The Best-of-class Financial Systems Strategy:
An Alternative to ERP Platforms
Market Insight
Technology
Evaluation Centers
The Best-of-class Financial Systems Strategy:
An Alternative to ERP Platforms
This white paper features insight from the UNIT4 group (which includes the CODA
Financials software suite) about the issues facing companies that need an adaptable
financial system but not necessarily a full-blown enterprise resource planning (ERP)
solution.
Also featured in this white paper: TEC’s suggestions for identifying financial system
functionality that will support your organization’s changing processes. The latter portion
of this white paper includes a descriptive checklist for soliciting such information about
enterprise software solutions.
TEC recognizes the thought leadership role and industry expertise of the UNIT4 group.
However, this document should not be construed as an explicit TEC endorsement of the
CODA Financials software suite.
The Best-of-class Financial Systems Strategy
An Alternative to ERP Platforms
2
Introduction
For better or worse, most companies have purchased financial software from large-scale enterprise resource
planning (ERP) platform suppliers over the last decade. But as companies search for ways to lower costs and
respond to a difficult business climate, the merits of implementing large-scale ERP platforms have come
under closer scrutiny. This paper will examine an alternative approach that may be more appropriate and
strategically sound for many companies: a best-of-class systems strategy.
With that notion in mind, this paper will contemplate the following questions:
•
Have ERP platforms grown too unwieldy for some organizations?
•
Does ERP make sense for all types of business, especially in today’s fast-changing and frugal business
environment?
•
Are ERP platforms being sold to companies that simply don’t need it?
•
Have technological advances eliminated some of the reasons for ERP platforms in the first place?
•
Is the drive for competitive differentiation causing companies to develop more of their own operational
systems, thereby eliminating the value of ERP?
•
What does a best-of-class strategy entail, and what are the advantages?
The Best-of-class Financial Systems Strategy
An Alternative to ERP Platforms
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The Morphing of ERP—Evolving
from Applications to Platforms
ERP systems have grown in depth and breadth over the last 20 years, offering a wide variety of applications
ranging from accounting to warehousing. However, ERP now embodies much more than an application
suite. ERP has evolved into a development and operating platform, with a full stack of modules, tools, and
middleware. For some, this evolution has not been beneficial for a number of reasons:
•
Although ERP is touted as a single architecture, ERP applications usually contain different generations
and sources of technology. Third-party applications are acquired and amalgamated into the platform,
sometimes by name only. In total, this makes the environment complex for the customer and difficult
to change over time.
•
Complex layers and mixtures of technology require specialized consulting and technology expertise to
deal with the complexity. This has made ERP difficult and costly to change as the business changes.
•
ERP suppliers have become system integrators. The sheer size and number of applications makes
moving all the applications forward a difficult task. Application functionality often lags.
•
And finally there is a prevailing attitude that ERP costs are getting out of hand. Some call it a backlash
against “Big ERP.”
Adding insult to injury, while customers have been amidst layoffs, ERP continues to be a gravy train for
ERP suppliers and consultants alike. Some customers report receiving software maintenance hikes while in
the midst of the recession, fueling an antagonist relationship with their ERP suppliers. Customers feel ERP
vendors are holding them hostage.
The High Cost of ERP
•
ERP software is expensive to buy and implement, and expensive to change.
•
The inability to change quickly creates business disruption costs that can dwarf
traditional costs.
•
Difficulty establishing return on investment (ROI) leads in some cases to “reverse ROI”
and a high total cost of ownership (TCO).
The Best-of-class Financial Systems Strategy
An Alternative to ERP Platforms
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Do You Need an ERP Platform?
There Is Another Way…
While ERP platforms provide value for many companies, they simply aren’t the best choice for everyone.
For instance, if your company requires a relatively limited set of functions, an ERP platform can be overkill
and add complexity to an otherwise finite situation. In fact, ERP platforms have been forced into many
organizations when a more nimble tool would do the job. This akin to putting a battleship in a swimming
pool: it is simply overkill and unnecessary.
The Best-of-class Strategy
The best-of-class approach allows finance organizations to benefit from a highly functional financial
application that can be easily changed—without the burden of a full-blown ERP platform. These systems
stress application configurability rather than making changes at the database or application tool levels
(which is typical of most ERP platforms). Changes are placed in the hands of business users rather than
technical or consulting personnel. As a result, implementations are faster, ongoing changes occur rapidly,
and the TCO can be dramatically lower.
