. The accounting system then calculated taxes and shipping charges and passed the information back to the web site so the customer could enter the payment information. The result: a system where every piece does what it's good at and the headache of updating the tax tables is left to the experts: the accountants!

10 Things You Should Try to Barter For Before Buying

In their blog post 10 Things You Should Try to Barter For Before Buying, Infomean recommends that you barter for your accounting software. It made the fourth position on their list. It sounds like a good idea, doesn't it? Software is so expensive, so any way you can reduce the price is good, right?

Unfortunately, you get what you pay for with accounting software and focusing on the price alone ignores the cost and the quality of the implementation. Typically implementation costs are higher than the software and if the system is poorly implemented, the total cost of ownership can be several times the original cost of the software, as you scramble to fix data or work around software issues.

One place I worked used an accounting system because it came free with their minicomputer. Someone else's friend set himself up as an accounting system vendor then gave his not-for-resale copy of the software to my client. In both cases, while the software was free, guess how good the support was. In the first case, minimal and in the second, non existent (because it was an unlicensed copy).

Your accounting system is the back bone of your business. Beware of freebies!

Lulu-LEMON?

The last thing a CEO wants to have is the reputation of choking on success:

"We're dealing with a class A problem - more sales than forecast," Robert Meers, chief executive officer at Vancouver-based Lululemon, told the company's first conference call with analysts late yesterday.

. . .

Mr. Meers referred to inventory snags at newer stores in New York and Chicago. But the troubles are even more widespread, John Currie, the company's chief financial officer, said in an interview later [as reported by the Toronto Globe and Mail].

The buzzword is "scalability", the ability for a system to expand quickly and easily as a company grows. The idea is that the same system that was effective and affordable when you were a small company can grow with you as you expand, so you never have to go through the pain of a conversion. In my experience, there are four dimensions to scalability:

1. Software - Obviously the choice of system is critical
2. Hardware - You need to be able to increase not just your head office database size, but also add local servers where required
3. Design - How you set up your departments, chart of accounts, inventory items, customers and vendors has a huge bearing on how easy it is to grow. Also consider the way you report on the key drivers of your business. Will your management reports still give you the information you need to make decisions if the company triples in size?
4. People and Processes - You should be able to expand the business with minimal growth of the administration. At the same time, you need to know at what point to add new staff. Having all of your procedures written down is extremely valuable when looking at adding satellite offices or expanding your operations. Also, make sure you minimize manual processes at month end so that growth does not slow down your reporting.
   

I know how unimportant the accounting system can seem when you are planning the big push into a foreign country, but a few hours spent on system design during the initial planning can reap HUGE rewards when those sales materialize. After all you don't want to be called a "Lemon".

Accounting Software: Why Switch?

In his blog, "The Poetry of Marketing", Jim Behrle asks that immortal question: why switch accounting software?

Should your company use a new accounting software program or should you simply just go with what you have? There are many advantages to using software as opposed to relying on your employees. First, here are some of the reasons why you need to have the latest accounting software in order to keep your business on track.

Jim lists some basic issues clearly aimed at small business owners, to which I would add:

Have you discussed your needs with a professional accountant experienced in systems implementation?

If the answer is "no", then I wouldn't necessarily switch accounting software. The first step is to determine what you need and the second is to see if your existing system will meet those needs.

What can a professional accountant do for you?

• Help you create a structure that emphasizes the business drivers that are important to you. For example, if you rely on customers or vendors in the United States, then changes in profit due to the USD exchange rate should be easily identified.
• Help you create financial reports that are easy to read and act upon.
• Train you and your staff so that the transactions be entered easily and the reports created quickly.
• If it turns out your system needs replacement, they can help you select the appropriate new one (or upgrade of the existing one).

But please don't wait until the end of the year or when the tax returns are due before taking action. The best time to change systems is the slowest time of year for your business.

The Dirty Little Secret about RFQ's

RFQ's or Requests For Quotations are the bane of the accounting software industry. They take a long time to prepare, a long time to complete, and I have to wonder whether they improve the process of selecting accounting software at all.

The idea makes perfect sense:

1. You determine your needs, e.g. multi-currency, an inventory module that will handle obsolescence, a fixed asset subledger, etc.
2. You write all those needs down in the form of questions, e.g. "Will your software allow daily changes to exchange rates?"
3. You distribute the questionnaire to software consulting firms who complete it and send it back.
4. Based on their answers, you select a shortlist of consulting firms to interview and demo their product.

Simple, right? No! The dirty little secret is that accounting software vendors know that they can never answer "no" to a question on an RFQ or they will never be selected for the interview, so they bend over backwards to answer "yes" to all the questions. Strictly speaking, they're not wrong, because software can be changed or work arounds can be developed, but the result is not a true picture of what the software can do.

So, rather than using the shotgun approach with a huge questionnaire, determine your top ten features and grill the vendors about how their system approaches them. Pick features that are operational (e.g. how Sales Orders are handled) or unique to your industry. Secondly, spend a lot of time following up on the references supplied by the consulting firms (you DID ask for references, didn't you?) In my experience, other users have been happy to talk to me about their systems, even taking the time to invite me over to see it in person. Then you can ask them about the vendor as well.

Happy Hunting!