Last week I touched on some of the rapid innovation that has been occurring with respect to picking software ; the implications to finance/accounting heads and how this innovation really brings into light “vendor lock-in bias” that has existed for decades.
Taking one step back, often picking software for core systems starts from the needs of finance and accounting to perform their roles effectively, and this is a universal truth in any size company and vertical, whether it be a 30 employee construction company or a 1000 employee manufacturing outfit
I’ll briefly touch on how the system needs and wants of accounting may cause problems with everyone else, especially as a company grows and faces efficiency and cost management pressure across all departments
Picking Software – Accounting picks the system….
Finance and Accounting departments – our role is to measure, process and communicate accurate and timely financial information. Several factors go into how difficult and time consuming this can be: including size of organization, the complexity of operations, layers of responsibility, internal control considerations and regulatory/stakeholder pressures.
Since the 80’s, picking software has resulted with the rise of ERP and accounting systems that have largely aided the role of finance and accounting departments (ignoring the related increase in project failures due to increasing complexity of these systems) to do their jobs more effectively.
An A/R clerk enters invoices, an A/P clerk records purchase orders (assuming they are used), a controller compiles monthly statements and performs general ledger entries, someone records collections and payments and so and so forth. An accounting system is the backbone for these functions so logically, a finance head or business owner picks the system for this department
As businesses grow more complex and the system needs of accounting increase, we add more features. Think inventory, payroll, supply chain etc. Now we get into full ERP mode. Implementation time for these systems take much longer, more training is required for using these complex systems and large budgets are allocated for this effort but largely speaking, they perform the functions required of accounting.
Somewhere along the line though, I’ve found that vendors and accounting departments sometimes forget about the needs and wants of the rest of the organization!
But how does everyone else get on the same page?
It’s best to think about this problem from a process perspective starting from the point in time that accounting typically gets involved. Accounting records transactions when they occur. Something like the following in a SME context:
Someone in accounting gets a call or email about an order from another department – perhaps a purchase order is created by accounting and sent off. Recorded.
Or, in not so good “internal control” fashion, someone in accounting gets an invoice from a vendor indicating amounts are now owed for an order. This is the first they heard of it. It should probably be signed off before payment but it will be recorded!
For smaller companies (hopefully) – accounting gets a pile of receipts from a manager and need to reimburse them. Recorded.
Where is the problem with the above? Well for one, 10-30% of all invoices received by accounting are disputed!
In the first situation, what’s the process that is occurring behind the scenes before accounting creates a PO? In the second situation, what was ordered from what vendor and who authorized it? Has it been received? What’s some of the risk?
In all three scenarios, the transaction will eventually be recorded and an accounting system will be in place for the right people to do so. Accounting has performed its primary function.
And then, in the middle of February, a January accounting report is released and department heads get surprised. Someone is angry! How did we spend that much and why didn’t we stop it??
Picking Software – functions for the few versus process needs of the many
And therein lies the problem with most Accounting and ERP systems – they probably get the job done for accountants, administrators and other primary users in a SME company (and most will say they hate using their system). They record data that can eventually be interpreted for reporting at some later date.
However, as my previous example hopefully showed, they likely don’t get the job done in a manner that is useful for other departments doing the actual day to day spending!
Accounting information is historical and relies on source documents to record transactions. That’s just 20% of the battle, the other 80% of the work happens from the moment someone makes a decision that they need to think about acquiring something to the moment the funds are spent!
That involves a bunch of business processes, internal controls and workflows that are likely done in a variety of manners. Think phone calls, emails, paper documents, excel documents and shouting across the office.
Why? When picking software, one thing to consider is that most accounting systems and most ERP systems are designed for what they do well for users who know how to use them. Most software systems tend to be expensive and are not thought of in the context of effective process control.
As a result, If I as a manager or business owner want to know today how much was authorized in spending, how many orders are about to go out, what it is being ordered and who’s it for, that information will be scattered across disparate and disconnected sources. When picking software, my immediate inclination would be to talk to accounting, but they likely won’t have that information handy in a timely and useful manner.
The latest innovation in software, cloud and mobile, is tackling this problem head on. Easy to use and inexpensive systems allow for effective implementation of workflow and policies. And these policies have real advantages for decision makers to make their lives easier. There are a lot more choices when picking software, there might even be software that your business never thought about implementing.
For example, on the procurement front,
Having a company procurement policy can reduce maverick spending by 40%. This is spending that is done without pre-approval, without consideration of preferred vendors or use of purchase order
Combined with the ability to easily integrate with some of these accounting and ERP systems, now everyone in an organization can be on the same page! That means real visibility into things like spending and the ability to make better decisions, faster.