Technology & Innovation

The future of finance – it’s not found in the past

Man showing plans to man and woman

Nostalgia is not a strategy! Just because your collection of old accounting software, hundreds of spreadsheets, handwritten notes, etc. sort-of-works doesn’t mean it’s relevant or even good for the company. Yes, this “solution” might have been state of the art in its day, but that day has likely passed.

Old financial accounting solutions are like a well-worn pair of shoes. Yes, they may be broken in and comfortable, but eventually, those holes in the soles will become unbearable.  The future in financial systems is always changing, improving and enabling greater capabilities for its users. It’s not stuck in the past and neither should you be.

The Renovation Project

If you were remodeling a bathroom or kitchen in your home, you’d likely want to pick more modern and technically advanced components for this. You’d consider a hands-free faucet, energy-efficient appliances, etc. You wouldn’t pick a bunch of 1960’s avocado-colored fixtures. You’d chose more modern technologies as they hopefully do more, are more functional, cost less to operate and are more aesthetically pleasing to their users.

Acquiring new financial software should work the same way as there can be real consequences to staying on old technology for too long. Software users can find their old software solution:

  • Has been acquired, sometimes multiple times, by other software companies, private equity firms, etc. and the new owners may starve this product for R&D funds.
  • Has owners that will kill off the product line, dramatically raise prices, or, force customers to migrate to a less functional or more costly product line.
  • Requires costly equipment upgrades or replacements.
  • Needs upgrading to maintain its technical currency and to avoid security exposures. But upgrades can be costly to complete, expose the company to risk if the upgrade is done poorly, may require reworking of integrations, etc.
  • Has a lot of technical debt. Technical debt is the projected, but deferred, upgrade cost that a software customer will someday have to face when they upgrade the solution.
  • Hasn’t kept up with newer competitive offerings. Competitors to your firm may have solutions with advanced technologies (e.g., big data support, machine learning built-in, etc.), all-new capabilities and platforms.

When companies decide to reimagine Finance today, they are looking at solutions with miles and miles of capabilities ahead of them. They aren’t looking at solutions whose best days are behind them.

Today’s better solutions

Software buyers have choices today. They can pick solutions that:

  • Run on their own computing equipment (on-premises) although fewer and fewer vendors are creating these anymore (in fact, many ceased doing so over a decade ago). Many hosted or on-premises solutions are simply upgraded versions of older products.
  • Run on hosted environments in a virtual machine mode. These (single-tenant cloud or hosted) solutions act and behave like on-premises solutions except that the code is running on a third party’s (e.g., systems integrator) or hyperscaler’s data center (e.g., Amazon AWS). These solutions are usually older, on-premises solutions that run at a site other than the customer’s data center. While many vendors sell these solutions as “cloud” or “cloud-enabled” products, most of these were originally designed as on-premises solutions that went through little or no upgrades to become hosted solutions. Think of these as older products with modern hype attached to them.
  • Run on a public cloud in a multi-tenant mode. These solutions are often the newest products in the market and possess many favorable economic characteristics (see below). These solutions are architecturally distinct as there is usually only one copy of the software that all users share. Yes, the data is kept separated and secured, but this single copy of code means that the vendor (not the customer) can upgrade all customers at once. Software stays current for all customers. And, the customer’s IT shop is only minimally involved in upgrades as the vendor is responsible for patching and maintaining the solution.

The Ascendancy of Multi-tenancy

Cloud-based applications became a reality because:

  • Internet access became ubiquitous and low-cost.
  • Wireless speeds, bandwidth and coverage grew while prices plummeted.
  • Dot-com internet sites pioneered early versions of multi-tenant applications.
  • Cell phones and tablet computers became cheap, plentiful, powerful and

But, within the universe of cloud applications, multi-tenant applications rose to prominence as:

  • These apps required little or no new computing hardware (e.g., private cloud applications still require the customer to acquire and maintain their own data center, systems software, etc.).
  • Vendors, not customers, provided security, disaster recovery, backups and other services as part of the subscription.
  • They enabled employees to complete work anywhere they had access to the Internet.
  • Vendors, not the company’s IT department, would upgrade the software as part of the service
  • Vendors kept the software current.
  • Customers could acquire the solutions on a subscription (i.e., OpEx – operating expense) basis.

Software vendors adopted multi-tenancy as it delivered benefits for them, too. The greatest of these may be in support cost savings. Instead of supporting numerous old versions of the product running on an almost unlimited combination of hardware and systems software at customer sites, a multi-tenant solution vendor only has to support one version of the product.

In the run-up to widespread multi-tenant adoption, several old-school vendors fought the rise of multi-tenancy as they were worried how it would impact sales of their older product lines. They also found it difficult to explain to Wall Street how a shift from license revenues to subscriptions would impact their share prices. Many of those firms simultaneously denounced multi-tenancy in public while quietly developing more modern solutions in their R&D labs.

Regardless of when or how vendors got to multi-tenancy, it’s the main delivery mechanism for application software today.

The Economics of Today’s Solutions

With all of these different options, where are many software buyers going?  Generally, we’ve seen very broad support for multi-tenant cloud solutions from mid-market and SMB firms. In larger enterprises, multi-tenant applications have done quite well in front and back-office areas while verticals are only now catching on.

One of the key drivers for the high adoption of multi-tenant solutions is that these solutions preclude the need for various one-time and continuing expenditures (see above) that alternative solutions dictate.

Beyond the Economics

Not every aspect of a financial accounting upgrade decision is about multi-tenancy. There are other economic and technical considerations to ponder.  Here are some of the other factors that warrant review:

  • Will the new solutions utilize cutting-edge technologies (e.g., artificial intelligence, machine learning, natural language processing, chatbots, workflow management, etc.) and are our current solutions, people and processes ready for these?
  • Do we fully comprehend how materially we can reinvent our financial processes and have we identified how we can better serve ALL of our internal (e.g., board members, non-finance staff, and operations executives) and external constituents (e.g., bankers, suppliers, customers and regulators)? Can current systems deliver on these goals easily and cost-effectively?
  • Are there new applications financial accounting should be using (e.g., T&E fraud detection, detection of potential FCPA violations and chatbots to deal with common inbound inquiries (e.g., suppliers checking on payment status))?
  • Can we free up IT resources from tactical, back office application support activities and have them more focused on strategic applications development?
  • If the new vendor has an extensible platform, how can we leverage it?
  • How can we easily tie current operational data with financial data and third-party big data to enhance business insights and shorten our company’s market reaction time and take better advantage of emerging trends? Can we do this with one set of integrated tools?
  • What should our briefing books to the board and executive committee really contain and how will we get the data for these metrics, analytics and insights?
  • How do we reduce the number of interfaces we must support? Should we give stronger consideration to vendors that possess more of an integrated suite?

Bottom Line

It’s a new era for financial accounting software and your current systems might well need a material upgrade. But, choose wisely as it’s easy for old products to be recast as modern ones with only a little bit of marketing hype and a couple of cosmetic technical changes. Look carefully under the hood to avoid painful or expensive surprises down the road.

Smart software buyers make sure they are getting a modern product with a new platform and functionality that takes maximum advantage of all of the data that firms can possess today (e.g., operational, financial, big and dark data). Just because your firm has used the same software from the same vendor for the last twenty years doesn’t mean you should re-up for another twenty years with them. The vendor (and implementer) that got you here may not be up to the task to take you forward.

Shop around, use care and know the totality of costs that could impact your firm with any solutions you might be considering.