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October 16, 2013 in Business Analytics, Business Performance Management (BPM), Financial Performance Management (FPM), Social Media | Tags: Accounting, Analytics, benchmark, Budgeting, Business Analytics, Business Intelligence, CFO, Chief Financial Officer, CIO, close, closing, Cloud Computing, Compliance, Consolidation, Controller, data, driver-based, ERP, Finance Financial Applications Financial Close, Financial Performance Management, financial reporting, Forecasting, FPM, GAAP, Hyperion, IFRS, in-memory, Integrated Business Planning, mobile, modeling, multinational Oracle, Oracle, Planning, Price optimization, process management, Profitability, report, Reporting, SEC Software, spreadsheet, strategy, Tax, tax department, tax optimization, tax planning, XBRL | by Robert Kugel | Leave a comment
Oracle continues to enrich the capabilities of its Hyperion suite of applications that support the finance function, but I wonder if that will be enough to sustain its market share and new generation of expectations. At the recent Oracle OpenWorld these new features were on display, and spokespeople described how the company will be transitioning its software to cloud deployment. Our 2013 Financial Performance Management Value (FPM) Index rates Oracle Hyperion a Warm vendor in my analysis, ranking eighth out of nine vendors. Our Value Index is informed by more than a decade of analysis of technology suppliers and their products and how well they satisfy specific business and IT needs. We perform a detailed evaluation of product functionality and suitability-to-task as well as the effectiveness of vendor support for the buying process and customer assurance. Our assessment reflects two disparate sets of factors. On one hand, the Hyperion FPM suite offers a broad set of software that automates, streamlines and supports a range of finance department functions. It includes sophisticated analytical applications. Used to full effect, Hyperion can eliminate many manual steps and speed execution of routine work. It also can enhance accuracy, ensure tasks are completed on a timely basis, foster coordination between Finance and the rest of the organization and generate insights into corporate performance. For this, the software gets high marks.
Unfortunately, this FPM suite remains more difficult to deploy and maintain than other vendors’ suites, and its user experience is becoming dated. As well, social collaboration is increasingly important in business, especially to fit specific requirements of the finance function, as I recently noted. Oracle understands that it must address changing user experience requirements as the baby boomers retire and are replaced by people who have fundamentally different expectations of how software is supposed to work. While there was plenty of evidence at OpenWorld that Oracle is taking steps to remedy this at a corporate level, it’s up to individual units to implement changes to their software portfolio, and it’s not clear that this is a priority for the Hyperion group. But in other areas, Oracle is busy addressing gaps in its FPM offerings. It is adding mobile enablement to Hyperion Financial Management and Planning, starting with an executive approval application to ensure that necessary signoffs can occur anywhere to speed the completion of routine work. To address the growing popularity of its cloud-based rivals, Oracle’s long-awaited Planning and Budgeting Cloud Service should be available by the end of 2013, providing budgeting, planning, collaborative forecasting and reporting as services to companies. And the company is offering financial and management and reporting in the cloud to streamline production and delivery of reports.
Hyperion still has the strongest franchise in the finance function, the legacy of achieving early market dominance in software for consolidation, reporting, planning and budgeting. It succeeded because it gave the finance department autonomy from IT with applications designed by people who understood their needs. Hyperion offers a rich set of capabilities to automate the extended close cycle – all of the activities that start with the preclosing functions and continue through completion of external reporting. Our recent benchmark research on the financial close found a correlation between the time it takes a company to close and the degree of automation that it applies to the process. On average, those with a high degree of automation are able to close their books in 5.7 days, compared to 9.1 days for those that apply little or no automation. Oracle’s Financial Close Suite of applications is designed to enable companies to execute their period-end close faster and more accurately while requiring fewer resources. This is important because managing their close well is an issue for more than half of companies. Our research found that 61 percent of corporations take more than six business days to complete their quarterly or semiannual close (the consensus best practice is closing within six business days). Rather than achieving a faster close, which 83 percent of companies said is important or very important, the research found that on average it takes a day longer for companies to close than it took them five years earlier. In conjunction with better process design, using software to automate manual processes, manage all phases of process execution and limit the use of desktop spreadsheets is an effective way to shorten a company’s close cycle. Oracle’s Financial Management Analytics allows finance executives to closely monitor this extended close cycle.
