FINANCIAL SOFTWARE - Getting more fingers on the pulse.

At one time, computers were simply glorified abacuses performing routine computational tasks. But the advent of cheaper, more powerful hardware and software, datawarehouses, mass electronic communication and the sheer weight of information now stored in digital form, has made complex analysis of corporate figures not only possible, but inevitable. In the more abstract parts of the enterprise, technological developments have certainly made it easier to realise concepts and communicate them. A marketing department, for example, can now generate mock advertisements or mailers in-house and CAD systems make the job of designers and engineers far quicker and less laborious. But in the finance function, IT has actually rendered many of the older jobs obsolete. For many working in the FD’s department, the focus is less on using computers to do the same jobs better or quicker, but finding a new role now the technology has removed some of the beancounting burdens. In most UK companies these days the FD is the board member responsible for IT. As Dennis Keeling, chief executive of the Business and Accounting Software Developers Association (BASDA), says: “FDs have got a new role, because they’re the custodians of the information, if you like. It’s their job to make sure the information is in a form that allows all the departments to have access to it.” Keeling sees the biggest change in financial computing as coming from the new enterprise-wide systems. “Instead of buying financials from one supplier, distribution from another and manufacturing from yet another, you buy the whole suite from one company,” he explains. “Five or ten years ago, you couldn’t buy enterprise-wide solutions, nor would you want to – it wasn’t the done thing. The IT department spent a lot of time gluing these packages together, and the FD would just go out and buy his own financial package. Now he has to go out jointly with the production people, the sales and marketing people and the personnel people to buy an enterprise-wide solution.” This shift in the acquisition process underlines the central position the FD holds within a company and ensures that the most pervasive department – finance – is at the heart of enterprise decision making. But perhaps more importantly, enterprise solutions have opened up new sources of information, they have made the existing channels more transparent and have lubricated the flow of essential financial data. Keeling is certain this places the FD in a more strategic role than ever before. “Over the last two years, I’ve seen fewer and fewer FDs (at my seminars),” he says. “I see project teams working under the FD and the IT directors, where the FD holds back in order to be the ultimate decision-maker rather than part of the team finding the solution.” Of course, the flip side is that the other departments have information more readily at their fingertips. “Enterprise-wide products give you access to information across the organisation,” Keeling points out. “So the FD can see exactly what’s going on in all the different departments. It also means the sales department can have access to their accounts, the billing department can have access to their customer records and so on. It promotes a tremendous openness of information throughout the company.” This actually encourages the ‘user’ departments to demand even more information as it becomes more critical to the department’s decision-making process. “Instead of waiting until the end of the month, or the end of the year in some cases, they can have access to information daily. This means their thirst for information gets greater,” says Keeling. “The finance department is now at the heart of a growing thirst for information across the whole of the company.” The FD is still at the heart of the production and dissemination of information, but the role is becoming more that of an interpreter, rather than a historian. Wendy Haylock, BASDA’s director of communications, thinks this may have been helped by the adoption of Windows – or at least, a graphical user interface – for accountancy software. “Even for FDs, data used to come out on huge print-outs. Trying to establish any trends or information from it was a full-time job in itself,” she says. “Now it comes out in graphs and pictures and information can be extracted from it immediately.” Another development, claims Haylock, has been consolidation in the financial software market. This has been particularly noticeable as the larger software companies have chased a relatively new market, that of enterprise resource planning (ERP) software. Keeling likes to stress that ERP is solely for the manufacturing sector (although others use the term as shorthand for any single system that unites separate parts of an organisation’s departmental IT), but the main objective – to buy a single solution from a single supplier – has become something of a holy grail. And aside from developing ERP-type systems, and acquiring rivals to fill out the product portfolios, many of the financial software houses are looking to develop products for vertical markets. An FD in the retail sector, for example, no longer has to consider special factors and spend time overseeing a project to adapt an off-the-shelf package for use in his own market. By building in tools specifically for the retail market, the FD can actually learn new skills and analyse data in ways he never previously considered. ERP changes the ground rules, and in many ways blurs the distinctions between the role of the FD, his board colleagues and the IT director. “There’s a lot of traditional, dyed-in-the-wool FDs who won’t like that change,” says Keeling. “Obviously, the new breed of IT-literate FD will enjoy that change, but I’d say a vast majority