Driving Value Through Industry and Line of Business Solutions

When SAP’s acquisition of BusinessObjects was first announced in October 2007, one of the things that I heard people saying most often was that SAP was going to spend the next 5 years integrating a bunch of acquired technologies and would do so at the expense of innovation. Having been party to at least 5 previous acquisitions in the preceding 8 years it won’t be a surprise to many that it was not exactly the first time I’d heard that. It’s fair comment after all…when you acquire a technology you need to integrate it in order to extract value but when SAP designed its current enterprise performance management (EPM) roadmap innovation was at the heart of it.

By designing a roadmap which delivered integration it also factored in a healthy dose of innovation not least of which is the ability to enable a complete closed-loop performance management process which it announced in January of this year and which attracted significant attention with a subsequent certification by Kaplan and Norton. This built upon its visionary and unique integration between its EPM and governance, risk and compliance solutions which it has continued to progress still further with exciting announcements expected later in the year. However one area of innovation which is often over-looked is the value that it’s creating through new line of business and industry solutions. BusinessObjects had a long history of delivering such solutions on its core EPM applications. Solutions to support planning processes in healthcare, banking and retail proved extremely popular with customers, as did its IFRS and US-GAAP starter kits designed to speed time to value for consolidation implementations.

Since the acquisition this has not gone away and SAP has been heavily investing to deliver additional solutions in this area including new solutions for planning in the public sector and Consumer Products built on SAP BusinessObjects Planning and Consolidation, Retail Store Profitability based on SAP BusinessObjects Profitability and Cost Management and new solutions for Banking and Retail based on SAP BusinessObjects Strategy Management.

Its latest showpiece was unveiled this week at the SAP Insider Financials event in Orlando and in an effort to further help organizations streamline the entire capital-expenditure planning process SAP announced a starter kit for capital planning also built on the planning and consolidation application. The new starter kit provides an automated way to request, plan, model and evaluate large, complex projects as well as smaller, simpler ones. Developed in collaboration with SAP partner Aster Group, the starter kit is especially helpful for organizations in capital-intensive industries like automotive, chemicals and oil and gas. Pre-built templates and content Its also features embedded analyses of investment returns using industry-standard methodologies such as internal rate of return and payback period.

By all accounts this is not the last we will hear from SAP in this domain and the latest version of its EPM roadmap highlights this as an area of continued focus. In the keynote at SAP Insider Financials this week it gave us a glimpse of this as it demoed a forthcoming solution for Customer Value Analysis built on its Profitability and Cost Management solution. This focus is it seems at the heart of its EPM vision and rightly so. By taking its core applications and delivering these solutions it’s leveraging its assets in the form of the technology but also the domain expertise it has acquired. Good for SAP but also good for the customer who is able to take this content, speed time to value and ultimately deliver a higher return on investment than it would have done if it had started with a blank canvass. ROI being a topic to which I intent to return to in this blog very shortly.

U.S. SEC clarifies its position around IFRS adoption

Yesterday, the Securities and Exchange Commission (SEC) provided their much anticipated announcement on the adoption of International Financial Reporting Standards (IFRS) in the US.

You may remember that back in 2008, the then SEC chairman Christopher Cox published an outline roadmap for US transition to IFRS with likely adoption in 2014. However since then much water has passed under the bridge – much of feedback on the roadmap both good and bad, leadership changes at the SEC with Mary Schapiro taking over from Christopher Cox and, of course, a global economic crisis! So it’s perhaps understandable that it’s taken the SEC some time to follow up on their plans for IFRS... well until yesterday that is when they announced the work plan with 2015 as the earliest likely date for public companies to report in IFRS with a final decision to be taken in 2011. The workplan also introduces a checklist which includes steps to ensure that the global standards themselves will be suitable for U.S. use. – effectively “convergence” between IFRS and US GAAP. You can read the full press release here.



So what should we take away from this announcement?

For me it can be interpreted as SEC Chairman Mary Schapiro clearly setting a stake in the ground to confirm that adoption of a single set of independent global accounting standards remains firmly on the SEC’s agenda. Clearly there is pressure on the respective standards setters (IASB for IFRS and FASB for US GAAP) to ensure that IFRS is fit and ready for adoption in the U.S before the transition finally takes place. However the move to a single set of global standards unequivocal. The train is at the station, so to speak, it’s simply a question of ensuring it’s properly provisioned and scheduling an appropriate departure time.

