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Infor recently held its annual Innovation Summit at its New York City headquarters. The company has shown leadership and creativity in business applications on two fronts: focusing its development efforts on enhancing the user experience and collaboration and building an application architecture that will deliver a rich set of functionality for ERP, financial management, CRM and HRMS and business analytics in a multitenant cloud environment. All of these advances were necessary to remake a disparate portfolio of aging software into an up-to-date set of applications. The Innovation Summits have been useful indicators of Infor’s future product and market direction. And while there has been a lag between what’s demonstrated and what’s actually available in the software, it’s not clear that this really matters. Any negative impact is limited by the slow replacement cycle for ERP (our research shows that on average companies replace their systems every 6.4 years – longer than they used to take) and vr_Office_of_Finance_01_ERP_replacementconservative attitudes when it comes to core enterprise systems. Innovation doesn’t seem to be a big factor yet in selling business software to mainstream buyers, but it is likely to become more important within a few years. Changes in buyer preferences will come about as technology puts more of the design and operation of these systems in the hands of business users rather than their IT departments and outside consultants. Increasing the configurability and reducing the need for customization will cut costs, reduce the time to value in purchasing replacement applications and increase the flexibility of these notoriously inflexible systems.

Infor is pursuing three major areas of innovation that are central to the emerging next generation of ERP and financial management software.

  • One is the addition of analytics, reporting and performance management capabilities to what had been a purely transactional system, which I’ve commented on. Companies now are able to create analyses, reports, dashboards and scorecards directly in the ERP system and in real time rather than having to transfer the data to an analytical application (such as a financial performance management suite) or to a data warehouse where analysis and reporting could be done using a business intelligence tool. This can greatly simplify data management and provide executives and managers with more timely information.
  • The second is using in-memory processing and advanced data processing techniques to eliminate batch processing and accelerate the execution of core finance and business functions. Period-end processes that until now have required hours to complete can be finished in minutes; those that have taken minutes can now be done in seconds. Consequently, information that might have been available only monthly can now be presented on a daily or weekly basis. Advanced processing also enables finance organizations to distribute workloads more evenly and help accelerate their close process, potentially by several days.
  • The third source of innovation is adding functionality that either extends a business process further upstream or fills in gaps to achieve complete end-to-end automation of a core process. This functionality may take the form of highly configurable enterprise applets offered by vendors that plug into the core application. Or it may be a special-purpose application built on a vendor’s platform that enables a company to fill in functional or process gaps in the vendor’s multitenant ERP offering.

Infor’s product strategy embraces all three sorts of innovation. At the event it showed its matrix of CloudSuite offerings. which combine any or all of three stand-alone applications:

  • CloudSuite Financials, which is aimed mainly at services (as opposed to product) companies, supports financial, project, lease and asset accounting.
  • CloudSuite Supply Management is purchasing software that manages the full procure-to-pay process and is designed to address the needs of services organizations rather than manufacturing or distribution businesses.
  • CloudSuite HCM provides human capital management capabilities.

These products are available today in a single-tenant deployment and will be available in multitenant form in the near future. In addition to a general purpose corporate edition, Infor will design versions of these stand-alone applications to support healthcare companies and public sector entities. Those two industries are important parts of the company’s existing customer base and are likely to benefit from moving to the cloud because of better service (especially faster implementation of patches and upgrades) and greater efficiency.