To make this approach viable, best-of-class financial application providers take great care with their
integration capabilities, so companies can easily integrate financial software with the other applications
running in the business. The advent of extensible markup language (XML) and Web services has eliminated
many of the fears that created the need for ERP suites in the first place. Best-of-class applications of all types
can be coupled in a federated approach to running the business, with Web services and XML providing a
common language and a secure way to perform real-time integration across a mixed application and IT
environment. Ironically, integration was originally one of the main advantages of going with one enterprisewide ERP platform, but in many cases today, integrating foreign systems into a monolithic ERP platform can
be extremely cumbersome.
The Best-of-class Financial Systems Strategy
An Alternative to ERP Platforms
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The Best Candidates for the
Best-of-class Approach
Companies investing in vertical or special operational application packages
In these environments, companies aren’t able to find the vertical functionality they need in generic ERP
platforms, so they purchase a best-of-class vertical solution that can be integrated with a best-of-class
financial system. The example of trading systems at financial services organizations comes to mind.
Companies that develop custom or company-specific applications
These days, nearly every company is in the software business in one way or another, developing missioncritical applications to differentiate themselves in the marketplace. Companies from FedEx and UPS to
Walmart are in the software business as much as the logistics business. Once again, best-of-class financials
plug perfectly into this environment. ERP systems can be a liability in this environment as they are designed
to integrate internally into the platform and other proprietary ERP applications, with less consideration
given to foreign application coexistence.
Companies with mixed application and system environments including legacy systems
Most companies have longstanding investments in legacy applications that are the lifeblood of the company.
Dramatic changes to these systems could cause massive disruptions. A best-of-class approach allows the
company to retrofit and modernize the financials while the operational systems remain in place. As is often
the case, these companies have multiple computing platforms and databases, requiring a Switzerland-like
ability to remain neutral without disrupting the other systems around it.
Companies using agile software development methodologies
If your company has embraced the Manifesto for Agile Software Development, then your business is an
ideal candidate for the best-of-class financial systems approach. Software that is specifically developed
with constant change in mind fulfills the requirement for compartmentalized and flexible components that
can be quickly plugged into a wider agile development context. This approach is the antithesis to the slow,
expensive, Big ERP way of doing business.
Companies that change and integrate new systems often
Acquisitions, new lines of business, and new products can continually drive the need to assimilate new
business systems. Best-of-class applications are designed to coexist with these systems as an integral
component, using a common integration language without imposing a particular technology or
architecture. Since best-of-class systems are not tied to a particular technology stack, most best-of-class
systems offer the freedom to use a variety of databases—not just one particular database.
The Best-of-class Financial Systems Strategy
An Alternative to ERP Platforms
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Companies requiring rich accounting functionality (Don’t compromise!)
The current economic situation has put intense pressure on the financial departments inside every
company. Financial users are trying to respond to increased demands with old, inferior financial software
in many cases. This has put them in a stressful situation as they attempt to bridge the gap by working
more hours and plugging system holes with spreadsheets, e-mail, and post-it notes. As stated earlier,
ERP financial suites can lag in financial functionality because the development focus is spread across a
wide variety of applications and platform technology. Because of its focus, a best-of-class financial system
typically provides superior functionality such as financial modeling capabilities and the ability to handle
complex accounting in multisite, multinational environments.
Companies experiencing constant organizational change
In today’s business setting, financial applications must do much more than simple bookkeeping. They must
be exceptionally pliant and enable organizations to continually adapt to structural upheaval whether it is
caused by a re-organization, merger, acquisition, or new line of business. A financial system must literally
account for and expect change, whether it is caused by rapid growth, a new set of controls or closing down
a line of business. If your business is undergoing constant change, best-of-class financial applications are
the answer.
Shared-services environments
As companies look to decrease transaction costs, reduce overhead, and consolidate cash activities, interest
in shared services has accelerated. Shared accounting service operations require three primary capabilities:
1) rich multicompany, multichart, multicurrency, and multicultural software functionality found in only the
best financial software; 2) the ability to easily integrate with a potpourri of operational systems; and 3) the
ability to simultaneously accommodate these diverse financial and technical environments.
By definition, this environment dictates a best-of-class approach. The application set is finite (finance only),
the functional barriers are very high, and the ability to coexist with a variety of operating applications
concurrently is critical. On the other hand, an ERP platform in this environment is a poor fit at best. Again by
definition, shared services operations don’t need the myriad of applications provided by an ERP platform, so
the platform itself is nearly useless. Second, the proprietary and inward focus of an ERP platform architecture
can be difficult to intermingle with other applications without extensive and expensive modification. In
short, big ERP platforms are a duck out of water in this environment.