are traditional accountants who have a very bare understanding of IT.” ERP uses the massive IT infrastructures that have built up to provide a more complete picture of a company’s entire operations. For example, where a traditional accounts package might show up the costs and output of a plant, ERP software will show detailed information about staffing, delivery schedules, payroll in the plant against productivity or even suggest where improvements to processes might take place. Certainly, while all this information can put the FD into a position where he gets a strategic picture of operations and can put concrete suggestions on the table, he is not going to become a one-man board. Indeed, the quality of the ERP installation can make a huge difference to both the strategic view (Is it accurate? Are there any factors it doesn’t, or can’t, know about, such as labour relations?) and the subsequent decisions. And if the installation is very sophisticated the FD may just be a customer for its output, rather than an owner of the information. The IT director or manager can become a firmer focus of financial information. To overcome both these problems, the FD has, to some extent, to redefine his position. The beans can now easily be counted 94 different ways without much effort. Indeed, rather than knowing how to count beans, the FD should now be concerning himself with choosing which of those 94 ways really creates knowledge in and about the organisation. In this model, the FD becomes a planner, a communicator and an IT specialist all in one, leaving aside much of the more functional aspects of the finance department and looking above the parapet at more distant horizons. (It’s worth highlighting the increased importance of financial planning, risk management and cost control, which have been key elements in the FDs role for some time anyway.) The latest ICL annual report is worth a glance. The board has no FD, but Stefan Riesenfeld has the title finance and business planning director. Although he still writes the financial review in the report, his job has clearly expanded, in name as well as deed, beyond purely financial reporting. Andy Cole, partner at KPMG Management Consulting, agrees that the FD’s role has become more strategic and sees it changing from a functional one into a much broader business management job. “It wouldn’t really matter if the FD didn’t know which side the debits and the credits go on,” he claims. “What matters is the ability to interpret the information being produced and have a broad business knowledge. The difference between a financial controller and a finance director is getting larger.” Cole is, in effect, the finance director of KPMG Management Consulting, and can relate these trends to his own experience. “I need little technical skill to do my job as an FD; what I need is good people management skills,” he says. Financial Director recently surveyed the FTSE-100 boards and found that accountancy qualifications are still widespread, but almost a fifth of FTSE-100 companies do not have a qualified accountant in the FD role; and that FDs are seeing more chance than ever of taking the CEO or chairman’s seat at some point. KPMG’s Cole agrees with Simon Duffy, FD at EMI, who says that the idea is for an FD to employ accountants, not be one. “The role is becoming more rounded,” says Cole, “and an FD is different from a financial controller.” Enterprise-wide software, with pre-programmed ability to handle the vagaries of specific industries and excellent reporting functions have certainly enabled that change. “The fact that management information and consolidation systems are getting more sophisticated can only go to further strengthen the FD’s position,” he continues. “The systems will help FDs have a more rounded role. They’ll have better information, software that can identify hotspots for them and enable them to have a finger on the pulse on a day-to-day basis. The control and management of the business is moving away from a monthly cycle, and integrated ERP systems should work on a daily cycle. It’s staggering the number of companies who have receivables in one department, payables in another, and every fourth week they do a monthly close.” Handling information on a day-to-day (or even, in some industries, minute-to-minute) basis does increase the stress levels for the FD, but this in turn has ensured that the FD cannot be seen as a functionary. If his team and systems can keep up with the flow of information, the FD’s strategic input not only becomes easier to engineer, but more useful to the organisation. The danger, of course, is that the FD will be responsible for information overload. If the systems are generating so much data that it becomes unusable by the finance department’s customers, all the advances in technology will have been for naught. “The ‘more is less’ approach is something I would advocate for managers, and what you have to do is make sure that you pass the right level of information to the right person,” says Cole. “The worry for me is that the more sophisticated the systems, the more data you’ll produce and the less information you’ll produce. You get data overload, and you won’t be able to sort out what is true information. What advanced systems enable you to have is more instant access to the detail behind those key performance indicators you should be monitoring to ensure the healthy running of your business.” And that means more power, more influence and more time for the FD to plan. It’s not just about handling numbers any more. “A few years ago it was just about producing financial accounts and a monthly information pack,” concludes Cole. “Now, it’s getting involved with business planning in a very proactive way, and getting more involved in the day-to-day running of the company.”