How to plug the finance automation gap that ERP alone cannot reach
By Shak Akhtar, SVP Finance Automation/Customer Experience Officer, Redwood Software
It’s a long-held misconception that going through the pain and cost of implementing an ERP system — such as SAP or Oracle— across your business will solve all your financial efficiency and automation problems. In reality, while your ERP does tackle some of those issues there are parts it cannot reach. And that leaves you with a clear efficiency and automation gap for today’s complex finance and accounting processes.
For their many powerful capabilities, ERP systems are designed to support rather than eliminate manual tasks. In fact, even the most optimally-configured ERPs create manual effort rather than eliminate it. For example, there are very few functions that automatically create and post journals within the general ledger. Similarly, very few ERPs have effective automated cash allocation functions in accounts receivable and there are limited automated reconciliation functions for intercompany and balance sheet.
You could try to customize your ERP to address this, but most CIOs don’t advocate bespoke changes to their ERPs these days due to the cost of ownership, resilience and support challenges. Instead, the go-to workaround for most organizations is to turn to additional best-of-breed point solutions or robotic process automation (RPA) tools to try and plug the automation gap.
This has spawned a huge market in add-on solutions developed by third parties to extend ERP functionality and automate specific functions, such as balance sheet reconciliation, cash allocation and journal uploads.
The rationale for organizations to invest in these add-on solutions is convincing. Functional gaps and manually-intensive ERP tasks have traditionally been viewed as tactical opportunities that could be solved through point solutions developed and deployed by independent software vendors.The perception is that they are cost-effective — the add-ons will pay for themselves through productivity gains — and simple to deploy. The sales patter will reassure you that deploying the add-on will require little more than minimal reliance on your already stretched IT department.
However, it soon becomes clear that turning to these point solutions to plug your finance automation gaps is a flawed approach. At best, add-ons provide a sticking plaster, tactical approach to automation and process improvement. The cost of deployment and ongoing operational costs of add-ons is often underestimated, rarely factoring in costs associated with change management, testing, training and ongoing support. There are other issues to consider too. Some add-ons require data to be duplicated from the ERP, creating additional manual effort, particularly relating to data synchronization and yet more reconciliations.
Security is a huge concern. Is the add-on governed and controlled by the ERP security system? Where are the audit trails maintained? The elephant in the room is what happens if the software author goes out of business and your add-on point solution is no longer supported?
Integration between your ERP and point solutions or RPA tools isn’t a one-off project, it’s an ongoing challenge. What happens when your ERP is upgraded, or the add-on solution, for that matter? Will the add-on still work? How much testing and re-training is needed?
A far better way to plug the finance automation and efficiency gap is to approach process transformation as a strategic opportunity that takes in more than just the finance-specific elements of the process. Not only does this create a more resilient process, it also ensures proper documentation and knowledge is gathered about how the new process should operate. At the same time, a strategic approach offers significant opportunity for bigger automation and efficiency gains versus small tactical changes that are less resilient due to multiple points of failure. The change management and training so essential to project success is more effective for end-to-end transformation and more likely to be properly funded as part of the project.
Find out how to plug your automation gap with Redwood’s Finance Automation
Get in touch with Redwood to find out more.