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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.VI_Financialmanagement 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 vr_fcc_financial_close_and_automationconsolidation, 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 IBMInfor and SAP, as well as smaller ones including Adaptive PlanningAnaplanHost AnalyticsLongview 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.

Regards,

Robert Kugel – SVP Research

Technology for the Office of Finance can have transformative power. Although progress has been slow at times, today’s finance organizations are fundamentally different from those of 50 years ago. For one thing, they require far fewer resources (chiefly people) to perform basic accounting, treasury and corporate finance tasks. In addition, public corporations report results sooner – sometimes weeks sooner – than they could in the mid-20th century. And finance departments are able to harness substantially more data and a wider array of analytics to promote insight and support more agile decision-making.

Even in this context, in many corporations the tax function remains a backwater in its use of technology. Most of their tax professionals are awash in desktop spreadsheets, tools that they initially thought would promote efficiency and accuracy. But the inherent problems with desktop spreadsheets make tax processes not only needlessly time-consuming (even using macros and other spreadsheet automation techniques) but also prone to errors and inconsistencies. This is especially true if people must enter the same information multiple times, which increases the chances of mistakes. In addition, assumptions made and rationales behind formulas used in data transformations may not be documented or readily accessible to others in the organization. This legacy can be problematic years later in an audit, especially if the individual who prepared the spreadsheet is no longer employed at the company. And with spreadsheet-driven processes, auditing taxes and the underlying data and calculations is difficult and time-consuming. On top of all this, the effects of the desktop spreadsheet’s inherent shortcomings multiply with the size of a corporation. By their nature, these spreadsheets hinder a corporation’s ability to understand tax issues and optimize  related decisions.

Organizations do not have to put up with these outdated, counterproductive practices. New tools can help streamline tax processes. One is Vertex Enterprise (which I reviewed earlier this year). VR_tech_award_winner_2013Vertex recently was awarded Ventana Research’s 2013 Innovation Award for the Office of Finance for this suite of application and integrated use of tax data and analytics. Vertex offers a single-platform approach to managing all types of taxes (direct and indirect) across the entire tax life cycle, from analysis through provisioning to audit defense, using a single data source. Direct (income) tax management is still a largely manual process involving a plethora of desktop spreadsheets. Calculating and accounting for direct taxes is complicated, largely because income tax laws can be quite convoluted, especially in certain industries. As well, the larger the number of tax jurisdictions it operates in and the more numerous its subsidiary legal entities, the more complex tax management becomes.

Vertex Enterprise includes tax provisioning software for both indirect and direct taxes. Indirect Tax is managed by the company’s O Series software, a single platform that handles sales-and-use-, VAT- and goods and services taxes on a global scale. Direct taxes is handled by Vertex Tax Accounting, global tax provisioning and reporting software that works with multiple general ledger systems in  multiple currencies and across multiple years within the context of multiple accounting regimes such as US- and other national generally accepted accounting standards (GAAP) and International Financial Reporting Standards (IFRS). The web-based software supports a distributed, collaborative, enterprise-wide tax decision cycle process that can achieve more optimal tax-related decision making. Direct taxes exist in a parallel universe, and one advantage in having a single system is that it facilitates the process of reconciling the business accounting performed in ERP systems with the tax accounting governed by law. Vertex automates tax account reconciliation and reporting and manages adjustments that span multiple time periods.

One notable advance for corporate tax departments offered by Vertex Enterprise is its tax data warehouse (TDW). Because a TDW can automate much of the painstaking work that occupies much of the tax practitioner’s time, it can free these trained individuals to focus on making the best tax decisions possible. Also, because a TDW can increase visibility into tax analyses and calculations, corporations can be more confident in their tax-related decisions. And with this greater visibility and confidence, tax departments can become a mainstream participant in the finance function. This is especially important in an era of increasing cooperation between tax authorities worldwide. More than ever, corporations that operate globally must be able to optimize their tax positions over time and across multiple jurisdictions. A TDW enhances that capability.

Conceptually, a TDW is simple: It’s a data store that makes all tax data readily available and can be used to plan and provision a company’s taxes. However, in larger companies (those with more than 1,000 employees) that operate in multiple tax jurisdictions and have even moderately complex legal entity structures, tax-related data structures and calculations become fiendishly complex, as I noted in an earlier perspective. For that reason, the first attempts to create TDWs proved unworkable because the sheer complexity of the direct (that is, income) tax domain overwhelmed the available information technology. These limitations forced companies to take shortcuts, which meant that each TDW had to be a largely custom effort and therefore expensive to build. And because these shortcuts rendered the systems brittle and difficult to change, they were expensive to maintain. Today, however, technology is available to make TDWs practical.

A TDW has several purposes: to ensure accuracy and consistency in tax analysis and calculations, improve visibility into tax provisioning, vr_Fast_Close_2012_ERP_01_multiple_erp_systems_are_commonand cut the time and effort required to execute tax processes. The technology is especially useful because data management is one of the biggest operational challenges facing tax departments today. That is, the information necessary for tax provisioning, planning, compliance and audit may not be readily available to the tax department because accounting and other information is kept in multiple systems from multiple vendors. Our benchmark research shows that 90 percent of companies with 1,000 or more employees use financial systems from multiple vendors, and 43 percent use four or more. In addition, not all of the data necessary for tax department purposes is captured by the ERP system. As well, data collected in a general finance department warehouse or pulled together in a financial consolidation system may not be sufficiently granular for tax department purposes.

Moreover, most companies’ ERP systems (the core technology for gathering transaction data) are not inherently “tax aware,” so tax departments repeatedly need to perform transformational steps to ensure that data is formatted and organized properly. Sometimes the data must undergo multiple transformations because, for example, the transaction information collected in an overseas subsidiary must be reported locally using the local currency and accounting standard but translated to the parent company’s tax books in a different currency using a different accounting standard. In some industries (such as financial services) there may be multiple local reporting standards, one for general statutory purposes and another reflecting specific rules for that industry demanded by some regulatory authority. In short, there are numerous data-driven headaches tax professionals have to address before they even get down to work. A TDW addresses this problem.

Ventana Research is dedicated to helping organizations enhance the effectiveness and strategic value of the Office of Finance. Tax departments, CFOs and controllers in larger, more complex corporations should examine how the tax organization spends its time and determine to what degree more enterprise automation and fewer desktop spreadsheets would enable the company to understand and manage its tax needs more intelligently. Vertex Enterprise can be a useful foundation for transforming the tax function, which is why it received our Technology Innovation Award for Office of Finance for 2013.

Regards,

Robert Kugel – SVP Research

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