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Innovation in Financial Applications Today

Innovation in Financial Applications Today

For decades, innovation in financial accounting software was defined by a product’s ability to process and report accounting transactions more efficiently. Early on, these innovative solutions could deliver a solid return on investment as these applications freed up countless accounting clerks’ time and dramatically reduced the amount of rekeying and error correction activities that were required. These solutions achieved widespread adoption as their cost savings exceeded the cost to implement and operate these products.

Today, that cost/benefit relationship is now inverted for many core financial applications. How is this possible? The incremental cost to implement a replacement financial accounting solution often dwarfs the limited incremental benefits that a customer might achieve from re-automating a process. Re-automating an application just isn’t a great return on investment. Financial software vendors and their customers have to look beyond basic journal entry transaction processing as a means to deliver value.

Innovation in Financial Applications Today

Accounting organizations were able to find a few pockets of incremental savings over the preceding decades. Perhaps the most beneficial change that larger firms implemented involved the use of a single, global shared services software solution. This capability was only possible once telecommunications costs had dropped, hardware became commoditized and Internet access was more ubiquitous. These users were able to eliminate numerous local accounting solutions and reduce their software support needs. They achieved a level of scale that helped lower transaction costs. It was, in a phrase, another efficiency play.

So, if many efficiency-driven solutions are no longer cost-effective, what should vendors create and what technology should software buyers acquire? Savvy vendors realize that the new value-creating frontier in financial applications rests along these areas:

  • technologies that dramatically and imaginatively alter long-standing financial processes
  • financial applications that serve more than Finance department users (e.g., board of directors, operations executives, employees, suppliers, etc.)
  • “smart” financial applications that use machine learning to further automate clerical tasks (e.g., intelligent data recognition and capture from documents instead of manual data entry)
  • Delivering new business insights via smart analytics (i.e., analytics powered by algorithms, big data, machine learning or other tools)

New Finance processes are being materially improved with new technologies like machine learning, big data, workflow processing, exception handling, data visualization and more. In fact, combinations of these technologies can create the opportunity for seriously improved processes. Delivering these new solutions via the cloud makes them even easier to deploy.

Innovation in Financial Applications Today

Robotic process automation (RPA) generally involves a machine-learning tool coupled with a solid and commonly used process design. What customers get is a relatively efficient process where a tool interprets source documents (e.g., an invoice) and determines an appropriate accounting distribution for its component line items. If the tool can’t make a definitive decision as to the needed accounting treatment of this transaction/document, it will forward the document to a human subject matter expert. The tool will learn how the human encoded this transaction and use this knowledge to process similar transactions in the future. RPA helps in accounting closes, invoice entry and other repetitive tasks.

Smart analytics are also showing a lot of promise. These applications often marry operational, external and internal data into a very visual format. Business users use the insights these tools offer to improve their competitive position, enhance margins, increase reliability, foster better customer service, etc. For accounting professionals, smart analytics offer a way for them to add value to the board, operational leaders and more.

Reimagined processes are an intriguing option, too. These solutions take a (long-overdue) fresh look at how a common financial accounting process can be designed to deliver new, outsized value. The best of these are not incremental solutions – they are focused on delivering material savings, insights and value to their users and they do this with an array of new and old technologies.

Examples of these reimagined processes include:

  • Payment processing
  • Bribery prevention
  • T&E fraud detection
  • Smart revenue forecasting
  • Smart cash forecasting
  • Sales territory optimization
  • Etc.

