By Mark Nittler
Putting together a recent Webinar with industry analyst Dennis Howlett on the current state of ERP-based financial software took me back seven years to the beginnings of Workday, when "The Market" asked, as it got wind of what we were planning, "Does the business world really need another general ledger product?"
It was a good question, as at the time a bit of research would've uncovered close to 100 general ledger (GL) offerings of every size, shape, and national origin. Clearly the world did not need another GL—"my debits and credits balance quite nicely, thank you very much." The systems in place may have been old, expensive, and complex, but accounting was not viewed as a major business problem.
However, once you went beyond financial accounting the picture was much less rosy. Financial applications in traditional enterprise-resource planning (ERP) systems were built for producing financial statements based on generally accepted accounting principles, or GAAP. While they were quite successful at that, their GAAP-driven design made it difficult to get any other financially oriented information out of ERP systems. So finance professionals had to look at that information separately, using spreadsheets or business intelligence systems, to deliver a richer set of information—literally disintegrating the financial data of their firms.
Then, to add further insult to software injury, The Sarbanes-Oxley Act of 2002 established legal requirements for levels of governance and control unimagined by the creators of legacy accounting systems. Organizations suddenly needed features such as transaction routing and approvals, segregation of duties management, user provisioning and permissions, information security, and comprehensive auditabilty. Traditional software vendors responded to these new requirements in the same way they responded to others—they layered controls, typically provided by third-party vendors, onto systems that were not designed or equipped to support them. The result: Controls that were difficult to implement, inefficient and, most damning, optional. The cost, complexity, and performance drain meant that these layered-on controls were often poorly implemented, hard to maintain, and in many cases, weren't even turned on.
Organizations, meanwhile, have become less hierarchical in the past 20 years, empowering more managers and workers with decision-making authority, which has broadened demand for financial information. But the GAAP-based information delivered by traditional accounting systems is irrelevant. Or as Bob Kaplan of Harvard Business School wrote it in his book, Relevance Lost: The Rise and Fall of Management Accounting, "…today's management accounting information driven by the procedures and cycles of the organization's financial reporting system, is too late, too aggregated, and too distorted to be relevant for managers' planning and control decisions."
Here's a slide that I used in the Webinar, which sums up traditional ERP systems' inability to function in today's marketplace:
Think about it this way: If in 1980 (around the time when the financial software applications still in use today were designed) you knew that financial management in the future would be shaped by Sarbanes-Oxley, the Internet, and the need to distribute information more broadly across the workforce, would you have designed it the same way? If your answer is "yes," then your current system is probably working well for you. But for most organizations, current GL-centric financial software is not supporting today's requirements.
So no, the world doesn't need a new GL; it needs financial management solutions that are modern, relevant, and powerful. It needs solutions that support the fundamentals, including GAAP reports, but deliver much broader value to the organization. That's what we set out to develop at Workday from the onset, and have designed Workday Financial Management to support organizations operating in today's world.
It was fun revisiting these ideas with Dennis last month, as it instigated good conversation and a good Webinar. Check out the recorded Webinar and let me know what you think: "Enterprise Cloud for Finance: Leveraging Business Insight for Optimum Business Performance."
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