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Speed, Transparency, Accuracy, and Control — Market Mandates or Just Good Business?

by Claus Heinrich | SAPinsider

April 1, 2003

by Claus Heinrich, Executive Board Member, SAP AG SAPinsider - 2003 (Volume 4), April (Issue 2)
 



Q&A with Claus Heinrich, Executive Board Member, SAP AG

Q. Most SAP Insider subscribers are employed by companies listed on the stock exchange. In the wake of the recent, highly publicized accounting scandals and the laws set in place to shore up investor confidence, their CEOs and CFOs now have to affix their signatures to financial reports, and their companies will have to disclose those quarterly and yearly reports a lot faster than they have in the past. How would SAP, in its role as an advisor to so many of these companies, suggest our readers prepare themselves to support these market mandates?

Executives will want to exercise relentless scrutiny over the figures they are attesting to, so you need to achieve greater transparency and control of your financial systems. With regard to hastening the processes by which you close the books, you will find that your SAP systems offer you ample opportunity to do this.

Note that achieving a fast close isn’t just about complying with emerging market regulations. It’s good business. In this economic climate, you can’t afford to have a problem go undetected for the entire duration of a lengthy closing period.

And don’t stop there. Once you have applied the right technology and processes, leverage that increased transparency to deliver more timely, accurate financial data to the investment community. In so doing, you demonstrate that you adhere to “trusted accounting” principles. Reports indicate that fund managers are willing to pay as much as 20% more for firms that do this.1

Q. Aren’t greater speed and increased accuracy two reporting goals that are at odds with one another?

Timeliness and greater accuracy need not, and should not, be competing goals. They are, in fact, inextricably linked. Think about it. What stands in the way of a fast closing of the books? Poor quality of figures, multi-layered reporting structures, differences in accounting principles across subsidiaries, insufficient checks and balances, and so forth. Solve these problems and you also improve the accuracy and transparency of your reporting.

Q. Why is transparency across a financial landscape so inherently difficult?

Most companies have complex and constantly changing organizational structures. The very nature of these structures gives rise to the types of obstacles I just cited. Add to that the different types of systems that are typically in place, and the result is massive intransparency. This is why, in designing our solutions, we start with the assumption that organizational change is ever-present and that a financial system must be able to integrate with new systems and allow for clear views across a constantly changing landscape.

Q. What toll does intransparency have on audit processes?

Lack of transparency across financial systems makes for complicated, error-prone audit processes. Working with literally thousands and thousands of financial teams, we are continually asked to advise them on ways to achieve better internal and external audit practices with their SAP systems. We tell them to start by wielding the SAP tools they’ve got — DART (DAta Retention Tool), AIS (Audit Information System), and so forth. They’re free for our customers, and they are proving to be extremely effective.

Q. Can customers leverage the fast close for more than just transparency or legal reporting?

Absolutely. We advise them to leverage the expedited flow of information across planning, monitoring, forecasting, and budgeting activities. SAP is unique in this regard, much further ahead than any others in the field of enterprise performance management and financial analytics. Take planning, for example. The financial planning process typically utilizes a set of methods for research, forecasting, target setting, and budgeting. Your SAP systems now help you to do quite a bit of this. Financial planning in CO offers you cost center planning, internal order/project planning, profit center planning, and profitability planning. Based on the Business Information Warehouse (BW), SEM takes this to a whole new realm, with support for planning as a company-wide phenomenon, a single planning environment for different planning sections, and unprecedented data modeling, analysis, and simulation capabilities.

When referring to these business intelligence offerings, Gartner says, “Despite the economic downturn, SAP has managed to outperform all the other BI platform vendors and become the largest BI platform provider in the market.”2 And it’s true. The extent of our analytics, particularly financial analytics, is daunting. SAP financials are regarded as the most reliable, and our analytic solutions are as well.

Q. Does the notion of achieving greater speed or transparency apply to a financial supply chain? While it may lack the sophistication of their supply chain, our readers all have a financial supply chain of sorts. How would you suggest they optimize the activities that take place there, and what is the payoff?

The key is reducing unnecessarily complex or cumbersome practices and, above all, reducing working capital. You wouldn’t tolerate egregious inefficiencies in your supply chain, and yet many accept them in the financial supply chain that mirrors the supply chain. When you optimize inventory levels, what happens? You save money. When you reduce working capital, integrate accounts payable and accounts receivable activities, aggregate activities across your subsidiaries, or establish your own internal house cash system, you do the same thing. You can do all of these today with your SAP systems.

Let me end this comment with a quick, eye-opening example. A British financial services institution recently came to us with a problem they had regarding cash-in-transit. Cash that was sent between subsidiaries for routine clearing was estimated to amount to £10 million on average. With the use of SAP, this customer was not only able to eliminate much of this cash-in-transit, it was also able to close down some clearing centers.

mySAP Financials Overview

 mySAP Financials Encompasses Three Pillars of Finance

Q: With CEOs and CFOs in the hot seat, and the financial landscapes they preside over clearly in need of optimization, how, specifically, can mySAP Financials help?

The hot seat metaphor is an apt one, so I’d like to continue with this concept. The idea is to take these executives out of the hot seat and put them in the driver’s seat. CEOs and CFOs need to do more than just maximize revenues and lower costs. They need the ability to detect and react to problems, monitor performance, guide critical business decisions, and exercise sound decision making. This requires a pervasive degree of control and visibility across your financials systems. To rely solely on your accounting system for these things would be akin to looking in the rearview mirror as you attempt to drive forward. That’s why mySAP Financials encompasses three, not one, pillars of finance — accounting, strategic enterprise management, and financial supply chain management — because in addition to accounting, CEOs and CFOs need optimization and predictive capabilities, too.

So I strongly encourage SAP customers to talk to us and understand how SAP solutions such as FSCM and SEM can bolster their current financial landscape. I don’t think finance functions can remain mired in existing practices. Finance is in the spotlight (or hot seat!), and that’s a phenomenon that is not going away. You need to improve the efficiency with which your finance processes operate and the degree of control that management can exercise over them, because finance is inevitably the backbone of your company’s operations.


1 According to PwC partners Bernd Saitz and Joachim Wolbert. For more on trusted accounting and fast close, see the article “How Timely, Trusted Reporting Can Drive Your Company’s Value” in this issue of SAP Insider (www.SAPinsider.com).

2 Gartner Dataquest, “Business Intelligence: Software Titans Upset the Market,” 15 August 2002.

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