Let’s look at one of these: accounts payable management. Instead of focusing exclusively on the entry of invoices and creation of journal entries, a reimagined solution would instead focus on other opportunities. These opportunities might include:

  • Focus on speed – A reimagined process should work faster and deliver faster, positive outcomes for its constituents. In payment management, checks are often the slowest method of payment as (non-value-added) time is spent printing, stuffing, mailing and depositing payments. Removing wasted time usually generates benefits for everyone in the process.
  • Use of alternate pay methods – Traditionally, accounts payable and other systems have used checks as their main payment method. Reimagined solutions take advantage of the myriad of new payment options available today: ACH, international wires, virtual credit cards, etc. Some of these options cost far less to use than checks as they eliminate postage costs, paper supply costs, bank processing fees, etc. Alternate solutions may also be easier to reconcile and less subject to fraud, loss or other events that warrant people-intensive follow-up by accounting personnel.
  • Go digital and avoid paper – Paper checks, paper remittance stubs, envelopes, etc. all require human handling and cost more than digital methods. A reimagined payment management process must consider digital options.
  • Ability to involve the entire organization – Many software applications built for finance professionals seem overly complex to employees outside of the finance team. A reimagined payment process makes it easy for staff throughout the organization to understand, enter, and approve bills that need to paid by presenting the information in a modern interface and allowing approvals on the go from a mobile device.

Buyers should resist the urge to clone current business practices and systems. Those methods were valid in a different time but may not be so today. Nostalgia is fine for some things but rarely a good idea with technology and business processes. Don’t be surprised if some on your team like things just the way they are. Change is uncomfortable for many people. However, without new ideas, new approaches, etc. your firm may fall behind competitively and cease to advance in the market. If your software selection yields no new ideas, then you did something wrong.

Software buyers need to first determine what they want a reimagined process to be/contain. New solutions will challenge long-held business practices, controls and other procedures. An unwillingness to confront these long-established business artifacts will doom the firm to stay stuck in the past with all of the limitations that the old process triggered. Don’t repave an old cow path!

Today’s software buyer needs to adopt a new set of software selection practices. Instead of documenting the hundreds of things your current accounting solution does (or doesn’t do!) into a request for proposal or spreadsheet, buyers should canvas the market and look for all-new capabilities not found in old-school accounting products.

This means the search for new software must start with a discovery effort. Buyers should first start by investigating all manner of new solutions on the Internet. Intriguing or different approaches should get additional scrutiny as they may offer unique, novel approaches and use modern technologies in all-new ways. The point of the discovery effort is surface new ideas, new process designs and new solutions.

Also, don’t be surprised if the software vendor (and implementer) that’s been part of your accounting technology stack the last 2-3 decades isn’t one of the finalist vendors. Too many of these vendors are overly focused on delivering many, small innovations so that existing customers can be eased into a more modern world. Unfortunately, this approach takes too much time, delivers out-of-date solutions and costs a lot. It’s a death by a thousand cuts.  You’ll want a modern solution and you’ll want it all now.  

Bottom line: Get out of the office and see what the new art of the possible is re: financial software. The amount of change and the new innovations out there may surprise you.  Invite team members to attend webinars from new age vendors and, if appropriate, get the vendor(s) to deliver a personal web demonstration for your firm once they know a bit more about your specific circumstances.

To get the most value from these demonstrations, be prepared to discuss with these vendors:

  • The other financial systems their software may have to integrate with
  • The number, kinds and complexities of your firm’s banking relationships
  • Key statistics like the number of vendors, customers, etc. your firm interacts with
  • The geographic scope of your firm and its value chain participants

And, once you make your decision, plan the implementation well. You may need different implementers who possess a different kind of knowledge, understand the requirements of new processes and can bring new innovative technologies (e.g., workflow) to life.

That’s how you’ll make the next generation of financial accounting technology deliver value.

February 11, 2020
Brian Sommer
Enterprise software industry analyst Brian Sommer covers the ERP, finance and HR sectors for Diginomica and other publications. Brian began his career began by re-writing a payroll/time-reporting system for a fast food chain and then repairing/installing numerous financial accounting systems globally. He went on to run Accenture’s Global Software Intelligence organization where he advised hundreds of clients on software selection and shared services initiatives. Brian has been an expert witness for a major software litigation case and anti-trust matters. He remains involved in numerous software strategy and selection efforts. Brian has won numerous ERP Writers' Awards. He has been found all over the world delivering numerous software conference keynotes as well as keynotes at dozens of major accounting conferences, too.