Empowering with eFinance

The concept of eFinance has been around for a few years now - a web driven, automated finance function where all but the tasks requiring human and accounting judgement are carried out by accountants. This writeup looks at some of the conceptual issues around eFinance.
Empowering finance with eFinance
By Mukul Pareek


There is hardly an aspect of business that the internet has not touched - life has irreversibly been transformed for all businesses who have seen this new medium change everything that they thought they knew all about. Products, means of delivery, channels, alliances, customers, suppliers, revenue sources, competitors- the entire business landscape has been transformed at an amazing speed in the past few years. True, we have seen a lot of hype, but it is equally true that there is hardly any business left without the internet occupying a significant place in its strategy - it is either eBusiness or no business at all.

Looking however at financial reporting and accounting, you may have to strain your eyesight to see any changes brought about by the web. Agreed, nearly all finance staff now surf the web, they even have their own website on the corporate intranet - but it hasn’t really changed anything fundamentally in their work. In the large majority of all organisations, beancounting still remains a largely manual activity no different in substance from what it was a decade ago. However big changes are just round the corner and these have the potential to pull the rug from under those engaged in traditional accounting chores. Much of this has already happened in bits and pieces, though not everything has been tied up together yet. This article considers my take on the following: what does eFinance mean, what does it change, what technologies does it use, and how does it fit in with what exists today.


What is eFinance?

As an extreme simplification, eFinance is about web-enabling everything that the finance function does - staff expense claims, sales orders, invoice payments, financial information - all available using web technology. However, if its true benefits are to be realised, eFinance goes much beyond just putting a web front end to everything. It is about changing fundamentally the value proposition of the finance function by redefining its core activities, changing the interaction mechanism between itself and its prime customers, and moving it up the value chain by creating and assisting others in the organisation to create better value for shareholders. Enabling technology plays a key part in making the transition to eFinance, and as we shall see later, it is THE means to the end.

An eFinance transformation sees finance change its role from transaction processing to true business partnering, with far reaching implications on interactivity with external customers, suppliers and also others within the organisation.


What does eFinance change?

Consider a ‘traditional’ finance department in a typical large company- the ERP system has finally been implemented after a lot of pain (and sometimes with dubious benefits), there are still some legacy systems in operation, transaction processing is still largely paper based and a key part of the total finance activity, ‘others’ come to the relevant person in the department with their information requests (or problems) which are ‘appropriately’ dealt with. One key thing that eFinance does is to replace the bulk of transaction processing with straight through web enabled e-processes without the need for manual intervention. The other key aspect of e-enabling the finance processes is to build in key financial controls into the systems that support these processes. The result is a finance function where transaction processing is minimal, the originators of financial information record the information at source (eg expense claims), and information is pervasive- ie, available in real time to those who need it. Fair enough, you might say, it is all about operational efficiency and is hardly strategic. Yes, eFinance has the potential to bring about remarkable short term efficiencies, but its true significance lies in the fact that it allows finance to move away from its traditional beancounting and control oriented role to being more of a strategic business partner that helps conceive, design and realise the systems and processes in the brave new world of eBusiness.


eFinance: the technology

The internet has spawned many business models perhaps the most important of which is B2B ecommerce that allows businesses to interact directly with one another over the net. The impact of this on finance has been that it is now possible, for example, to receive electronic orders through a B2B portal or an infomediary and use these to drive order fulfilment processes within the organisation’s internal systems. Or on the other end of the cash to cash cycle, corporates are effectively using eProcurement to drive corporate purchases. Other similar technologies can significantly reduce transaction processing, or eliminate it altogether. These technologies are now maturing and finding a place in most mainstream organisations.

Considering the conventional view of the corporate value chain, where inputs are converted into value added outputs, each component that affects corporate finance has an “e” alternative available with today’s technology. The distinguishing feature of these pieces of technology is a web driven interface, which completely changes the reach and usage of these applications while greatly reducing interaction costs.

