Today's Best-of-Breed software market offers more to dazzle CFOs than ever before. The pace of innovation is fierce, slackening only when vendors pause to digest their gains after the waves of consolidation that periodically sweep over each sector.
The governance, risk, and compliance (GRC) category, for example, continues to attract new entrants and to generate a bewildering variety of applications for mandates ranging from email retention management to enterprise risk management. John E. Van Decker, research vice president with Gartner Inc., points to a burst of innovation around reconciliations management: “Financial governance software is starting to bring together process-management-type solutions for all of the activities that you need to do before you close the books. These may or may not be managed in larger systems, but you need some type of process to line up these activities and ensure that these things are done. A company may need to do hundreds of reconciliations to provide assurance that the numbers are accurate.”
Software initiatives of all kinds are under close scrutiny in the current tighter economic conditions, but the news hasn't all been glum for the point solution providers. The Economic Stimulus Act's bonus depreciation provisions were a boon for vendors in the fixed asset management space, whose products help companies master the intricacies of depreciation accounting and capital budgeting. And firms that can present their products as cost-containment tools are thriving.
Plus, a best-of-breed package can be an attractive option for companies that don't want to take on a mammoth project at this point. Many organizations are “looking for something that can provide incremental steps to value,” Van Decker notes. “We're also starting to see more use of software-as-a-service, where companies may want to do something on a 3-year basis, but with the understanding that by the end of that period they will have implemented a much larger set of applications.”
A TOAST TO BPM
Rumors of the death of the BPM market as a best-of-breed venue are certainly exaggerated, despite a round of buyouts that began about 18 months ago and left the “big three” vendors — Hyperion, Cognos, and Business Objects — in the hands of even larger organizations (Oracle, IBM, and SAP, respectively).
“There is indeed a demand for best-of-breed corporate performance management [CPM],” says Lee Geishecker, research vice president and general manager with AMR Research in Boston. “But the most important undercurrent of that statement is that Hyperion, Cognos, and Business Objects do not go away as offerings in this space.” IBM has positioned Cognos as a distinct entity. “Business Objects is being kept, along with its name, as an identified entity within SAP. Oracle does not intend to fold Hyperion into too much; they recognize that Hyperion had a well-established customer base that sits outside of the traditional Oracle base. So all three, in very different ways, are alive and well.”
In addition, the space abounds with full-fledged packages from smaller players as well as products that offer slices of BPM functionality, as a glance at our vendor list will show. There's plenty of market for these firms to sell into. A recent Gartner report notes that 50 percent to 60 percent of companies still use spreadsheets for planning and budgeting, and in many organizations that have deployed BPM, usage is limited to small, isolated initiatives that use only a subset of the tool's functionality.
Pervasive BPM is an elusive goal, but some companies are closing in on it. Take, for example, Moët Hennessy USA, the U.S. sales and marketing arm of LVMH's Moët Hennessy's Wines and Spirits Brands. The company installed a client-based system from Cognos about 8 years ago and moved to a fully Web-based version last year. Users include staffers in finance, sales, marketing, and operations, as well as executive management.
“When you've got all of those people accessing information, you need a good way to get there,” says Carl Dowell, CFO. “Right now, we're making access available through Web-based tools so that anyone in the organization has access to the data, and then we restrict use according to what each individual needs by using the Cognos Access Manager.”
The wine and spirits industry is heavily regulated, and importers and producers are not allowed to sell directly to end customers, so much of the data that Moët Hennessy uses comes from distributors and third-party sources. “We collect mountains of information about the types of customers we have, where they are, and the products they're taking,” says Dowell. The BPM system pulls the information out of an Oracle database and constructs specialized data “cubes” organized, for example, by brand, state, or accounts sold.
“By pulling different pieces of data, our marketing people can see what kind of return they're getting in specific accounts based on investments they've made,” Dowell reports. “Sales people may be more interested in finding out what accounts there are in a given geographical region that are not carrying our products right now.”
Proof enough that when BPM's done right, its impact can extend far beyond finance.
PROCESS MANAGEMENT: ALL THINGS MERGE
Business process management has entered the corporate mainstream, according to a February report from Forrester that found that 60 percent of North American and European companies are already using BPM and about 20 percent plan to do so by 2009.
Maybe so, but for many corporate leaders the discipline's concepts and terminology remain murky. Earlier this year, BPM technology provider Software AG and Wiley Publishing felt the need to publish a book titled BPM Basics for Dummies.