The Best-of-class Approach: A Strategic Choice
In summary, the best-of-class approach can be more cost-effective and strategic for many companies. Given
the state of the business climate, the need to be nimble, and the desire to drive competitive differentiation
through systems, the best-of-class approach is worthy of consideration. Full-blown ERP platforms are simply
not a good fit every organization. They have become too big, complex, and costly for many situations.
Companies in mixed application environments and those requiring just the financial components of an ERP
suite are best suited for the best-of-class approach. In these cases, a full-scale ERP platform is simply overkill
and may actually become a technical and business liability.
The Best-of-class Financial Systems Strategy
An Alternative to ERP Platforms
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TEC’s Selection Criteria: Identifying Key Financial
System Functionality in Support of Adaptability
This white paper is a focused discussion on the issues facing companies that need an adaptable financial
system, as opposed to a full-blown enterprise resource planning (ERP) solution. As indicated above, this
approach is commonly referred to as a best-of-class systems strategy. We’ll turn now to concrete examples
of cases where a best-of-class type of financial system may be appropriate:
•
When massive software and hardware upgrades are unacceptable, but for some reason there is a need
for enhancement in the financial and accounting areas. This might be the case for companies that
successfully use legacy transaction systems but that need to gain capabilities due to new accounting
compliance requirements or business structure amplifications.
•
When a company uses unique custom-made ERP, manufacturing execution, or supply chain
applications, and considers them to be important elements of its competitive advantage, while still
needing to upgrade its financial and accounting systems.
•
When for some reason it is unworkable for the company to be aligned with a single technology
platform, and when technology diversification is required.
In order to select a financial system that emphasizes configurability and relatively easy adaptability to
business changes, financial software buyers must consider additional software selection criteria beyond
“regular” functionality requirements. These criteria should reflect a system’s ability to adapt to business
changes by letting users make adjustments and required system modifications “on the fly”—without
expensive development interventions, or massive system shutdowns.
You can use the table of criteria below to inquire whether the vendors you’re talking to will be likely to
support your needs and continuing changes.
Note that this list is not necessarily exhaustive. The actual number of selection criteria may increase
according to your particular business environment and requirements. The criteria provided here constitute
a starting point for organizations that are weighing the advantages and weaknesses of full-blown ERP
versus best-of-class financial software.
For more information on best practices in software selection, see http://www.technologyevaluation.com/
tec-approach/.
The Best-of-class Financial Systems Strategy
An Alternative to ERP Platforms
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RATING LEGEND
Response
Explanation
SUP
Supported as delivered "out-of-the-box"
PSUP
Supported through an integrated partner solution
PADD
Supported through add-on products offered by partners
MOD
Supported via modifications (screen configurations, reports, GUI tailoring, etc.)
3RD
Supported via a third party solution (not necessarily a partner)
CST
Supported via customization (changes to source code)
FUT
Will be supported in a future release
NS
Not supported
1
General Ledger Parameters and
Structuring
General ledger parameters and structuring criteria are the
foundation of a financial system’s ability to adapt to business
changes as well as business process transformations. These
criteria focus mainly on calendar structure flexibility and
accounting period set-up. The more flexible and versatile the
structure, the easier it is to reflect any changes required by your
organization. A system of this nature should be able to support
multiple fiscal calendars opened concurrently, with period
adjustment capabilities.
Hierarchy
Criterion
SUP
1.1
Fiscal calendar is defined by the user
1.2
Calendar periods are defined by the user
1.3
Calendar can be defined as uneven periods,
adjustment periods, or up to a maximum of
366 periods
1.4
Multiple calendars
1.5
Organization of the calendar period defined
by the user
1.6
Calendar may be organized in a variety of
ways with up to 999 user periods
1.7
Opens any number of fiscal years or calendar
periods at the same time
1.8
Each entity's ledger can have its own
calendar and chart of accounts
1.9
Each entity's ledger can have its own
accounting periods opened and closed
1.10
Flexible general ledger key with multiple
levels
1.11
User-defined field names for tables
1.12
Accounting period can be changed to meet
user requirements
1.13
Transaction consolidation based on the
user's choice
PSUP
PADD
MOD
3RD
CST
FUT
NS
The Best-of-class Financial Systems Strategy
An Alternative to ERP Platforms
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1.14
User-defined calculations and postings for
monthly jobs by using tables
1.15
Code fields are user-defined for adjustment
by plant tied to G/L
Chart of Accounts Structure
The chart of accounts is a list of ledger account names and
account numbers. This creates terminological consistency and
eliminates redundant accounts. A chart of accounts structure
is another important element of a financial system's capability
to adapt to change. The chart of accounts structure should
include fields that provide ample room for account and ledger
descriptions, fully user-defined structure and accounts hierarchy,
the ability to easily make configuration changes and adjustments
to the structure as needed, and the ability to perform validity
checks of account existence and consistency as required. Data
tree tools should provide visibility into the structure of the fields
and summaries to assist reporting requirements, and should also
provide proper multilevel role-based security functionality.
