Here’s a question for finance leaders: Is transaction processing a key element of finance transformation?
If I think back to the hundreds if not thousands of conversations I have had on the subject of finance transformation over the last 10 or so years, the vast majority have included at least an initial focus on defining a strategic role for finance by creating or improving the capability to deliver better business insights.
Yet, in my first blog in this series, I discussed how finance transformation requires not just a new reporting tool and strategy, but a start-over mindset and a total technology rethink. Well, just arriving at that start-over approach must begin with a rethink at the transaction level.
Referencing a recent survey of 46,000 FSN members, Chief Executive Gary Simon said, “More than two decades after ERP systems first appeared in the business landscape, more than half of all CFOs say that they spend too much time on transaction processing.”
Hardly surprising when you consider that on average, transaction processing takes up more than 50 percent of all finance resources. Add to the mix that inaccurate transactions take 80 percent more time to process than a transaction that’s processed correctly the first time. Therefore, transaction processing is one of the major barriers preventing finance from achieving transformation and the ultimate goal of delivering a better business partnership.
Most of this increased workload is due to the fact that the transaction models of traditional systems were not designed to capture the data necessary to support the reporting and analytics goals of today’s businesses. The transactions of legacy systems were designed to replicate and automate the manual double entry bookkeeping entries of a much simpler age. These systems aggregate sub-ledger data—with debit on the left, credit on the right—which worked well for its designed purpose of GAAP/IFRS type reporting, but completely fall down when it comes to giving the business insight into the “why” behind transactions. Here are some of the main challenges presented by these systems.
Complexity: The chart of accounts and limited code block dimensions of legacy financial systems do not do a good job of reporting on business context. A desire to report on elements, such as customer, product, channel, region, industry, project, marketing campaign, and anything not immediately relevant to GAAP/IFRS, has traditionally meant either extending the account number, or parsing another code field. All of which leads to added complexity for finance teams.
I’ve spoken to a customer that, in their legacy system, faced tens of thousands of code combinations that resulted in over 2,000 data errors on transaction entries every time they entered their financial close period. In old-world systems, more accounts means more reconciliations and more effort.