Business process management means different things to different people, notes Paul Harmon, executive editor of Business Process Trends and chief methodologist for BPTrends Associates. Business people tend to use the term broadly to denote methodologies for improving business processes and the coordination of those processes. “If you look at it that way, it's not new — it's the extension of Six Sigma and business process reengineering and a whole collection of things that happened in the past 15 years,” says Harmon. “It's an approach to organizing your business around process.”
Looked at from an IT standpoint, it's a collection of technologies that enable this approach. Full-fledged BPM systems typically include workflow tools, which handle document processing and the flow of data through the company; enterprise application integration (EAI) functionality, which ties together disparate software packages so that they can exchange data; and tools for process modeling, business rules management, task routing, and activity monitoring.
After several years of buying each other, in the past year or so BPM vendors have turned to buying business intelligence (BI) software vendors. And BI, in turn, is converging on business performance management. Eventually, the distinctions will disappear, Harmon thinks. “It'll all go away, because what they all really want to do is to support the business and what gets done.”
THE TREASURY TECH TOPOGRAPHY
Spreadsheets still rule in the realm of cash management technology. About 60 percent of the companies polled in TreaSolution Inc.'s 2008 Treasury Survey rely on them as their primary technology for managing treasury processes, though the figure drops to 29 percent in companies with annual revenues above $5 billion.
Dan Carmody, managing director of the Chicago-based consulting and staffing firm, isn't surprised. “If you have a relatively simple environment, it very well could be that spreadsheets could provide you with the flexibility and the tools you need in order to accomplish cash management efficiently,” he says.
When treasurers decide to invest in a workstation, they typically start by implementing general cash management functions: daily cash reconciliation, cash positioning, and electronic funds transfer (EFT). Once you get beyond that core, companies start to vary, Carmody points out. “Some treasury departments may have large debt operations; some may not. Some may have a need for in-house banking, and some may not. What most treasury workstations provide is an à la carte solution so that you can customize the software and the functions that it's going to enable.”
When Synovus Financial Corp., a bank holding company based in Columbus, Ga., implemented a cash management tool in 2006, the goal was crystal clear. “What we were looking for was a product to help us optimize our cash across the footprint and lower cash as a nonearning asset on our financials,” says Rick Sorenson, SVP, operations. The company settled on iCom, a Web-based product for the financial services sector from CheckFree.
The system tracks all orders of currency and coin and then aggregates them at the branch level and the bank level, Sorenson explains. Synovus also uses the tool for cash forecasting and analysis. While the software has saved four or five FTEs in the branches and the main offices, the bulk of the gains came from optimizing cash levels. “We reduced nonearning assets by approximately $80 million,” Sorenson reports.
In the relentless drive to reduce days sales outstanding, streamline the order-to-cash process, and minimize bad debt write-offs, treasurers are finding plenty to like in receivables and collections management software. RCM vendors have steadily improved their products' invoice generation and remittance processing capabilities in the past year or two and now offer improved tools for reducing the invoice discrepancies that often clog the revenue pipeline.
On the payables side, the spend management software category encompasses a wide range of functions, including electronic invoice presentation and payment (EIPP), contract management, spend analysis, and e-procurement. In addition to reining in A/P costs, these tools can help companies to capture supplier discounts.
See a larger view of the Cash Management chart here. [1]
See a larger view of the Receivables and Collections chart here. [2]
TAX IN THE TODAY
The heightened attention that tax departments received after the Sarbanes-Oxley Act became law has not yet dissipated and likely won't for some time to come. CFOs need the assurance that they have the same level of integrity for tax accounting reporting as they have for financial accounting reporting, says Steve Martucci, managing director with Levyti Consulting LLC in McLean, Va. “And they really want the synergy between the two — meaning that there's no reason that for tax purposes they shouldn't follow the accounting calendar and achieve the same results in the same amount of time.”
“There's a significant push on tax departments in the Global 1000 to spend less time after year-end on collecting information for the previous year's tax returns, as opposed to capturing as much of it as they can as part of the year-end close,” Martucci explains. “The goal is for tax departments to spend more time in the today, on the today — and not in today on what happened yesterday.”
The biggest enterprises and the top echelons of the middle market generally look for ways to enhance their own data collection and financial reporting systems for tax before investing in third-party solutions, Martucci notes. But best-of-breed vendors, and especially those that offer software-as-a-service solutions, are finding plenty of customers among smaller midmarket companies.
