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Like many other industry observers I’ve heard overblown claims for information technology for decades. However, I’ve also observed that – eventually – reality catches up with vision. Finance and accounting departments are particularly resistant to change, yet because almost no corporations use adding machines or typewriters any more, it’s clear that transformative change can happen. Nonetheless, because users of business computing systems are inundated with “it’s better than ever” promotions by vendors, journalists and industry analysts, may have grown jaded and disbelieving. In the case of ERP systems that help run many organizations, that is too bad because we are finally at the point of a fundamental change in this business-critical software category.

ERP systems themselves have been undergoing transformation, enabled by the growing availability of technologies that can address the shortcomings of established systems and an increasing appetite for multitenant, cloud-based ERP systems. As I noted in my research agenda for 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 create demand for more capable software. ERP systems are evolving to deliver a better user experience, greater flexibility and agility, as well as an optimized mobile experience and lower total cost of ownership. The transformation has already started for some vendors and to some degree. The pace of change will increase over the next two years as new releases become available. However, I don’t expect companies to buy a brand-new ERP system just to acquire next-generation features. Our Office of Finance benchmark research finds that on average companies replace their ERP systems only every 6.4 years, mainly because of the cost and difficulty of implementing the software. Moreover, many of these capabilities will be available under maintenance contracts for on-premises systems and incorporated automatically in upgrades of cloud-based systems.

The new generation of ERP systems will be vr_office_of_finance_05_finance_should_take_strategic_roleable to support a more effective approach to managing the functions I call continuous accounting that will benefit finance and accounting departments. By eliminating batch data processing and by supporting analytic as well as transactional operations in a unified system, the next generation of ERP systems will enable companies to provide executives and managers with immediate information, alerts and guidance. It will enable departments to spread workloads more evenly across months and quarters, rather than having to wait until the end of the period. In so doing, many companies will be able to accelerate their close, as I have discussed. Continuous accounting can contribute to providing a strategic focus for the finance organization – a change that organizations will welcome. In our research on finance innovation, nine out of 10 participants said that it’s important or very important for finance departments to take a strategic role in running their company.

In many respects, today’s ERP systems are exactly what people don’t want any more. They are notoriously time-consuming and expensive to set up, maintain and modify. In our ERP research only 21 percent of larger companies said that implementing new capabilities in ERP systems is easy or very easy while one-third characterized it as difficult. For this and other reasons, the current generation of ERP software acts a barrier to innovation and improvement.

To be sure, more than any other type 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. ERP is complicated because the underlying business requirements are complicated. For example, in any organization there are competing demands and priorities at work when an ERP system is set up.

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 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 more generic ERP systems cannot support well (for instance, process-manufacturing industries such as specialty chemicals manufacturing).

One positive development in the ERP category is the increasing attention vendors have been paying to the user experience in the design of screens and workflows. The dull, cluttered and difficult-to-navigate interfaces that have been the norm up to now were the result of inexperience in design and constrained computing resources. The next generation of ERP systems is being designed with decades of experience and far more powerful computing platforms and tools than the current ones. 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. 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. The next generation of ERP software must incorporate these advances and ensure that the screens and their flows are optimized for the device. The emerging generation of finance executives and ERP users won’t put up with the inconveniences and awkwardness that their predecessors reconciled themselves to.

It’s also clear that ERP systems will be faster in the future, as redesigning the software’s underlying data structure and utilizing technology such as in-memory processing will eliminate nearly all batch routines. Faster systems enable shorter cycle times, which promote corporate agility because up-to-date information is available sooner. Another important change that is already under way is the ability to do analytics in real time or near real time on data held in an ERP system. The business intelligence (BI) software category was invented two decades ago to enable companies to get useful information from newly implemented ERP software. While BI addressed this shortcoming, it also added to the cost and complexity of a company’s IT operations.

Another focus of new ERP systems will be collaboration. In-context collaboration provides an important set of capabilities that can improve performance. Rather than following a general broadcast model, social collaboration capabilities in ERP and other business applications 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 anywhere 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 communications will support more effective collaboration, faster completion of tasks, greater situational awareness within the organization and as a result better decision-making. Over the past three years, ERP vendors have been introducing more in-context collaboration capabilities in their software.

