Robert Kugel's Analyst Perspectives

Sneak Preview and Analysis: Oracle Fusion Applications for Financial Management

Posted by Robert Kugel on Nov 27, 2010 11:53:47 AM

Oracle unveiled its Fusion Financials applications at its latest OpenWorld confab as part of its broader Fusion Applications announcement. The software will be generally available shortly. Beyond it being the approach to bringing together the disparate ERP/Financial applications the company owns (E-Business Suite/Oracle Applications, PeopleSoft and JD Edwards), Oracle Fusion Financials rethinks the architecture on which the software is built consistent with the longer-term business software trend of having applications mould themselves around business processes rather than having to mould business processes around available software. This is not just a simpler integration of business intelligence and on-line transactions processing. It results in an easier, more consistent and faster way to execute the execution of finance department functions. It is a breakthrough in the making, but owing to the conservative nature of the buyers and the lack of any compelling reason for Oracle to encourage them to migrate, one that I expect will take most of this decade to pan out.

For those with long memories, there's an element of anticlimax to the GA of Financial Fusion Applications. Despite being the works for five years, there's been little sense of anticipation or a deep thirst in accounting departments for a new ERP system - there never is. Oracle recognizes that it's unlikely to be overwhelmed by a mad rush of adoption of it by its PeopleSoft, JD Edwards or Oracle apps/E-business suite customers. Oracle has been supporting its financials customers with new releases with added functionality and improvements with more announced enhancements in the works and continued assurances that there's no sunset in sight. For a couple of decades I've used the root canal metaphor for ERP implementation - expensive and painful so finance executives put it off as long as possible. It makes little sense for any vendor to force customers off of their existing software - that's not the way the business applications market works these days.

Yet, Fusion Financials represents an important milestone reached. It is likely to make it far easier for the finance departments of the companies that adopt it to execute all phases of their accounting cycle and perform all manner of finance analytics that I have written about previously to promote a better understanding of past, present and future events in a company. Fusion financials stores accounting data in a multidimensional database (Essbase), which, in my judgment is a more natural approach because accounting by its nature is inherently multidimensional. (If Fra Pacioli were codifying bookkeeping today, he would be doing it in multidimensional stores rather than paper ledgers and sub ledgers.) In theory this makes it easier for people to analyze and report on the information collected. (We'll see how it pans out in the real world deployments.) It makes it possible to monitor account balances in real-time and generate alerts if, say, thresholds are broached or trends are broken. Fusion's service oriented architecture (SOA) makes it possible for companies to simplify the integration of the various Oracle business applications (such as Hyperion Planning, Human Capital Management or Primavera for project management) or any other vendor's SOA application.

Fusion Financials is really two things. It is the go-forward accounting/financial applications suite that will co-exist with (but ultimately replace) PeopleSoft Financials, Oracle E-Business Suite and JD Edwards. It also has been designed as a way to smooth the migration of existing ERP customers on these packages to Fusion, offering incentives to begin partial adoption sooner rather than later.

This slow-but-steady migration path is achieved by offering a Fusion-based "accounting hub" that complements the ERP system. Companies can use the hub as a way to integrate the full range of Fusion applications with its legacy ERP systems. Accounting data created and stored in PeopleSoft or E-Business Suite is duplicated in the hub where it can be used with, say Hyperion Planning, Strategic Finance or Financial Management (or any other SOA application). Once the accounting data is inside the hub companies can create and use dashboards and alerts, slicing, dicing, and drilling down and around. Because the information is already aggregated they can instantly see period-to-period differences.

Organizations also can use it as a financial data integration hub if they have very old accounting sub-ledger or operating systems (such as an insurance company with critical programs written in COBOL) by pushing the data from that system into Fusion. Since it faithfully retains all of the required elements of that data record and maintains a reference back to the source system there's never any need for users to go back into the source system. Users taking this approach will benefit from a more elegant integration methodology and, ultimately, will find migration to Fusion at some point in the future much easier from a data and architecture standpoint (which is the point).

The consolidation of the enterprise software market in the "noughty" decade has resulted in a shift in the major vendors' strategy. Keeping maintenance paying customers happy, encouraging them to simplify their IT environment by standardizing on the vendor's product and giving them opportunities to increase the breadth of applications or functionality used has taken center stage. The objective is to avoid losing highly profitable recurring revenue and possible increasing the maintenance spend. Along with this is the desire to make the transition from acquired applications to a newer version or some next generation software , as painless as possible because any "forklift" migration almost always triggers a formal vendor evaluation process and with it the possibility of losing a customer. Oracle is rightly in no hurry to get users to migrate but is also offering them something better in the meantime.

It's still early days for Oracle Fusion Financials and there are bound to be "gotchas" that early user organizations will discover. But I think Oracle is on the right track to creating the next generation financial applications that will go a long way to making business software more flexible and intelligent which is what I believe is part of the essential priorities for finance.

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Robert Kugel - SVP Research

Topics: Financial Close, Oracle, Business Performance Management (BPM), Financial Performance Management (FPM), Financial Performance Management

Robert Kugel

Written by Robert Kugel

Rob heads up the CFO and business research focusing on the intersection of information technology with the finance organization and business. The financial performance management (FPM) research agenda includes the application of IT to financial process optimization and collaborative systems; control systems and analytics; and advanced budgeting and planning. Prior to joining Ventana Research he was an equity research analyst at several firms including First Albany Corporation, Morgan Stanley, and Drexel Burnham, and a consultant with McKinsey and Company. Rob was an Institutional Investor All-American Team member and on the Wall Street Journal All-Star list. Rob has experience in aerospace and defense, banking, manufacturing and retail and consumer services. Rob earned his BA in Economics/Finance at Hampshire College, an MBA in Finance/Accounting at Columbia University, and is a CFA charter holder.