Managing Financial Technology Through Times of Change
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Transcript of Managing Financial Technology Through Times of Change
Managing Financial Technology Through Times of Change
Graham Hulme
Director of Product Management, SOFTRAX
Ken Riley
VP of Finance, State Street
© 2014 Proformative
Agenda
• How Business Factors Drive Change
• Times of Change: What are the Options?
• ERP Augmentation: A New Way
• Case Study: ERP Augmentation at State Street
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© 2014 Proformative
How Business Factors Cause Change
Enterprise Solutions are Critical for Modern Companies
• Enterprise resource planning (ERP) systems are information systems encompassing all aspects of business
• Implemented at over 70% of Fortune 1000 companies and 84% of midsize companies (Aberdeen Group 2012)
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How Business Factors Cause Change
Enterprise Systems Face Continuous Challenges
• Business Drivers of Change
• New business models
• New regulatory requirements
• Merger & acquisition activity
• Company changes: new products, new management, etc.
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© 2014 Proformative
How Business Factors Cause Change
New Business Models
• Example: Shift to a subscription-based economy• Moves transactions from a one-time
to recurring basis
• Allows flexibility in product & service offerings
• This flexible model can create accounting complexity
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How Business Factors Cause Change
Changing Regulatory Requirements
• FASB/IASB Standards Convergence
• US GAAP revenue recognition requirements differ from International Financial Reporting Standards (IFRS) – current focus on unifying standards
(www.fasb.org)
© 2014 Proformative
How Business Factors Cause Change
Merger and Acquisition Activity
• Mergers and Acquisitions can introduce fundamental changes to all parties included in the transaction.
• What do these changes mean?
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How Business Factors Cause Change
Challenges of Outdated and Disparate ERP Systems
• Typical ERP is updated every 2 years and 4 to 5 times in its lifecycle
• 50% of ERP customers use systems two versions out of date
• Significant number of companies use multiple ERP systems or a custom solution developed in-house
(Aberdeen Group / Forrester Research)
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© 2014 Proformative
• Live With It
• Rip & Replace
• ERP Augmentation
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Times of Change: What are the Options?
Live With It, Rip and Replace, or Augment
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Weigh the Advantages Weigh the Disadvantages
Times of Change: What are the Options?
Going to Spreadsheets May Be an Easy Fix…
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• Spreadsheets and other manual workarounds also incur real labor and opportunity costs
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Times of Change: What are the Options?
…But Creates a Range of New Vulnerabilities
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Microsoft Office Excel Worksheet
Microsoft Office Excel Worksheet
Microsoft Office Excel Worksheet
Microsoft Office Excel Worksheet
Microsoft Office Excel Chart
Contracts
Terms
Backlog
Milestones RevenueRecognition
History
DeferredRevenue
Unbilled
Microsoft Office Excel Worksheet
Services
Microsoft Word Document
Microsoft Office Excel Worksheet
Approvals
Microsoft Word Document
ProcessDocumentation
Microsoft Word Document
Microsoft Office Excel Worksheet
Microsoft Office Excel Worksheet Microsoft Office
Excel Worksheet
FMV/ VSOEPricebook
Microsoft Office Excel Worksheet
Microsoft Office Excel Worksheet
Microsoft Office Excel Worksheet
Microsoft Office Excel Worksheet
Revenue AllocationFMV/ VSOE
Revenue treatment memo
Microsoft Word Document
Compliance Documentation
Microsoft Word Document
AuditDocumentation
Revenue Forecast
Revenue Process Definition
Revenue Analysis
Microsoft Office Excel Worksheet
JournalEntries
Microsoft Word Document
Billing
Microsoft Office Excel Worksheet
Microsoft Office Excel Worksheet
Microsoft Office Excel Worksheet
Microsoft Office Excel Worksheet
Microsoft Office Excel Chart
Contracts
Terms
Backlog
Milestones RevenueRecognition
History
DeferredRevenue
Unbilled
Microsoft Office Excel Worksheet
Services
Microsoft Word Document
Microsoft Office Excel Worksheet
Approvals
Microsoft Word Document
ProcessDocumentation
Microsoft Word Document
Microsoft Office Excel Worksheet
Microsoft Office Excel Worksheet Microsoft Office
Excel Worksheet
FMV/ VSOEPricebook
Microsoft Office Excel Worksheet
Microsoft Office Excel Worksheet
Microsoft Office Excel Worksheet
Microsoft Office Excel Worksheet
Revenue AllocationFMV/ VSOE
Revenue treatment memo
Microsoft Word Document
Compliance Documentation
Microsoft Word Document
AuditDocumentation
Revenue Forecast
Revenue Process Definition
Revenue Analysis
Microsoft Office Excel Worksheet
JournalEntries
Microsoft Word Document
Billing
Times of Change: What are the Options?