CloudSuite Financials incorporates the first two types of ERP innovation mentioned above: more capable and flexible data processing structures and in-memory data processing. Because it’s built on a multidimensional data structure, CloudSuite Financials simplifies accounting in companies that have global operations with legal entities that span multiple currencies, accounting standards, tax regimes and regulatory environments. The software also combines transaction processing with computational analytical tasks such as statutory consolidations. To simplify the need to conform to different global requirements, the multidimensional structure and analytical capabilities permit parallel accounting, consolidation and reporting for any of a corporation’s legal entities (including regional parent subsidiaries) as well as the global parent corporation. For example, a company based in the U.S. that has British, German and Japanese subsidiaries can automate the production of financial statements expressed in U.S. dollars that apply this country’s Generally Accepted Accounting Principles (US-GAAP), while simultaneously accounting for the subsidiaries in their local currencies and applying International Financial Reporting Standards (IFRS) in preparing their financial statements. Moreover, by statute all Japanese companies have a fiscal year ending March 31. This, too, is handled in a highly automated fashion by the software entirely within the ERP system. Today, to accomplish these multilevel accounting tasks companies must move and manipulate large amounts of accounting data using multiple applications. Even when they employ a high degree of automation in processing data the process is tedious – even more so when accounting departments use time-consuming and error-prone spreadsheets to perform allocations or calculate adjustments in period-end accounting and closing.

Even companies with less complex and far-reaching corporate structures are likely to find the Financials application easier to use than their existing ERP because, for example, the use of role-based process management and dashboards, the ability of individuals to configure reports to suit their needs and the availability of a range of real-time transaction data for reports and dashboards. The applications also incorporate in-context collaboration using Infor’s Ming.le software.

The third area of innovation in ERP and other applications such as enterprise asset management (EAM) or marketing automation is extending their reach into adjacent or complementary functions that are specific to an industry or a company. Doing so enables companies to manage processes with a higher degree of end-to-end process automation and to collect a broader set of data to use in descriptive, predictive and prescriptive analytics. These extensions can increase the value of an enterprise system for the user organization without its having to heavily modify or rewrite the core software. The extensions could be designed to appear to be an integral part of the core application or served up as a stand-alone enterprise applet that passes data to a core application. Some examples of such extensions come to mind:

  • An application that enables a sales or marketing department to quickly create weekly or monthly a personalized electronic sales brochure containing special offers derived from the individual recipient’s specific type of business and items that the customer purchased in the past. Customers would select items and, in so doing, kick off a sales order process that includes all necessary downstream tasks including inventory management, credit approval, order fulfillment and billing.
  • An Internet of Things (IoT) data analysis tool that assesses incoming data streams for specific types of equipment and, when certain conditions are met, kicks off one or more business processes in one or more core enterprise applications. For instance, sensor data indicating a maintenance event might start a process in an asset management application and a purchase order workflow related to parts and services that are required.
  • A predictive analysis tool that, based on purchases to date, alerts individual customers that they may not achieve minimum requirements under a purchase volume agreement. In addition to generating the reminder, the application might also create a list of offers based on the customer’s past buying behavior.

For this type of software to be useful in a multitenant software-as-a-service (SaaS) environment it must be highly configurable with respect to data elements and process definitions so that it meets the requirements of as many types of business as possible. Greater configurability will make it easier for businesses to set up and modify these extensions without much IT or consultant involvement, making the software more adaptable to changing business conditions. Software vendors that can offer a portfolio of prebuilt, highly configurable extensions to their commodity enterprise applications will have a market advantage.

Infor is developing applications that extend the functionality of its core enterprise software using a cooperative development process with customers that it calls a “hackathon.” Software vendors routinely work on development projects with customers to add significant functionality, often for a specific need in an industry. In this way Infor is attempting, in effect, to productize cooperative development efforts. To facilitate the creation of these sorts of applications, Infor has created (and is enriching) a toolkit that is straightforward to use and streamlines and shortens the process of creating extensions. Through the company’s loosely coupled ION architecture, these extensions can exist separately and be incorporated in one or more types of business applications. Hackathons engage a cross-functional team from a customer, including all relevant business and IT roles, to ensure as much as possible that all requirements are met. So far, the hackathons are aimed more at achieving innovative breakthroughs for the customer rather than incremental enhancements. Their value lies in both the development of differentiated offerings that can attract buyers for a broader suite and a bit of a halo effect that demonstrates the value of innovation in ERP.