It’s tempting to focus on the fact the SEC have effectively introduced a delay. We won’t now know whether IFRS will finally be adopted until at least 2011 and even then adoption won’t be before 2015. This seems far into the future – so why not relax and take our foot off the pedal? This would be a mistake, 2011 is less than 12 months away and any adoption of the new standards is likely to involve dual reporting for a couple of years during a transition period as was outlined in the original roadmap. So actually there isn’t that much time at all!

So what single piece of advice or guidance can I offer to folks impacted by the transition to IFRS? Quite simply, get your house in order! IFRS is coming – this has now been confirmed. Ensure that the systems and processes you have in place will be ready to easily adapt when the time to transition comes. Your first steps should be to carefully assess your situation, do some advanced planning, and assemble cross-functional teams from accounting, IT, and your auditing partner. You will need to understand the impact that IFRS reporting will likely have on your organization, your financial reporting procedures, and your staff. With the right planning and the right people, you will be able to choose a path that fits your needs — and the process will be straightforward.

If you’re interesting in discovering more about IFRS and in particular the associated technology challenges please do take a moment to read my White Paper. I’d also love to hear your feedback on the SEC announcement… feel free to add your comments to this blog entry or drop me an email.

Quick wins with intercompany reconciliations

In difficult economic times it’s always easy to focus on the bottom line and simply slash costs. However it’s also possible to achieve quick wins that require little investment whilst laying the groundwork to support future growth for when things do pick up again. A good example of a quick win and one which a number of customers have been investigating in recent months, is that of intercompany reconciliation.

Dealing with intercompany transactions is an essential aspect of the group financial close process and can be split between two key tasks – reconciliation, (sometimes known as matching), and elimination. The two are often confused so let’s first be clear about what these terms represent.

Reconciliation is the process whereby reporting units agree their respective intercompany amounts. For example, if reporting unit A provided $1000 of services to Reporting Unit B, they both need to agree on this in their respective books – intercompany accounts receivable of $1000 for unit A and intercompany accounts payable of $1000 for unit B. The counterparty reporting unit should also be recorded. It sounds simple. However in many organizations there can be hundreds of reporting units with literally thousands of invoices between them. To further complicate things amounts don’t always match exactly as, for example, there may be differences in VAT rates for reporting units in different countries. Often the “matching” is agreed to be within reasonable monetary threshold with narrative provided to explain the why the amounts do not match exactly.

Elimination is the process of ensuring that the reconciled intercompany balances are treated appropriately when consolidating the local accounts of each reporting unit into the group as a whole. Accounts such as revenue are aggregated across reporting units. However intercompany amounts should not as this would result in double accounting – they need to be eliminated. The elimination process can only start once all intercompany amounts have been reconciled and agreed.

In the traditional intercompany matching and reconciliation process employed by most companies, the responsibility for resolving discrepancies in the intercompany balances declared by reporting units often falls on corporate headquarters. Generally this means that staff members in the central finance function are involved in checking balances, correcting errors, and contacting reporting units to resolve issues and intervene in disputes. This process results in an inefficient vertical flow of information between headquarters and reporting units and back again, as shown in the diagram below. The process is also hindered by the means of communication employed which typically involve telephone calls, e-mails and faxes, all of which are is time-consuming and delay the corporate close.





A more direct approach, one based on best practice, is where reporting units adopt a peer-to-peer reconciliation process to communicate and resolve differences directly with each another. This transfers responsibility for getting things right from the central finance function to the reporting units themselves. At the same time, the units could use any improvements in process automation as a catalyst to eliminate errors from the process, thus improving the accuracy of reported figures as well.

The bottleneck slowing down the reporting process is the time taken at headquarters to participate in the reconciliation process. If reporting units could deal directly with one another in a peer-to-peer fashion, this obstacle would be eliminated, and the intercompany process would fall away from the group financial close’s critical path. Such an achievement would free central finance staff from time spent on non-value-added tasks, enabling far more time to analyze data rather than just gathering and reconciling it, as shown below.

While many financial consolidation and reporting systems available today do provide functionality that supports the intercompany reconciliation and elimination processes, they are strongly oriented towards elimination and serve to maintain the status quo where corporate headquarters is the bottleneck. However, dedicated peer-to-peer intercompany reconciliation systems also exist and can be deployed alongside any consolidation application to gain that much needed quick win.

If you’re interested in learning more about peer-to-peer intercompany reconciliation, download our white paper Improving Intercompany Reconciliation for a Faster Close which also includes cost/benefit examples that allow you to estimate the type of ROI you can expect.