Finance: Processing Like It’s 1995

The finance department used to be an early adopter of technology. How can it overcome its present inertia?

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Here’s an irony for CFOs. Virtually the first major business function to be computerized way back in the 1960s and 70s was the finance function. For most of three decades, finance and its related planning, record keeping, and reporting processes were the early adopters in business automation, leading through the multiple cycles of technology platforms: time-shared mainframes, the client/server evolution, and the PC generations.

Then came the Internet and the ERP-led process reengineering wave of the second half of the 1990s, and it’s as if finance decided to take a breather for a couple of decades. It’s not that there haven’t continued to be developments and improvements, but if you look at how finance operates in most businesses, both large and small, it’s pretty much still 1995.

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John Parkinson

This has consequences for the CFO and the business. Productivity suffers as necessary reconciliations and corrections across fragmented systems take time and resources; flexibility suffers because reporting isn’t consistent or complete and decisions have to be delayed while different “answers” are reconciled and resolved; availability suffers from ad hoc and inconsistent infrastructure management practices across disparate systems and infrastructure technologies.

I remain amazed at how often I hear stories about how “the one server that wasn’t backed up” regularly was the one with the general ledger installed on it – and how often the backups that were taken turned out to be corrupt when they were suddenly needed after a system crash.

Rebuilding from collateral data sources such as transaction logs and reports is often possible, but inevitably expensive and never what a CFO wants to hear is necessary — especially when a period close has to be delayed.

The CFOs I talk to mostly think their current financial systems are reasonably easy to use and reasonably reliable, but most of them admit they need to start fixing all the minor (and often some major) glitches so that they can “keep up” with the demands of the business for better information and analytics.

Which brings us to today and to the “cloud.” Or, more specifically, to the potential for moving away from a relatively fragile and expensive collection of on premises finance and accounting systems to a set of robust, cloud-based finance and accounting services; a “pay for what you use” licensing model instead of too much “shelfware” and levels of support; security, reliability and convenience that are hard to achieve in-house unless you have significant scale.

Go back a few years (say to 2008, which was when my own business started down this road) and the few services that were available weren’t actually all that great. If you ran a simple business with a simple divisional structure in a single geography and transacted in a single currency, you could get by pretty well.

For more complex requirements, it was a struggle and you were probably better off staying with an appropriately scaled package installed in house. But since around 2011 pretty much everything a modern global business needs for finance automation (from bookkeeping to management and project accounting) is available as a service. Strategic planning and some aspects of budgeting could be better — but they could be better on premises as well. So, functionally, we have what we need.

Of course, shifting to an “X as a service” model requires some attention to hardening network connectivity (which you should be doing anyway as, increasingly, that’s how your customers and suppliers do business with you), so the shift isn’t free, but the advantages in operating cost, capability, and convenience for most businesses clearly outweigh the transitional challenges. Early adopters are certainly doing this, and some finance functions have moved (payroll is a good example) but most have not.

So why isn’t finance in general rushing to take advantage of the cloud opportunity?

In some cases, it’s a security concern — which is real, but mostly no worse than the concerns you should have about in-house systems, given the well-evidenced porosity of enterprise perimeters the past few years. In some cases it’s concern about service availability, again a reasonable issue, but generally manageable. And in some cases it’s a concern about “lock in” to a service provider that may be hard to move away from if the relationship goes sour.

Then there’s the “tangibility” factor. It’s somehow comforting to know you can go and see (better not touch) the servers running the finance and accounting systems. Of course this has been illusory since server virtualization took hold over the past decade, but it’s still a nice idea.

And sometimes it’s the idea that switching to a better approach will raise questions about why we’ve been so slow to move and incurred all this extra cost and effort for so long.

The CFOs I talk to all know the cloud is coming and can see what’s happening to other areas of the business as they migrate away from an on-premises technology model. When pressed they will admit they need to go on the same journey, probably over the next “two to three” years. They’ll start with the easy parts — planning, budgeting, maybe some reporting and analytics tools. Only when they’re confident they have a stable approach will the core financial data and system move too. They’re ready to get started. Are you?

John Parkinson is an affiliate partner at Waterstone Management Group in Chicago. He has been a global business and technology executive and a strategist for more than 35 years.

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One response to “Finance: Processing Like It’s 1995

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