Your ERP system cannot stand alone!

A significant part of companies’ financial management is the ongoing reporting of financial and operational performance. This requires data to be timely, and the figures to be accurate and complete. It is also crucial that transactions, reporting, forecasting, and analyses are efficient and involve as few manual processes as possible. To succeed in these critical tasks, the technological foundation supporting Finance must function optimally, but it’s far from just the ERP system that determines whether this is the case.

Most companies talk about the ERP system as the primary reason for quality in reporting and efficiency in other financial processes, but the ERP system and supplementary applications are far from the only reason why Finance is faced with challenges delivering its services cost-effectively.

The truth is that a well-functioning financial process – from reporting to invoicing – is based on five different enablers:

• People
• Technology
• Policies & Procedures
• Leadership & Culture
• Organization & Geography

For financial processes, the technology component is becoming increasingly important.

With the accelerating development within the technology field, it’s difficult for financial managers to keep up with all the elements that affect the IT support of Finance. In our terminology: Finance IT.

Basico has developed the Finance IT Foundation Framework (FIFF), which analyses underlying factors and brings relevant issues to light. The purpose is to help the CFO and others responsible for all or part of a company’s financial management make decisions about IT support.

In Basico's experience, focus ends up being on the applications when the IT support for Finance isn’t working. The reason is classic: You focus on what is tangible and within reach.

This often results in the solution to the problems being a replacement or upgrade of the systems rather than a more in-depth and time-consuming analysis of the underlying challenges.

Therefore, we’re often asked: Which application would you recommend us to choose as a solution? But in many situations, a range of other factors means that even 'the world's best system' will not solve the challenges:

• Incorrect or incomplete master data
• Inadequate processes for changing work processes
• Insufficient education/training in functionalities or in the intended use of the system
• Challenges with users' competence level
• Incomplete/missing specifications for development/upgrades/replacements
• Lack of understanding of the company's strategic need for development, which means that the requirements for the solution change over time
• Missing data model or common definitions of generic terms, hierarchies, and roll-out
• User access and function separation
• Problems with data integration

Once it is accepted, for example, that master data is poor, or that user competences are at too low a level, the solution is typically NOT just a new ERP system or another application.

There are other or additional issues that need to be tackled to solve the fundamental challenges. Otherwise, you are just pushing the problems ahead of you.

At the same time, it’s important not to underestimate the surrounding factors that are necessary to make the implementation a success if you MUST replace your ERP system.

To get the full overview and the dialogue that is actually the most important prerequisite for the decision about what to do, we have developed our analysis framework – the Finance IT Foundation Framework (FIFF – see the figure), which reviews five different areas of IT support.

At Basico, we divide the technology element into five main areas for consideration, which together constitute our Finance IT Foundation Framework. The content of each area is very detailed. Below we’ll briefly describe some of the considerations to be included in an analysis.

Despite often misleading focus, applications that support the business are one of the five cornerstones of a well-functioning IT platform.

Some business strategies are built directly on the opportunities that the IT applications provide, while other companies primarily use the applications to support the business.

Regardless of the purpose and extent of the IT applications, it’s important to continuously assess what works and what you need to replace or upgrade. It’s crucial to have a balanced focus so that the applications alone don’t drive the business.

Before you make a decision to replace or upgrade an application, it’s important to focus on the surrounding factors. You may actually have an insufficient ERP system and would be better served by replacing it. But replacing an application is rarely sufficient. The real world is more complex, and it’s at least as important to have control over the other four areas as over the applications.

If your data model/master data doesn’t generate the data you need, it is very difficult, if not impossible, to make accurate reporting and analyses.
Master data must be considered a living part of your company's IT foundation, and it must be maintained. In our experience, master data doesn’t come into focus until it’s too late. A typical example is when companies implement a new ERP system – and deprioritise the cleanup and ownership of master data.

Furthermore, we often experience that transaction data is collected inappropriately in relation to the later use of the data – just as we often see unambiguous data definitions. A typical example is the lack of reconciliation options and incorrect or incomplete data fields at the time of bookkeeping.

The result is an insufficient data basis. When the machine starts, the output is deficient – the reports cannot be reconciled, and there are several versions of the truth.

Our experience is clear: It takes significantly longer to correct a wrong master data basis after having implemented the ERP system.

At the same time, coherence between the systems is important. That is, that your system integration works.

Often, Finance is responsible for the ERP system, the sales system, the consolidation and reporting system, as well as the CRM system – and possibly also a production system. If it all doesn’t hang together, you need to pull data from one place and enrich it with external sources, etc. before you can make coherent reporting. It’s a slow, resource-demanding, and heavy process. And often, a lack of integration between the systems will result in inappropriate gaps – and if something goes wrong somewhere, will you grasp it?

The challenge with system integration is that it’s an expensive affair to build, and therefore you should consider alternatives such as Robotics Process Automation (RPA). The advantages of RPA, compared to system integration, are that it’s significantly cheaper, faster, and doesn’t require heavy IT resources.

In addition, it’s important that your governance structure is in place. Are you in control of your security and your rules and procedures?

Are there rules for how to use the systems – and who is allowed to use them? How often are you allowed to extract data? Is there control over function separation so that the same person doesn’t adjust the salary and approves it? You are exposed to many risks if your governance structure isn’t in order.

That’s why it’s also important to get this area under control when working with your company's IT foundation.

Finally, it’s important to work with your organisation's general IT maturity. This includes the entire change management part, and it’s crucial in all projects, not least when you change the technology or workflows in your company. If you don’t work with the change management part, you’re building a ship that no one can sail – and no one understands the purpose of the journey.

At the same time, education is absolutely crucial for the company's IT maturity level. It’s no use replacing the ERP, BI, or CRM system and neglecting the education of the users. Then you’ll simply not get anything out of your new system.

If you don’t make sure that your employees are sufficiently well equipped to use the new systems, the system ends up collecting dust, or it results in a strong dependency on external consultants, which, all things being equal, becomes more expensive in the long run.

“Master data should be considered a living part of your company's IT foundation, and it must be maintained."

It’s about seeing your IT activities in Finance in a larger context. It’s difficult to imagine a finance function that is among the best-performing in its class if there isn’t 100% control over the technological support of the processes.

In the worst case, IT can prevent the financial management and control of the company. That’s why it’s absolutely crucial to always have a plan for the IT support that is a crucial enabler for Finance.

At Basico, we have run countless Finance IT projects and, in our experience, you need to work with all five areas when considering IT support for Finance in order to achieve the full potential and maximize the value creation for the business.

Once you know where the shoe pinches, it is significantly easier to make a good plan. And though it may seem boring and heavy, a data wash is preferable to a full ERP implementation, which doesn’t solve the problems' root cause.