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 information 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.

vr_erpi_01_implementing_new_capabilities_in_erpMore generally I am convinced that the worst aspect of today’s ERP systems is that they inhibit change in corporations. The lack of adaptability in these systems has infused a “set it and forget it” mindset that inhibits companies from making necessary changes in processes and stifles innovation. The inability to make changes easily to an ERP system inhibits improvements in corporate functions that run on ERP. This is ironic, since one of the factors driving corporations to buy the first ERP systems in the 1990s was their desire to do business process re-engineering, a business strategy of the time. More useful is developing a culture of continuous process improvement, one of the pillars of continuous accounting, in the finance organization. Making ERP more easily configurable by business users supports continuous process improvement efforts.

As the business software market, including ERP, increasingly moves to the cloud, a major challenge facing software vendors is designing their applications for maximum configurability. By this I don’t mean offering the ability to select modules from a menu, but enabling only moderately trained line-of-business users to make granular adjustments to process flow and data structures in a multitenant setting. This lack of flexibility is an important barrier inhibiting adoption of cloud-based ERP. Although user organizations that are more able to adapt to an as-is version of an ERP system are more likely to take the cloud-based option, this covers only some of the potential market. The cloud ERP vendors that offer greater flexibility in allowing individual customers to modify their implementation to suit their specific needs will have a competitive advantage. Multitenant cloud ERP vendors already have had to pay attention to configurability, and on-premises ERP vendors also would benefit from enhancing the configurability of their systems.

Today’s corporations have been willing to put up with the deficiencies in their ERP systems because everyone was in the same boat. That won’t be the case much longer. The cost and complexity of ERP systems has meant that IT departments, not business users, have had the fullest involvement in managing them. This, too, will change. Business users and finance departments in particular will need to be involved in periodic assessments of how well their ERP system supports their responsibilities and objectives. Finance executives in particular should begin this process now by understanding how the application of new technologies can drive fundamental changes in the way they manage their department. Vendors that offer ERP systems that are much easier to configure, use and update, support in-context collaboration and mobility and provide timely, reliable analysis and reporting will survive. Those that excel in these areas will win market share.

Regards,

Robert Kugel

Senior Vice President Research

Follow Me on Twitter @rdkugelVR and

Connect with me on LinkedIn.

Ventana Research coined the term “enterprise spreadsheet” in 2004 to describe a variety of software applications that add a desktop spreadsheet’s user interface (usually that of Microsoft Excel) to components that address the issues that arise when desktop spreadsheets are used in repetitive, collaborative enterprise processes. Enterprise spreadsheets are designed to provide the best of both worlds in that they offer the ease of use and flexibility of desktop spreadsheets while overcoming their defects – chiefly inability to maintain data integrity, lack of referential integrity and dimensionality, absence of workflow and process controls, limited security and access controls as well as poor auditability. All of these issues can cause serious problems for business use, which I’ll discuss below.

Companies should investigate enterprise spreadsheet applications that can address desktop spreadsheet issues because they can provide better results, save an organization substantial amounts of time and provide greater accuracy and security. Most products are designed to be a cost-effective replacement for the desktop variety. Enterprise spreadsheets fill various roles to suit specific business needs. Some take the form of a simple data collection program that maps the spreadsheet’s two-dimensional grid to a relational or multidimensional data store. Others offer business intelligence software capabilities that enable self-service automated reporting from enterprise data sources. Still others may be relatively elaborate applications that incorporate programmed workflows, access controls, audit trails and more sophisticated visualization methods than are available in Excel and utilize a relational or multidimensional data store. Dozens of applications that incorporate enterprise spreadsheets are available today.