eProcurement for example, now a standard offering from most ERP vendors, enables more efficient buying which often bypasses the traditional buying or purchasing department. In this situation, the purchasing department is stripped of its paper pushing role acquires the more critical role of strategic negotiations with key suppliers and managing for least cost the suppliers for commoditised supplies. The user would have a procurement site where he can select and order the supplies he requires from the company’s suppliers. The software engine in the background would take care of approvals, clubbing purchases into economic order quantities, and making sure that only permitted suppliers are used. Using XML or the services of specialised content aggregators (eg Requisite), the internal online catalogue would always be up-to-date, and orders would pass straight through to the suppliers’ online order fulfilment system without manual intervention. The person initiating the purchase would be able to view the status of his order, its confirmation and promised delivery dates- all online without any manual steps required. The reduction in the data entry effort alone is so tremendous that it can raise the profile of the purchasing function to a much more strategic level. Extending the sequence of events further, an electronic invoice received through the corporate extranet would find its way to the Payables system, be matched automatically to the requisition and the purchase order, be routed by workflow to the right manager and be paid electronically using an EFT program. All of this technology and the software to make this happen exists today and is viewed by large software vendors as the next big thing after ERP.

Workflow, another key technology making a big difference by tying in all varied pieces of software according to the business process runs with a web front end to monitor the progress of transactions or events. Combined with groupware and email software, workflow delivers a powerful punch by freeing up finance energies from tracking lost documents or chasing up managers with scant regard for finance procedures.

Companies such as Dell and DHL have effectively utilised the web to be an integral part of their order fulfilment cycle. Orders can be viewed online and their progress monitored. Many other companies falling within the ‘bricks and mortar’ domain are using the web to effectively reduce mundane jobs in the finance and business administration function by helping customers help themselves. Cash collected in the bank can be fed straight into the system using ubiquitous lockbox technology, which does the receipt to invoice matching itself. Of course, this requires the right technology and software to be in place and vendors such as Oracle offer these possibilities in the newest releases of their software.

Self service web applications allow employees to enter expense claims, leave requests, changes to their personal information, timesheets etc on the web, relieving the finance and administration function of large amounts of data entry. This is not equivalent to merely shifting the burden of one department to others in the same company- because the originators of the transactional event would have in any case communicated- whether by paper or email, this information to the finance function who would have then entered it in the system. Not only does this reduce humdrum transaction entry effort, it also has an empowering effect on the staff who no longer feel being at the mercy of the finance department. Oracle Corporation uses self service to allow their consultants to choose from a “menu” of benefits, so staff depending upon their personal situation and preference can choose certain benefits over others and can change these when their circumstances change. The benefits are enormous, and changes this culture brings about are fundamental.

A web-enabled CRM solution allows anyone in the company to access customer information - so when a credit controller calls a customer, he is aware of the problems that the field engineers have been tackling for this client. Similarly, the sales executives know exactly what the customer has brought and paid, and what call information was recorded by the helpdesk for this customer. Combined with a tight integration with the order entry, billing and receivables systems which are part of finance, CRM can be a very effective tool in the web enabled enterprise. However, this doesn’t stop here, customers and suppliers can access their accounts using web enabled back office systems over the internet or an extranet. They can even enter more orders, or modify existing ones themselves without any clerical assistance from finance.



Fig 1

Figure 1 above demonstrates how eFinance uses a transactional ERP database as its backbone with integrated processes and controls running through as common strands in the various components of eFinance. The good thing is that all these systems work best together in an integrated system picking the right pieces of information from the right place and presenting to the information consumer in a business intelligent way.

Personal intranet portals, which employees can customise to see information relevant to themselves, can pick up an present information from a variety of different sources. A ‘home page’ for a sales executive may include last week’s sales, alerts for complaints logged by his key customers, a link where he can enter his expenses, the company’s share price, days of sales outstanding from his customers compared to the average and so on. Different audiences can have their own customised information portals on the corporate intranet unleashing a revolution that will sweep not only through the finance function, but also through the whole organisation.


What does it mean for finance?

Clearly, the traditional finance roles that focused around bookkeeping and internal controls are not going to sustain for much longer in the future. With increasing automation and falling importance of these day to day activities, finance will be expected to use their financial skills to offer greater insights into the business. There is a need for finance professionals to not only embrace this imminent change, but also to actively help make it happen. Finance has a key role to play in the design and implementation of the systems and processes that will enable this transformation. The business wisdom that is required to execute this transformation exists within most finance functions from their knowledge of the business and its processes, and it is upto CFOs to tap into this knowledge base to lead change from the front. Organisations where finance rises to this new challenge will be able to use a forward looking and leaner finance function which is not seen as a drain on shareholder value.