One recent addition to Oracle Hyperion’s Financial Close Suite is Tax Provision. Accurately calculating and reporting direct (income) taxes is a time-consuming, labor-intensive process for almost all midsize and larger companies. I’ve written about the importance of using technology to bring the tax function into mainstream finance. There are two necessary IT elements to managing this process. One is ensuring that all of the data needed for provisioning and any subsequent audit is readily available. An option here is a tax data warehouse for companies that have a large number of legal entities and/or operate in multiple tax jurisdictions. Hyperion doesn’t have this capability. However, for companies that have less complex requirements or just want to simplify and centralize the gathering of tax data, it provides the second necessary element: an environment that manages tax data collection, improves the accuracy of the data and the calculations (by substantially reducing the need for desktop spreadsheets and rekeying of data from source systems) and automates data movement through configurable wizards. Especially in the quarterly and year-end accounting closes, numerous adjustments may take place that can affect the tax provision or changes in tax calculations that can have an impact on reported results. A tax provision application can speed up the back-and-forth adjustments, helping to shorten the accounting close cycle. It also can enhance the effectiveness of the tax function because those professionals will have more time to spend on analysis and optimizing a company’s tax position rather than wrestling with spreadsheets.
Oracle has added important new capabilities to its FPM suite since acquiring Hyperion. Expanding the suite has helped the company sustain its franchise in the face of determined competition from large to smaller sized software vendors such as IBM, Infor and SAP, as well as smaller ones including Adaptive Planning, Anaplan, Host Analytics, Longview and Tagetik. The generational change that’s under way in corporations poses a serious competitive threat to Oracle. For finance professionals, word of mouth and brand loyalty count far more than “enchanted boxes” or “undulations”: That’s how Hyperion came to dominate the market. But times change, and Oracle is vulnerable because of the time and cost of deployment, ease of use and maintenance and user experience of its FPM suite. These were reflected in our 2013 Financial Performance Management Value Index. This year’s OpenWorld demonstrated that Oracle can pivot – albeit slowly – to address a rapidly evolving applications software market. With Hyperion it needs to focus more on addressing core competitive issues if it expects to sustain a leading market position.
Robert Kugel – SVP Research
September 25, 2013 in Business Collaboration, Business Performance Management (BPM), Cloud Computing, Operational Performance Management (OPM), Social Media, Supply Chain Performance Management (SCPM) | Tags: Analytics, CFO, ERP, FPM, Infor, Intacct, mobile, Oracle, SAP, social, Workday | by Robert Kugel | Leave a comment
Enterprise resource planning (ERP) systems emerged in the 1990s. Even though they don’t do much in the way of planning, the systems provide companies a means of centralizing and consolidating transaction data collection (such as purchase orders, inventory movements and depreciation), automating the management of processes, and handling the bookkeeping and financial record keeping for these transactions and related processes. ERP systems are an indispensable piece of IT infrastructure in today’s enterprises. Alas, they also are inherently flawed. But perhaps not for much longer.
ERP systems are about to undergo a considerable transformation, driven by the growing availability of technologies that can address the shortcomings of today’s systems. As I noted in my research agenda on the Office of Finance, the demographic shift taking place in the ranks of senior executives and managers – from the baby-boom generation to those who grew up with computer technology – will drive demand for a new generation of software. Soon, to be competitive, ERP systems will have to deliver a better user experience, greater flexibility and agility, as I have said, as well as mobility and lower cost of ownership.
In many respects, today’s ERP systems are exactly what people don’t want anymore. They are notoriously time-consuming and expensive to set up, maintain and modify. In our ERP research only 21 percent of larger companies said implementing new capabilities in ERP systems is easy or very easy while one-third characterized it as difficult. Because of this, the current generation of ERP software acts a barrier to innovation and improvement.
To be sure, more than any other piece of enterprise software, ERP systems are a challenge because of the complexities of business organizations. This isn’t going to change. I’ve spent decades examining all sorts of businesses from multiple perspectives – from strategic, high-level business models to footnotes in financial statements and the execution of specific manufacturing and financial processes. To the uninitiated, everything about business appears simple until they get into the details. Then, even when you strip out inessential elements, it’s still complicated. As well, in any organization, there are competing requirements and priorities at work when an ERP system is set up. Thus, when a global airline changed its inventory management system, consultants – with the accountants and auditors in mind – designed it to minimize the possibility of shrinkage. The old system allowed pilots to radio ahead to have needed spares on the ramp when they landed. The new system, however, required the defective part (say, a radio or a switch) to be returned before a new one was issued. Consequently, the airline soon found its $150 million aircraft with hundreds of passengers aboard delayed at the gate for an hour or more as $15 replacement parts were laboriously checked in and checked out.