“The big trend there is to identify hosted solutions, whether it's a hosted tax compliance software product or a hosted tax accounting product,” says Martucci. “The reason is that the timing and reporting requirements are so great for tax, and the infrastructures of these companies are not equipped to deal with the complexity of tax, for the most part. So they're looking for the best way to integrate solutions for their life cycle of tax reporting, and hosted solutions are a huge trend.”
TAMING T&E
Macroeconomic forces are also driving renewed interest in travel and entertainment (T&E) expense management software, as the slowdown nudges companies to get a grip on a cost nexus that accounts for a sizable chunk — typically 7 percent to 10 percent — of total operating expenses. T&E tools help companies cut costs by improving the communication and enforcement of spending policies, marshaling the data that managers need to cut deals with vendors, and automating expense reporting.
William Browning, research analyst in Aberdeen Group's global supply management practice, adds another benefit that's often overlooked: employee satisfaction. A well-designed expense management system “not only helps the finance and accounting function, but also helps the travelers who use the system to input their information,” he observes. “Their life is made easier on the front end, and also on the back end, by faster reimbursement.”
For many organizations shopping for T&E systems, an auditing capability tops the list of must-have features. Companies want to be able to check expense reports for compliance with spending limits and preferred vendor policies. In an April study of 160 companies by Aberdeen Group, three-quarters of best-in-class organizations reported that they used this functionality, compared with about one-half of the other companies in the sample.
Other features in high demand include advanced reporting and analysis capabilities and integration with back-end G/L systems, such as accounts payable and direct deposit.
ERM Boosts GRC
As the influence of Sarbanes-Oxley on GRC spending fades, vendors are emphasizing their products' value in transforming fragmented, wasteful, risk management processes. The search for efficiency is the top driver of GRC investments, according to Michael Rasmussen, president of Corporate Integrity LLC, a GRC strategy advisory firm. “Line-of-businesses leaders are saying, ‘This week I have a business continuity assessment, next week it's an operational risk assessment, the week after that a SOX 404 assessment. Week after week, we're given a different type of risk-and-control assessment from a different part of the organization, and a lot of the questions are the same.’”
Vendors of GRC tools for enterprise risk management received a boost in May when S&P announced that in the third quarter of this year it will start to incorporate ERM into its discussions with the companies it rates.
Dun & Bradstreet implemented a GRC platform from OpenPages in the first quarter of 2007 with an initial focus on Sarbanes-Oxley, but with a broader view toward expanding the initiative to link into the company's already well-established ERM program. “The basis for running an ERM program is a common language or taxonomy that the whole organization can get behind and that gives you a level of consistency,” says Charles Pavlounis, chief risk officer with D&B. “Having that taxonomy in place, we were able to build it into the DNA of our implementation.”
The company is currently finishing up its implementation of the system's internal audit functionality. The next step will be to link in compliance risk. “At the end of the day, we'll end up having a program — and OpenPages will help us with this — that lets us look at, say, a risk within technology and get a holistic view of the compliance implications, then look at it from the operational risk perspective, and then at how it impacts the financial statements,” says Pavlounis. “It's a real 360-degree view of risk.”
See a larger view of the GRC Management chart here. [3]
PPM BREAKS OUT
Vendors of project portfolio management (PPM) systems have a history of agility and inventiveness. Many firms that started out as providers of time- and resource-allocation tools or professional services automation software now offer feature-rich products that help companies to prioritize, plan, execute, and assess their IT initiatives. The sector is still evolving rapidly, as the major players move beyond the project focus with tools that provide insight into IT spend in its entirety, including the cost of in-place applications and infrastructure.
What's more, PPM is extending its influence beyond IT.
Program management offices (PMOs) are pushing PPM tools and techniques out into the organization at large, says Lewis Cardin, senior analyst with Forrester Research Inc. “When you've got a standardized approach to making investment decisions; a standardized approach to doing business cases; an effective way of doing resource management and financial management on investment activity; and a strong way of reporting on this — for example, the ability to drill down on various investment activities on the fly — this is seen by some COOs and CEOs as something that should be extended across the business rather than limited to IT.”
These systems have transformed the corporate business case, Cardin adds. In addition to providing the traditional cost/benefit analysis, PPM tools can help project leaders to align their initiatives with the strategic objectives of the business, map long-term benefits, and assign responsibilities for achieving them.
“So now the business case has really expanded its role; it fits right into the PMO and connects with solutions and tools for portfolio management,” Cardin concludes. “And every one of these connects very strongly with the CFO's mission in life.”