Enterprise spreadsheets fill an important role in corporate computing environments. For example, the spreadsheet interface has become common in business planning applications because companies find it easier to train people to use this software when it has a familiar look and feel. It might servevr_ss21_combining_spreadsheets_is_a_chore_updated as an alternative user interface to an ERP system for specific tasks, where the object is to simplify and shorten data input or facilitate some analytical interaction (such as comparing two columns of numbers to spot matches or data inconsistencies). An enterprise spreadsheet also may serve as an automated conduit for moving data from one enterprise system to another, using macros to automate actions on the data as it moves between systems. Using macros makes it easier for business people, not IT specialists, to program these actions because far more people understand how to use them than are able to program applications or data connectors. These spreadsheets may serve as a data on-ramp or off-ramp to some process handled in an enterprise system such as ERP or CRM that requires human intervention. In this role, an enterprise spreadsheet provides the programmed workflows, security and referential integrity to fill a process gap that an enterprise system cannot address or is too expensive to implement and maintain in that core system. In addition to collecting data, enterprise spreadsheets may enrich data from an enterprise source in a controlled environment, federate data from multiple systems, perform checks or reconciliations vr_ss21_errors_in_spreadsheets_updatedbefore data enters an enterprise system or perform some analysis for decision support.

I regard the electronic spreadsheet as among the top five most important advances in business management to come along in the last 100 years. It revolutionized almost all aspects of running an organization. It was the original “killer app” that made it necessary for people to go out and buy a personal computer. Yet it has inherent technological defects when used in repetitive, collaborative enterprise processes. One is a lack of data integrity, which maintains the accuracy and consistency of data – spreadsheets are notoriously error-prone. More than one-third (35%) of participants in our benchmark research on spreadsheets said that data errors are common in the most important spreadsheet they use in their job, and another 26 percent said errors in formulas are common.

A related drawback is that desktop spreadsheets lack referential integrity; that is, the meaning and context of an individual cell is defined by row and column headers rather than being defined within the individual cell. This creates the familiar problem when a group of spreadsheets supposedly containing the same data are combined, but someone has added or deleted a row or column: The result is inaccurate. In our spreadsheet research more than half (56%) of spreadsheet users – even those who have been using them for more than a decade – said that they find it usually or always time-consuming to combine data from multiple spreadsheets.  Another problem is that desktop spreadsheets, being two-dimensional grids, have limited ability to manipulate and report data having three or more dimensions. While accountants can work around this limit, it’s a problem for most business users because businesses work in multiple dimensions such as organizational structures (regions or divisions, for example), products (from families down to individual stock keeping units), customers (national accounts down to drop-ship locations), dimensionality and time.

They also lack programmed workflow: People attach spreadsheets to email messages, making it difficult to keep track of the latest versions. More than one-fourth (28%) of research participants said that processes that run on desktop spreadsheets frequently break down because people using them don’t know what to do next or forget to pass them along. Likewise, they lack process controls to ensure that they are reviewed properly and that any deficiencies found in the spreadsheet are noted and automatically returned to the preparer for correction. Finally, desktop spreadsheets have limited security, access controls and audit functions as well as poor auditability. To address these deficiencies, people – especially those in finance organizations – have to spend a great deal of time reviewing and correcting spreadsheets. So while our Office of Finance research finds that the accuracy of information gleaned in desktop spreadsheet processes is acceptable, fewer than one-third of organizations said that the information the finance department provides is timely.

Because enterprise spreadsheets address these issues, they can reduce the incidence of errors and malfeasance that make using spreadsheets in repetitive, collaborative enterprise processes problematic. In many cases, enterprise spreadsheets support what we call “continuous accounting” in that they ensure data quality from end to end in financial processes. Of course, not every enterprise spreadsheet product addresses all the issues I’ve mentioned. But often this doesn’t matter if, for example, the offering is designed to perform a limited set of functions such as reporting or acting as a data conduit connecting two systems in an otherwise controlled environment.

Businesses should recognize that they no longer have to put up with the shortcomings of desktop spreadsheets. They have options to have the best of both worlds, allowing people to continue working in a familiar environment but without the drawbacks that spreadsheets impose when they are used improperly. There is no good reason not to consider adopting such an application. After all, people routinely spend time exploring application options for their smartphones but rarely spend any time getting to know business software that can increase their productivity. There are many forms of enterprise spreadsheet applications to solve a range of business issues. I recommend that businesses investigate options that give users the ease, convenience and familiarity of spreadsheets without the hassle and risk that often goes with them.

Regards,

Robert Kugel

Senior Vice President Research

Follow Me on Twitter @rdkugelVR and

Connect with me on LinkedIn.

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