View of a Spreadsheet-Driven Process
© 2014 Proformative
• Until recently, 40% to 60% of software in an ERP system was custom-coded for that installation
• Only 11% of organizations implement ERP without customization
• Relieves the symptoms but does not cure the fundamental issues
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37%
31%
12%
5%4%
11%
Minor (1 - 10% of Code)
Modest (11 - 25%)
Significant (26 - 50%)
Extreme (50+% of Code)
Completely Custom
No Modification
SOURCE: Panorama Consulting (2013)
Times of Change: What are the Options?
Customizing for Near-Term Relief…But at What Price?
© 2014 Proformative
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Times of Change: What are the Options?
”Rip and Replace” Considerations
• Will it solve the problem?
• Do you want to start over?
• Will you lose anything?
© 2014 Proformative
• 61% of implementations took longer than expected
• 53% of projects suffered cost overruns
• 60% of companies received less than half the expected benefits from their new system
(Panorama Consulting 2013)
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Times of Change: What are the Options?
The End Results of Rip and Replace
© 2014 Proformative
• What is ERP augmentation?
• Keep existing ERP leveraging its strengths
• Take a seat at the table: fill gaps with modular best-in-class solution
• Modular applications that work in conjunction with existing ERP to solve
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ERP Augmentation: A New Way
Modular Solutions to Fill Functionality Gaps
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• Retain the Value of Existing Systems
• Continue leveraging what works in existing systems to protect your investment to avoid disruption, risk, cost
• Enhance the Overall Value of Existing Systems
• ERP augmentation solutions work side-by-side with existing systems delivering targeted resolutions
• Minimize the need for customization, maximize use of productized functionality
ERP Augmentation: A New Way
Significant Value Points
ERP Augmentation at Princeton Financial Solutions / State Street BankKen Riley
VP of Finance, State Street Bank
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© 2014 Proformative
Agenda
• About Ken and State Street
• Project Background: Systems and Pain Points
• Making the Decision
• Preparing for the Implementation
• Implementation Status and Next Steps
• Takeaways
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About Ken
• “Big 8” audit experience• Exposed to wide range of industries
• Fascinated by small technology companies
• 25 years in technology – primarily software industry• Private & public companies
• Controller / CFO roles
• 4 years as CFO of State Street’s software division
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© 2014 Proformative
About State Street Corporation
• Top 10 US bank
• #2 US custody bank
• $10B in annual revenue; 30,000 employees globally
• State Street Software Solutions• Part of State Street Global Exchange
• Consists of three companies:• Princeton Financial Systems
• State Street Portfolio Solutions
• Allocare
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The Bigger Picture: Princeton Financial Systems
• Acquired by STT in 1996
• Operated independently of STT
• Growth pre-financial crisis
• Finance teams in Princeton, NJ and Frankfurt, Germany
• Historically disconnected infrastructure – no ERP• Lead tracking (Onyx & Excel)
• Contract management/billing (CMS, HS, Projectile)
• Customer support (Onyx)
• Project management (Projectile, Bugzilla)
• Operations now coalescing around single platform (SalesForce)
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The Contract Management and Billing System
• Built on old technology (Access 97)
• Developed in-house by staff who:• Lacked an understanding of software revenue recognition rules
• Were no longer with PFS at the time of the changeover
• Serious issues uncovered by 2009 audit• Failure to implement SOP 97-2, leading to:
• US$5M revenue adjustment
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Our Pain Points
• Lack of technical expertise in:• Software accounting standards
• CMS design and maintenance
• GAAP compliance issues discovered by audit
• Unsustainable accounting processes• Manual spreadsheet manipulation
• Manual journal entries (JEs)
• Lack of integration with STT and PFS systems
• Disparate practices and reporting platforms• 2 finance teams, 3 billing /revenue systems
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Advantages of a Custom Solution
• Flexibility – build vs. buy
• Design focus to address specific pain points
Risks
• Iterative cycle requires time and money – design, develop, test, evaluate
• Problems with ongoing maintenance and support• Concentration of knowledge
• Version stagnation
• Cautionary tale: Base Ten
Making the Decision: Custom or Off-the-Shelf?