Business people have long viewed many enterprise applications, especially ERP and financial management, as IT’s concern, not theirs. They view the system as a given, something whose limits one has to work around because it cannot change. Over the next five years the market for core back-office business applications (such as ERP and EAM) will evolve as buyers become more aware of the new, extended capabilities of these systems. Innovation can create useful product differentiation that leads to a competitive advantage in what has been a relatively hidebound set of software categories (especially ERP). For Infor, innovation has been a way to change the image of its products, which were assembled through the rollup of flagging or failing software companies. Innovation has likely had a positive impact on the company’s ability to retain its installed base and increase its revenue from customers, which is essential to its business model. Gains can come from migrating them from on-premises deployment to a multitenant cloud and by expanding the number of Infor applications that these customers use. This is important. Innovation can help, but in a slowly moving market, sustaining a competitive advantage through innovation is likely to be difficult.

Buyers of enterprise software must keep abreast of what’s possible and available. ERP and financial management applications are undergoing the most significant changes in their structure and capabilities since the 1990s. Infor’s customers in particular should stay on top of what’s happening. For the first time in decades, there is a lot.

Regards,

Robert Kugel

Senior Vice President Research

 

 

The imperative to transform the finance department to function in a more strategic, forward-looking and action-oriented fashion has been a consistent theme of practitioners, consultants and business journalists for two decades. In all that time, however, most finance and accounting departments have not changed much. In our benchmark research on the Office of Finance, nine out of 10 participants said that it’s important or very important for finance departments tovr_Office_of_Finance_05_finance_should_take_strategic_roletake a strategic role in running their company. The research also shows a significant gap between this objective and how well most departments perform. A large majority (83%) said they perform the core finance functions of accounting, fiscal control, transaction management, financial reporting and internal auditing, but only 41 percent said they play an active role in their company’s management. Even fewer (25%) have implemented a high degree of automation in their core finance functions and actively promote process and analytical excellence.

Despite these findings, we believe that today finance transformation is both necessary and achievable. Practical, affordable technology is available to enhance productivity in order to de-emphasize the department’s “bean counting” role and promote its ability to enhance the performance of the entire corporation. Technology enables Finance to be more proactive and more strategic in providing analyses and methods that enhance its capabilities and improve the performance of the entire corporation. Of course, technology by itself will not transform a finance organization, but most of the longstanding issues that it must address to improve performance can be fixed using information technology to address interrelated people, process and data issues in a comprehensive fashion.

Our Office of Finance research agenda for 2016 emphasizes three broad technology-related themes serving the goal of finance transformation:

  • Applying a continuous accounting approach to promote greater departmental efficiency and effectiveness
  • Adopting technology that promotes action-oriented continuous planning, using rapid, short planning cycles to promote agility, coordination and accountability
  • Using software and other information technologies to achieve continuous optimization to promote ongoing organizational alignment across departments and business units.

Continuous Accounting

We introduced the term “continuous accounting” last year to identify the three areas where our research consistently finds tactical roadblocks to achieving a more strategic finance organization. By focusing on these three areas, finance executives can achieve steady gains in effectiveness.

vr_Office_of_Finance_11_automation_speeds_the_financial_closeThe first area concerns how the organization uses technology and manages information. To enhance effectiveness, finance departments must use software to automate all mechanical, repetitive accounting processes in a continuous, end-to-end fashion. Automation improves efficiency by eliminating the need to have people perform repetitive tasks. For example, we find that most (71%) companies that automate substantially all of their financial close complete it within six business days of the end of the quarter, compared to 43 percent that automate some of the process and just 23 percent that have automated little or none of it. Using software enables the department to manage the flow of data through its processes in a continuous, end-to-end fashion. This ensures data integrity, which in turn eliminates the need for checks and reconciliations that can consume time that could be spent more productively. Data integrity is undermined every time data is re-entered manually or when a spreadsheet is used in a process: for example, when data from one system is manually transferred to another; when the same information is entered twice in two different systems; or when a spreadsheet is used to perform an allocation or a set of calculations.

