This story, written by Christy Sasser, originally appeared in English on the Workday blog. We thought our local readers would also find it interesting, and it appears below in translation.
Managing a global organization has become increasingly complex. Companies are grappling with constant change—from strengthening economic activity in emerging markets, to the rise of economic nationalism, to increasing regulations such as U.S. tax reform and the new General Data Protection Regulation (GDPR). Adding to the intensity are the growing threat of cybercrime and data privacy risks, the war for talent, and the quickening pace of technology innovation.
This increased complexity creates significant operational challenges for global companies, especially as they expand into new markets. These issues typically fall into three distinct buckets:
As a company expands across geographies and product lines, it becomes more challenging to consistently assess and report on performance, putting management at greater risk of making the wrong decisions. Here’s why: A company that sells the same products and services in multiple countries is often using different financial systems and applying different data definitions to activities in each region. As a result, each location is at risk of interpreting and reporting on the performance of the same product and service lines differently than required by the corporate office. This can lead to faulty analysis and impact decisions. For example, parts of a business could appear more profitable than they actually are.
Another challenge global companies face is maintaining financial control over operations, especially when entering smaller or emerging markets. Many organizations do not have standardized processes with checks in place to ensure compliance across locations, such as how a company should partner with local suppliers or how many bank accounts a local operation can have. Lack of process makes it difficult to understand and track what is happening to assets—creating a greater risk of fraudulent activity. At the same time, even where controls do exist, they are often manual and limited to a specific country, and can’t easily be viewed or audited from overseas locations.
Navigating local and regional laws and regulations—such as tax compliance, privacy laws, anti-laundering laws, payroll, and accounting—can be big operational headaches for global companies. The unique needs of specific locations can be too overwhelming to manage centrally, leading some global companies to take a hands-off approach and require their overseas locations to meet corporate reporting needs while engaging local accounting firms to manage local requirements. Others end up creating local finance departments in every country, leading to greater inefficiency and complexity.
A root cause of these operational challenges can be found in the disconnectedness of the systems supporting the business—specifically in functions such as finance. As the business environment has become more complex, traditional ERP systems can’t keep up.
Historically, growing companies deployed a legacy ERP system in their headquarter location and regional or country-specific accounting systems in other countries where they do business, mainly due to the high costs associated with deploying the legacy solutions for smaller locations. As a result, many enterprises now have a variety of disparate financial systems—different brands and versions, on various platforms, deployed by multiple systems integrators.
Each of those systems has its own processes, security model, and version of “the data,” which are almost never complete or in sync with one another. This creates major obstacles when it comes to gathering, reconciling, and consolidating data, and understanding what is happening in remote locations, far away from corporate controllers and auditors.
The struggle for many organizations often boils down to one big issue: not having a single source of truth for their data.
At the same time, larger, traditional ERP systems tend to have rigid architectures. When business processes designed for headquarters are put in place in smaller local or regional entities, the complexities often can’t be easily explained or bypassed for that location, which might only have a couple of system users.
Advances in financial systems are helping global companies address many of these challenges in three core ways:
One of the most valuable resources in business today is data. Companies that use it effectively can gain deeper insights into their business, improve decision-making, and increase the accuracy of planning and forecasting—all of which can lead to greater performance.
The struggle for many organizations often boils down to one big issue: not having a single source of truth for their data. It’s hard to have a finger on the pulse of a global company if data is spread across 20 or 30 financial systems. Analyzing and reporting on results is time-consuming and painful, and the information ends up outdated and at high risk for errors.
Innovation in financial systems over the last ten years—leveraging cloud and in-memory technology—have fixed this issue. These cloud-based systems bring together financial management and analysis into one, global system—creating a single source of truth for companies to transact and analyze data. Since data is stored in-memory, organizations have real-time insight into the business and the ability to view consolidated results at any time.
Having one global system for data becomes even more important as companies seek to advance their analytics. Companies need a foundation that enables them to integrate financial and non-financial data and apply data science and machine learning capabilities to generate more sophisticated insights, such as predictive and prescriptive analytics.
The ideal global business strategy allows a company to practice globally while managing locally. But traditional ERP systems weren’t designed for this flexibility. Cloud-based financial systems enable this balance based on one key difference—they have workflow built into the core of the system. This allows companies to standardize processes globally while allowing for individual locations to create and modify processes and the routing of roles where needed.
For example, processes involving delegated approval levels, such as journal entry or supplier invoice approvals, can be standardized at a global level yet configurable in individual countries where the global, corporate levels may be incompatible with the size of the local operation. Not only does this improve efficiency and control, but it also increases buy-in at the local level.
It’s important for global companies to have controls in place across all locations and groups to ensure compliance. Without them, a company is at high risk for fraudulent activity and spends significant time and resources looking in the rear view mirror when issues come up.
Cloud-based financial systems take a preventative approach to compliance by building governance and control into the foundation. Because workflow is built-in, all activity is modeled, governed, and self-documented in one place. Nothing happens in the system without it being modeled in workflow, giving companies the ability to set controls around all processes and activity. For example, companies can put controls in place that don’t allow a bonus to be paid to an employee unless approved by a specific rank.
When all transactions can be audited in one global system, auditors can view them from anywhere, reducing the complexity, time, and cost.
One of the biggest issues with creating strong controls with traditional systems is that their compliance, internal controls, and audit capabilities are separate solutions that sit outside of the core financial system of record, creating the potential for significant errors and risks. Having multiple, disconnected systems across remote locations also makes it difficult and costly to perform global audits, as auditors must travel to those offices to review the data. When all transactions can be audited in one global system, auditors can view them from anywhere, reducing the complexity, time, and cost of global audits.
Cloud-based financial systems also deliver capabilities to meet new regulations and standards as they take effect, significantly reducing the amount of time, money, and resources traditionally required to maintain compliance with legacy systems. For example, if a country changes the tax rates, finance teams have the ability to create those new values immediately in the system, versus having to wait for a software vendor to do it for them.
The business landscape will continue to become more complex. Global companies have an opportunity to address these core operational challenges and create a solid foundation that will set them up to advance the way they use data, make decisions, and plan for the future.