© 2014 Proformative
Our Project Objectives
• Reach GAAP compliance
• Create processing efficiencies• Scalability: automate JE calculations
• System integration: STT accounting systems, PFS’ CRM platform / project management tool
• Automate commissioning processing
• Create a single billing platform• Improved reporting – one version of the “truth”
• Risk mitigation through cross-training
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The Criteria
• Quality
• Service Capacity/Domain Expertise
• Compatibility with Key Systems
• Pricing
• Financial Stability
• Commitment
• Contract
The Evaluation Team
• Finance
• Project Manager
• IT
• Sales & Marketing
• Customer Services
• STT Corporate Accounting Platforms
RPF and Vendor Analysis
© 2014 Proformative
Preparing for the Implementation
• 1. Identify and prioritize functions• Billing
• Revenue recognition
• Contract management
• License Key Generation
• Commissions
• Time Tracking
• 2. Synthesize processes between US, German teams• Contract process and setup:
• Terminology, data fields, SKUs & other codes
• Workflow – review and approvals
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© 2014 Proformative
Challenges Facing Implementation
• Regional differences• Contractual terms impact revenue
recognition
• Language on invoices
• Sales tax vs. value added tax (VAT)
• License key generation process
• System integration• New requirement added – integration with
auto-reconciliation tool
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© 2014 Proformative
Current Implementation Status
• Phase 1: Go-Live• Achieved in November 2013
• GAAP compliance
• Enhanced revenue recognition subject matter expertise
• Automation of JE generation
• Integration with Oracle & auto reconciliation system
• Replacement of 2 systems
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Next Steps
• Phase 2 – Q1 2014• Partial integration with SalesForce
• Replication of license key generation process
• New functionality development: security, audit tracking
• Phase 3 – Q4 2014• Full integration with SalesForce
• Future Phases• Integration with project management system
• Automation of commission processing
• Allocare & any future acquisitions
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© 2014 Proformative
Key Lessons and Takeaways
• Changes in project scope are inevitable• Post-contract requirements added by STT Corporate
Accounting Systems
• PFS project management tool replacement postponed
• Success means devoting sufficient resources• Remember that project management is a full-time job
• Accounting staff supplemented by temp resources
• Customers and vendors are partners in the process
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Learn More About ERP Augmentation at 11:30 AM
Revenue Manager
Revenue Allocation
Revenue Scheduling
Revenue Recognition
CORE ERPOrder Management Billing Fulfillment General Ledger
Billing Data Usage Data
Fair Value Determination
Signals to Relieve Revenue
VSOE/TPE/BESPPrice Books
JE Generation
Journal EntriesSales Orders
© 2014 Proformative
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Q&A
© 2014 Proformative
Contact Information
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Ken Riley
Vice President
State Street Corporation
p 609-580-5970
Graham Hulme
Director of Product Management
SOFTRAX, Inc.
p 972-715-4041
Managing Financial Technology Through Times of Change
Thank You For Attending