Although some aspects of ERP will always be complex and require experienced assistance to design and maintain, techniques for mass customization can make it easier to implement, maintain and change, thereby eliminating a significant portion of the cost of ownership. To be sure, software companies have tried to minimize deployment costs. For a couple of decades, ERP vendors have offered packages aimed at specific industries such as aerospace and pharmaceuticals. Those addressing midsize companies, which have tighter budgets than large ones, offer out-of-the-box configurations aimed at even more specific types of business, such as steel service centers, manufacturing job shops or brewers. For more generic businesses, today’s cloud-based ERP systems are one solution to the problem of costly updates and reconfiguration. However, this option still may not be attractive if an organization is in a business that has very specific customization requirements that a more generic ERP systems cannot support well (for instance, process-manufacturing industries such as specialty chemicals manufacturing). Another issue that vendors such as Infor and Oracle are addressing is the challenge of updating on-premises systems. Their motivation in making updating as easy and inexpensive as possible is to keep existing customers on maintenance and not lose their annuity revenue stream. In the North American market (and to a lesser degree elsewhere), major upgrade cycles provoke companies to reconsider whether a new system from another vendor would be preferable. Some progress has been made over the years to minimize the difficulty and cost of configuring and updating ERP software, but much more is needed.
A second area of ERP systems that needs attention is the user experience, which is an increasingly important aspect of all business applications. The dull, cluttered and difficult-to-navigate interfaces that have been the norm are the result of inexperience in design and constrained computing resources. The next generation of ERP systems will be designed with decades of experience and far more powerful computing platforms and tools than the current one. In the 1930s, Raymond Loewy and others revolutionized the design of everyday objects, from soda fountains to locomotives and automobiles so that form and function combined to produce a better product. Apple’s success has much to do with brilliant integrations of design and technology. Today, it’s even more important to apply basic concepts of industrial design and ergonomics to creating user interfaces. This goes beyond making old code bases pretty. Largely because of tablets and mobile computing platforms, people now work with multiple types of interfaces and use a wider range of methods and gestures to interact with their devices. Next-generation ERP software must reflect these changes.
It’s also clear that ERP systems will be faster in the future, as technology such as in-memory processing will eliminate nearly all batch routines. Faster and more cycle times promote corporate agility because more frequent cycles become feasible and necessary information is available sooner. As well, another important change that is already under way is the ability to do real-time or near-real-time analytics on data held in an ERP system. This was to some extent feasible nearly 20 years ago with Coda (because it was built on a multidimensional database) and is part of Infor’s and Oracle’s longer-term architectural strategies.
Moreover, business and social collaboration is an important set of capabilities that has been taking hold in business, as our research found. Collaboration ranked second behind analytics as a technology innovation priority. Perhaps because most of the attention on the benefits of collaboration so far has focused on front-office roles, there’s less awareness of its need in back-office and administrative functions, as I’ve pointed out before. Indeed, the same research reveals that those in front-office roles said business and social collaboration is very important to their organization five times more often than those in accounting and finance roles (21% vs. a mere 4%). However, it’s just a matter of time before the finance group understands that social collaboration has substantial potential to improve its performance. Rather than following a general broadcast model, social collaboration in ERP and other finance applications will need to understand that individuals belong to multiple groups. For example, people in a company typically have a general role (“I’m in Finance”) and one or more task-specific ones (“I’m the director of financial planning and analysis”). Some relationships are persistent while others begin and end with a project. Issues that arise may be open to all or confined to specific groups, subsets of groups or a private dialogue. Queries or comments may be general, specific or somewhere in between. Some conversations, especially in finance and tax departments, must be tightly controlled. Software that understands the context of the work performed and automates the process of managing the who, what and when of the communications will support more effective collaboration, faster completion of tasks, greater situational awareness within the organization and as a result better decision-making.
Last, mobile enablement is already an important capability of some ERP systems. However, it’s important that ERP vendors focus on those elements where mobility is important and optimize the user experience for the task and platform. Unlike CRM and sales force automation systems where sales and service must be accessible anytime and anywhere, mobility’s importance in ERP depends on who uses it and why. Certain tasks such as data entry are not well suited to mobile devices, while routine reviews and approvals are. These must be simple to configure and deploy as well as use.
The worst aspect of today’s ERP systems is that they inhibit change in corporations, especially in holding back finance organizations from playing a more effective role in the company. The lack of adaptability in these systems inhibits companies from making necessary changes in processes, stifling innovation. Poor user interface design as well as limited support for social interaction is an ongoing drag on productivity. Antiquated design hampers data availability. Today’s corporations are willing to put up with these issues because everyone is in the same boat. In the decade or so after the great Y2K ERP sales bubble, there hasn’t been much fundamentally new in ERP systems. This period of limited innovation fostered a substantial consolidation of existing vendors. It has justified the consolidation because companies have continued to pay rich annual maintenance fees. However, the surviving on-premises ERP vendors are now confronted by a substantial number of cloud-based challenges. They also understand that they (and their competitors) are now in a position to use technology to create truly differentiated offerings. As such, I expect to see a new wave of product innovation in the coming years that will transform ERP into more flexible and usable software.
Robert Kugel – SVP Research