The second aspect of continuous accounting involves optimizing scheduling of tasks. Continuous accounting incorporates a process management approach that, wherever possible, distributes workloads continuously to flatten spikes of activities, whether in the month, quarter, half-year or year. This approach eliminates bottlenecks and optimizes when tasks are executed. It reduces stress on the department and can eliminate the need for temporary help and its associated expense. Much of the traditional accounting cycle and related departmental practices are artifacts of paper-based bookkeeping systems. These methods dictated the need to wait until the end the month, quarter or year to take accountants off line to perform aggregations, allocations, checks and reconciliations; that rhythm represented the best trade-off of efficiency and control in such antiquated approaches. Today’s systems offer far more flexibility that enables departments to spread workloads more evenly over time and complete them more expeditiously.

The third aspect of continuous accounting is the need to instill continuous improvement in the departmental culture. This steps counters tendency of any organization – but especially finance – to embrace a “we’ve always done it this way” mindset that resists needed change.  Continuous improvement acts as a mission statement that sets increasingly rigorous objectives. To achieve those objectives it’s necessary to have regular reviews of performance toward those objectives and make addressing shortcomings a priority. For departmental executives, communicating the need for continuous improvement is an essential element to achieving finance transformation.

Used as an organizing principle for the department, continuous accounting frees up time and therefore the resources needed to implement changes that result in performance improvements in a sustained and steady fashion. Adopting a continuous accounting approach enables CFOs and finance executives to reduce the amount of time spent “fighting fires,” many of which are the result of not using capable technology.

The Transformation of ERP

In most companies, ERP systems are the backbone of the accounting function, and this software category will continue to be an important focus of our research in 2016. The ERP software market is set to undergo a significant transformation over the next five years. At the heart of this transformation is the decade-long evolution of a set of technologies that enable a major shift in the design of these systems – and it amounts to the most significant change since the introduction of client/server technology in the 1990s. Vendors are seizing on technologies such as in-memory computing, improving the user interface and user experience, adding more in-context collaboration and extending the use of mobility to differentiate their applications from rivals. Those with software-as-a-service (SaaS) subscription offerings are investing to make their software suitable for a broader variety of users in multitenant clouds. These and other topics will be addressed in the results of our next-generation ERP benchmark research, which we will release in 2016.

We’ll also continue to look at the application of financial vr_NG_Finance_Analytics_01_finance_analytics_users_dissatisfiedperformance management (FPM) to improve results. Ventana Research defines FPM as the process of addressing the often overlapping issues that affect how well finance organizations support the activities and strategic objectives of their companies and manage their own operations. FPM deals with the full cycle of the finance department’s functions, including corporate and strategic finance, planning, budgeting, forecasting, analysis, closing reporting and statutory filing. In each of these areas, using inappropriate technology has a negative impact on how well a company performs. We will continue to highlight the importance of improving the creation and use of analytics. For example, our Office of Finance research finds that on average, companies that are heavy users of spreadsheets in their closing process take longer to close their books than those that limit them or don’t use them at all. Elsewhere, our next-generation finance analytics research finds a high degree of dissatisfaction with finance analytics in the company: 58 percent said that significant or major changes are necessary while just 7 percent stated no improvements are necessary. The research also shows that heavy use of spreadsheets for all forms of analysis is at the heart of this dissatisfaction. In 2016 also we’ll publish the next installment of our Financial Performance Management Value Index, which assesses vendors and products in this software market.

Financial Performance Management

As noted above, we recommend that finance organizations that want to play a more strategic role in the management of their corporation should adopt a continuous planning methodology for their financial planning and analysis function. A continuous planning approach uses frequent, short planning cycles to promote agility, coordination and accountability in operations. It includes establishing an ongoing dialogue among finance and line-of-business managers and executives to track current conditions as well as changes in objectives and priorities driven by markets and the business climate. To manage planning in such a comprehensive way requires dedicated software that enables members of the FP&A organization to focus more of their time on analysis and modeling. Technology also enhances the quality of plans, forecasts and budgets. In particular, in-memory computing makes it feasible to rapidly process computation of even complex models with large data sets. Consequently, it can expand the range of planning, budgeting, forecasting and reviewing performed in rapid cycles. It enables organizations to run more simulations to understand trade-offs and the consequences of specific events, as well as change the focus of reviews from what just happened to what to do next. For these reasons, in-memory computing also may encourage more companies to replace spreadsheets (which have practical limits to the size, complexity and adaptability of the models that are created in them) with dedicated planning applications that can harness the power of in-memory processing.