Hierarchy
Criterion
SUP
2.1
Structures such as the name and order for
each part of the account may be defined
online
2.2
Account numbers may contain 30 or more
characters
2.3
Minimum of 999 department and cost
center entities
2.4
Fields and segments can be defined in an
account structure
2.5
Manages structures for all levels of all
organizations
2.6
Comprehensive system reorganization
facilities including the ability to relate a new
chart of accounts to a previous one
2.7
Manage account hierarchies via a GUI
interface (drag-and-drop)
2.8
Descriptive flexfields can be added without
programming
2.9
Fiscal year accounting periods are
determined by the user
2.10
Accounts may be added to the chart of
accounts with their characteristics replicated
for all departments
2.11
Departments may be added to the chart of
accounts with their characteristics replicated
for all expense accounts
2.12
Standard chart of accounts can be
automatically copied from one ledger to
the new ledger, resulting in the automatic
creation of a standard set of financial
statements (e.g., balance sheets, income
statements, and overhead statements)
2
The Best-of-class Financial Systems Strategy
An Alternative to ERP Platforms
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PSUP
PADD
MOD
3RD
CST
FUT
NS
2.13
Provides validity checks to ensure existence
of standard accounts
2.14
Rules validate and ensure consistency of
fields and accounts
2.15
User-assigned security rules restrict entry
and query access to specific entities,
accounts, or ranges of entities and accounts
2.16
Manages disparate sets of books for each
entity
2.17
Users may manage and update a set of
books for each entity's ledger
2.18
Divides subledger into smaller components
for departments, cost centers, expense
categories, projects, etc.
3
Enterprise Reporting Structure
The enterprise reporting structure is a very powerful module
that allows users and financial managers to have accurate and
convenient access to their financial data in real-time mode. The
reporting structure should be easily modifiable with minimum
or no programming involved. These financial reports provide
many-to-many relationships across account structures, and may
be combined and divided in any possible combination. Flexible
and configurable consolidation functionality is also essential,
especially for multisite and multidivisional enterprises.
Hierarchy
Criterion
SUP
3.1
Multiple level entity structures may be
designed without hierarchy limitations
3.2
Account mapping of business units with
different chart of accounts
3.3
Many-to-many relationships may be
associated across sources and targets
regardless of accounting treatment
3.4
Multi-entity roll-up may be defined by
structures for reporting geographic area and
functional responsibility
3.5
Bases reporting structures on multilevel
departments
3.6
Reporting structures allow allocating many
accounts to many structures
3.7
Diverse charts of accounts may be
associated with structures that are not tied
to defined hierarchies
3.8
Consolidates a department one way and
the following year consolidates another way
without changing the prior year's reporting
3.9
Customizable financial statement report
formats
3.10
Financial reporting format is determined by
the user
3.11
Report writer enables the user to design
standard monthly reports as well as "oneoff” reports
PSUP
PADD
MOD
3RD
CST
FUT
NS
The Best-of-class Financial Systems Strategy
An Alternative to ERP Platforms
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3.12
Supports numerous and complex formulae
and user defined column formatting
3.13
Supports cutting and pasting within report
writing application and allows for exporting
data to spreadsheet files
3.14
Creation of ad hoc reports by user (for
example, vendor payment history report)
4
Journal Entry and Integration
From the adaptability point of view, the system should be able
to integrate with third-party accounting systems with minimum
or no programming effort. For example, evolving business
environment may require changes in the way entries are made
to different journals; thus, it is essential to be able to quickly
switch to another application and make adjustments to existing
interfaces.
Hierarchy
Criterion
SUP
4.1
Automatic A/P entries and maintenance by
interfacing with another accounting system
4.2
Automatic inventory entries and
maintenance interfacing with another
accounting system
4.3
Automatic cash account entries and
maintenance by interfacing with another
accounting system
4.4
Interfaces with third party payroll provider
for automatic entries and maintenance
PADD
MOD
3RD
CST
FUT
NS
5
Cost Accounting
Cost accounting analyzes corporate costs related to overhead,
products, and business processes. Besides the fact that it
provides a variety of costing approaches and supports a broad
area of related functionality, a cost accounting structure should
be adaptive and flexible enough to reflect changes in business
structures and processes. Examples of such functionality include
user-defined cost-calculating algorithms, and flexible cost
allocation codes and budget allocation codes. The ability to
reassign cost elements to a cost category is important from a
general flexibility perspective.
