What we should really be watching: Finance/Accounting

Profile picture for user brianssommer By Brian Sommer January 24, 2016
Brian Sommer flags up the important finance department related stories he believes need airing in 2016.

spreadsheet error
Spreadsheet error

Like in the previous piece re: HR, there are a lot of big stories going on in the financial accounting space that just aren’t getting quite the right amount of attention from industry watchers. Here are some of those stories:

Make money paying bills! – I’ve really been impressed with the new payment options and opportunities for businesses today. If you thought payment processing (e.g., Accounts Payable, Travel & Entertainment, Payroll, etc.) had to be boring, unchanging and expensive, think again. It appears a new generation of firms are helping companies bypass expensive bank checking fees, check production/stuffing/mailing, etc. What’s emerged is a new generation of solutions that pay via credit cards and other methods. The results can be material, depending on the composition of a company’s creditors.  If your firm could benefit from dropping 1-3% of your expenses (it goes straight to the bottom line), then check out firms like NvoicePay, MineralTree, bill.com and Worldpay. Also, don’t overlook new solutions from ERP linkups like American Express’ deal with Intacct.

The eternal love of spreadsheets – Last year, I saw a list of skills that accounting firm leaders and academics believed to be important for new finance accounting majors to possess. Much to my chagrin, the list included such nostalgic chestnuts as database management systems and sub-ledgers. The most disquieting item was that Microsoft Excel was the number one desired skill set that new accounting graduates should possess.

Instead of seeing skills around newer technologies like analytics, big data, cloud-based technologies, etc., this list contained a number of skills that are used by poor functioning or antiquated accounting operations. A cynic would ask why fax machines, telex machines, Abacus skills, etc. weren’t also on the list as so many items were indicative of state-of-the-art technology in 1991.

Spreadsheets do have a place in the modern finance organization; however, finance/accounting organizations must be focused on modernization efforts if they wish to remain relevant in today’s business world. The first step in modernization though must be the acquisition and implementation of a large fully integrated suite of financial applications and the elimination of countless interfaces, loose integrations, spreadsheets for patchwork solutions, etc. that are typically found in businesses today. As long as finance systems are disjointed, poorly interfaced/integrated, maintained by internal staff and functionally outdated, there can be no hope of finance/accounting delivering deep insights through analytics nor utilizing big data from sources such as IoT sensors.

If a finance/accounting organization is overly dependent on spreadsheets, then it cannot be ready for the digital age. Are you ready to modernize your operation?

Big Data really is a big thing to accountants – At a show I helped the American Accounting Association with late last year, attendees got to see how big (or largely unstructured) data can be used to improve or double check virtually every single line item in a budgeting P&L. Attendees also saw a number of examples as to how big data was used to predict or detect fraud within areas such as travel and entertainment expenses. And of course, big data has usefulness in bringing clarity between operational and accounting information.

The focus of accounting, as a function and the profession, will be changed because of the influence of big data. The profession will need to get comfortable with the use of somewhat imperfect data (e.g., using social sentiment data to predict revenue trends). Big data can be used to validate concerns around whether an enterprise will continue to be an ongoing operation. And, the same tools that allow companies to parse massive amounts of external data can now be used to parse large amounts of internal and operational data. That capability is intriguing as it now allows auditing to become a continuous function not an annual event.

Big data will and is structurally changing the accounting profession. How that journey manifests itself and at what speed will be interesting to watch but also fascinating for the practitioners as well.

Why should I care about data models, after all, I’m an accountant? -  For decades, financial accounting and ERP systems were designed around capturing critical business transaction data only. The data was the bare minimum required to effectively record the extent of a business or accounting event. Other data, such as operational data, often was omitted from the systems. The reason is that IT systems were so highly constrained with limited processing windows, memory and disk storage that movements of large amounts of data were either time or cost prohibitive.

Those compute and storage limitations have gone. IT systems need not be limited in their focus. But coincidental with the high speed of computer processing today, the availability of low-cost cloud computing resources has been an explosion in the kinds of additional business data that companies can use. Today, businesses can take advantage of information of an internal and operational perspective as well as capture incredible amounts of data about end consumers, suppliers (throughout their multi-tier supply chain), from Internet connected devices, etc. Information from consumer markets can be married with business to business data to create additional insights.

The abundance of data provides the opportunity for businesses to re-examine the data they need to truly optimize their firm and maximize profits. This means that the language, metrics and reporting capabilities of a firm must be rethought in light of a new world and competitive environment.

If your current finance/accounting briefing books for the executive committee and the board still resemble the financial statements we all learned in B-school, you’re already way behind the times. What do the briefing books of the future look like? Several vendors are already starting to make headway in this regard. But smart businesses will not wait for vendors to create these.

It’s not a valuable analytic tool if it takes a vendor years to create it! - Lots of ERP and financial accounting vendors have been creating new small analytic applications. Unfortunately, these vendors have stumbled on a hard truth: it takes a software vendor a long time to make a commercially robust analytic application.

The difficulty software vendors face is that they must find common data sets among many customers. They must also anticipate the ways customers will want to parse, triangulate and utilize this information. Finally, how this external information might interact and be accessible through the reporting tools of their more traditional financial accounting system requires technical work as well. What all this means is that it will take vendors a long time to build something that has a great amount of reuse and applicability to its customer base.

Vendors also realize that this external, often big data was never part of their ERP or accounting software data model. For them to create new analytics, they may have to perform the equivalent of open-heart surgery on their product line to accommodate these new capabilities. This shortcoming is particularly apparent in some products that were originally designed decades ago and may still be running on older relational database technology.

On the flipside, customers of these new vendor-supplied analytic applications may be less than in love with these tools. Why? When software vendors make a generic tool, the same tool is now available to all of your competitors. Almost by design then this analytic tool is no longer capable of delivering competitive advantage but rather provides, at best, competitive parity.

Businesses and functional departments like accounting/finance need to develop their own analytic capabilities. They cannot be dependent on vendors to deliver such tools as these tools will unlikely create material, long-standing value for the firm. If you are looking for unique, high competitive advantage analytics, look inwardly first.

Blockchain – it’s not a dance step – Blockchain technologies are used by crypto-currencies. They provide a measure of controls and auditability that could be valuable in more traditional accounting environments. When will we start seeing these things emerge in accounting software and finance ecosystems? Where will the big change driver originate? Will this happen within the banking industry, financial accounting profession, or finance/ERP software space first? This technology may take some time to percolate and manifest itself within financial accounting solutions but the appeal and purity of its power is compelling.

Unicorns: They’re everywhere – A unicorn is a privately-held firm that has gotten a $1 billion or greater valuation. Like the mythical unicorn, these were considered quite rare but amazingly have become quite common. Is there a technology play here? Not really. But, I thought I’d just close with a cautionary note that unicorns will get a lot of coverage in finance circles but may not have as great a lifespan as some of the topics above.

PS - I love how the industry has already coined new vocabulary around unicorns. For example, we have the UniCorpse or Prune: a company that used to be a unicorn but no longer warrants that high-flying valuation.