Sales and Operations Planning for Finance

Companies that deal in physical goods that are manufactured or sourced and then sold direct or into distribution channels often benefit from using sales and operations planning (S&OP). The process of orchestrating the flow of parts and materials through the production process to meet expected customer demand involves many functional units, each of which make plans, as well as the finance organization, which assesses the financial impact. Sales and operations planning is a discipline aimed at aligning and optimizing the plans of several business units. There are sales plans, product plans, demand plans and supply chain plans. Within a corporation, the performance of each of the functional units that produce these plans is assessed using different, often conflicting metrics. Information technology enables corporations to manage their inventories more skillfully and  minimize their working capital investment while maximizing their ability to fulfill demand. S&OP is designed to align a company strategically so that it can execute tactically in more effective fashion. The ultimate goal is to determine how best to manage company resources, especially inventory and cash, to be able to profitably satisfy customer demand with the lowest incidence of stock-outs. The output of an S&OP group is a SKU-level demand forecast that is used to create a detailed inventory plan. This quantitative plan is a major driver of a process that guides the purchasing an optimal amount of inventory (the one that best balances desired fulfillment rates while minimizing the investment in inventory) from the best set of suppliers (balancing a range of considerations including goods availability, pricing, discounts, economic order quantities and supply chain constraints). To enhance their strategic value, the financial planning and analysis group should play an integral role in the sales and operations planning process.

Advanced Analytics

We also will monitor the ongoing development of advanced analytics for business users. Using technology to make better use of data through advanced analytics can provide companies with breakthrough results. Often that’s because using capable information technology can provide insights and visibility that are unavailable by eyeballing data or using spreadsheets. Advanced techniques such as predictive analytics provide companies with more nuanced forecasts as well as the ability to spot deviations from expected results and thus address problems or seize opportunities sooner. For example, price and revenue optimization is rapidly developing applied analytic techniques that enable businesses to achieve higher profitability, increased sales or some combination. Software that helps manage pricing and profitability is spreading from hospitality, transportation, retailing to consumer financial services and other areas, especially business-to-business verticals. Used properly, this type of software enables a company to tailor its control of individual decisions regarding pricing, discounts and other terms to achieve the results best suited to its strategy. It can continuously make adjustments consistent with longer-term objectives in response to market conditions. Price and revenue optimization is impossible to achieve without using software and analytics that can deal with the huge volumes of today’s data.

Tools for Promoting Productivity and Effectiveness

There are a range of specialized software tools also can promote a more effective finance function, and executives must focus on acquiring and using those that enable the department to take a more active role in improving performance in the company’s operations. Finance has the necessary analytical talent and is positioned to be a neutral party in balancing the requirements of different functional groups or where issues cross business units or geographic boundaries.

The Office of Finance practice will continue to focus on software categories that can improve corporate efficiency, increase visibility and enhance agility. Our main objective is to enable finance organizations to be more effective by eliminating the root causes of time-wasting, low-value activities. For example, more companies are adopting a subscription or recurring revenue business model. This model isn’t always handled well by ERP systems, especially if a company is selling something more complex than simple subscriptions. These companies need to automate their quote-to-cash process from end to end, with the objective of controlling the flow of data, from configuring, quoting and pricing all the way to billing. Using this type of automation to ensure data quality enables companies to achieve two usually conflicting goals: substantially reducing finance and accounting department workloads while still allowing sales and marketing to offer customers flexibility in how they buy their services or products. Expense management is another classic time-waster poorly executed in most companies. Automation not only can save the finance department time, it also can reduce the “administrivia” workload for employees who have to submit expense reports. The cost of these expense management systems is typically less than one full-time equivalent employee, but it can save a multiple of that amount of time.