Hierarchy
Criterion
SUP
5.1
Maintains multiple calculation codes for
various algorithms used in calculating
different cost data.
5.2
Assigns user-defined allocation codes to
activities that generate cost
5.3
User-defined budget allocation codes
5.4
Flexible cost object activity definitions
5.5
Flexible ledger costing categories
5.6
Assigns user-defined number of cost
elements for each cost category
The Best-of-class Financial Systems Strategy
An Alternative to ERP Platforms
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PSUP
PSUP
PADD
MOD
3RD
CST
FUT
NS
Budgeting
Budgeting processes involve budgetary controls, budget
accounting, budget development, and budget allocation.
Flexible and adaptive software should provide sufficient tools to
enable multiple budget changes and analytical tools. Additional
functionality should be available to create and maintain budgets,
which is more important from the changeability standpoint.
The ability to easily make changes to the budget hierarchy and
budgeting process in general is crucial for dynamic business
environments.
Hierarchy
Criterion
SUP
6.1
Budget control logic can be defined at any
area of the account structure or for any
number of levels
6.2
Budget control logic defined by document
source or type, or by user
6.3
Budget tolerances and budget and field
overrides can be defined by user
6.4
User-defined period intervals
6.5
Annual, quarterly, monthly, or customized
budget periods
6.6
Many versions of the budget can be created
for the current year
6.7
Creates forecasts using different timeframes
for different business entities
6
PSUP
PADD
MOD
3RD
CST
FUT
NS
Project Accounting
Project accounting provides for the ability to reflect business
changes by nature, since the processes of monitoring schedules
and project spending are distinct according to project, and must
be easy to change. However, there are a few criteria that facilitate
a better understanding of what is required for a company that
is constantly seeking to improve its processes, including flexible
and multilevel project cost structures, adjustable accounts
structures, and the ability to modify the structure without
affecting existing process.
Hierarchy
Criterion
SUP
7.1
Provides for user definition of project or cost
code segments
7.2
Permits user definition of the sizes of each
segment
7.3
User-defined number of actual,
commitment, budget, and statistical
accounts for each level of the account
structure
7.4
User-defined subproject coding can be
applied at any level of the regular cost
coding structure to provide a unique
breakdown of costs, with optional inclusion
or exclusion in project reports
7.5
Cost codes may be added to the structure
without affecting existing projects
7.6
Cost codes to general ledger account
conversion is maintained in an online table
7
PSUP
PADD
MOD
3RD
CST
FUT
NS
The Best-of-class Financial Systems Strategy
An Alternative to ERP Platforms
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About UNIT4 CODA
UNIT4 CODA, Inc. is part of UNIT4, a $517 million global business software company that creates, delivers,
and supports adaptable business software and services to help dynamic organizations manage their
business needs effectively. We strive to set the global standard for business solutions that enable companies
to embrace change—simply, quickly, and cost effectively.
About CODA Financials
CODA Financials is our award-winning suite of best-of-class financial management software designed to
integrate with your industry- and company-specific applications. CODA provides real-time financial visibility
and control across people, processes, and systems. By acting as the financial information backbone for
companies with fast-changing and mixed application environments, it offers a “no compromise” approach
to financial modeling, process controls, and application choice.
The company also offers consulting services, including custom software development, training, and support
services delivered by teams of experienced accountants, business analysts, and technology specialists.
For more information, visit the company’s Web site: http://www.unit4coda.com
The Best-of-class Financial Systems Strategy
An Alternative to ERP Platforms
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About Technology Evaluation Centers
Technology Evaluation Centers (TEC), the leading advocate for the enterprise software purchaser, helps private- and public-sector organizations choose the best enterprise software solutions for their unique business needs—quickly, impartially, and cost-effectively. TEC delivers an unmatched range of online software
evaluation and selection services that minimize the costs, risks, and duration of software selection projects,
and bridges the gap between enterprise decision makers and the vendor/value-added reseller (VAR) community.
TEC’s proven approach combines extensive online IT research; a proven software selection methodology;
state-of-the-art Web-based software selection technology; and the experience of its analysts and software
selection experts.
The Best-of-class Financial Systems Strategy
An Alternative to ERP Platforms
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