Managing Taxes More Intelligently

Taxes are one of the biggest expenses corporations face. There are two basic types of taxes: direct or income taxes and indirect taxes, which include sales and use tax and value taxes. Managing direct tax provision and analysis is still in the dark ages in most companies. We recommend to corporations that operate in multiple countries and that have even a moderately complex legal entity structure that they consider tax provision software that is supported by what we call a tax data warehouse of record. Taxes operate in a parallel universe from business management. Our research confirms that most companies use spreadsheets to manage their tax provision and analysis: Half (52%) rely solely on spreadsheets, and another 38 percent mainly use them. Several issues arise in using spreadsheets in the tax function: They are time-consuming, provide limited visibility to senior executives and pose unnecessary risks through errors. International companies are facing increasing scrutiny of their tax positions and can benefit from using dedicated software to manage their direct taxes more intelligently. Among the indirect taxes, in the United States, sales taxes are notoriously complex to administer. We recommend that any company with 100 or more employees doing business in more than a handful of states adopt a sales tax service for the same reason that they use a payroll service: It’s not worth the time, hassle and potential liability to do it in house.

The Impact of Changes to Accounting Rules

The Office of Finance practice at Ventana invests a great deal of time in researching software applications and related information technology. Uniquely, though, we also read accounting bulletins. The world of accounting is undergoing a substantial change now and over the next three years as a result of the adoption of accounting rule changes for revenue recognition and, to a lesser extent, lease accounting. The impact of revenue recognition changes will be profound because it is built on a fundamentally different conceptual framework than classical accounting. The upshot of this framework is that systems must account for revenues and expenses in a parallel fashion rather than in a balancing one. This type of approach would have been extremely problematic in paper-based systems. It’s feasible only because of the nearly universal use of computer-based accounting systems. Almost all ERP vendors are gearing up to support the new accounting rules, but it’s important for companies to plan ahead to make the transition as smooth as possible. And it’s important to be sure that sales contracts and documentation are designed to make accounting for them as efficient as possible.

Technology’s Role in the Office of Finance

One major reason for investing in technology is to help senior executives achieve better results by supporting more effective business management techniques. For example, our benchmark research on long-range planning demonstrates that better management of technology and information can improve alignment between strategy and execution. And when it comes to cloud computing, far from simply being a technology concern, cloud computing enables corporations to cut costs and gain access to more sophisticated technology than they could feasibly support in an on-premises deployment. Using technology can boost performance. The improper use of spreadsheets as seen in our research continues be an unseen killer of corporate productivity because these tools have inherent defects that significantly reduce users’ efficiency. Relying on spreadsheets makes it impossible to find the time to improve performance. Increasingly companies have inexpensive options that are easier to use and enable more advanced, reliable modeling, analysis and reporting.

Information technology is an essential element of business management and promotes a discipline of continuous optimization, a term we use to emphasize the importance of achieving better alignment of organizations to a company’s strategy. Yet many senior executives and managers have too narrow and too limited an understanding of IT’s full potential, much as those managing corporate information technology usually don’t appreciate business issues and how IT can address them. The business/IT divide is a barrier that prevents many companies from achieving their performance potential. The divide need not exist. Business executives don’t have to be able to write Java code or master the intricacies of an ERP or sales compensation application. However, they should master the basics of IT just as they must understand the fundamentals of corporate finance, the production process and – at least at a high level – the technologies that support that process. Our research practice addresses the significant business issues where technology plays an important role in addressing those issues. Because business is dynamic, optimization must be continuous to adapt to changes in markets, the competitive landscape and customer demands. Continuous optimization requires companies to operate in faster cycles and have real-time visibility to improve responsiveness and agility. Information technology can remove the barriers that prevent them from achieving more optimal results.

Regards,

Robert Kugel – SVP Research

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