managing financial technology through times of change

Managing Financial Technology Through Times of Change

Graham Hulme

Director of Product Management, SOFTRAX

Ken Riley

VP of Finance, State Street

© 2014 Proformative

Agenda

• How Business Factors Drive Change

• Times of Change: What are the Options?

• ERP Augmentation: A New Way

• Case Study: ERP Augmentation at State Street

2


How Business Factors Cause Change

Enterprise Solutions are Critical for Modern Companies

• Enterprise resource planning (ERP) systems are information systems encompassing all aspects of business

• Implemented at over 70% of Fortune 1000 companies and 84% of midsize companies (Aberdeen Group 2012)

3



Enterprise Systems Face Continuous Challenges

• Business Drivers of Change

• New business models

• New regulatory requirements

• Merger & acquisition activity

• Company changes: new products, new management, etc.

4



New Business Models

• Example: Shift to a subscription-based economy• Moves transactions from a one-time

to recurring basis

• Allows flexibility in product & service offerings

• This flexible model can create accounting complexity

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6


Changing Regulatory Requirements

• FASB/IASB Standards Convergence

• US GAAP revenue recognition requirements differ from International Financial Reporting Standards (IFRS) – current focus on unifying standards

(www.fasb.org)



Merger and Acquisition Activity

• Mergers and Acquisitions can introduce fundamental changes to all parties included in the transaction.

• What do these changes mean?

7



Challenges of Outdated and Disparate ERP Systems

• Typical ERP is updated every 2 years and 4 to 5 times in its lifecycle

• 50% of ERP customers use systems two versions out of date

• Significant number of companies use multiple ERP systems or a custom solution developed in-house

(Aberdeen Group / Forrester Research)

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• Live With It

• Rip & Replace

• ERP Augmentation

9

Times of Change: What are the Options?

Live With It, Rip and Replace, or Augment


10

Weigh the Advantages Weigh the Disadvantages


Going to Spreadsheets May Be an Easy Fix…


• Spreadsheets and other manual workarounds also incur real labor and opportunity costs

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…But Creates a Range of New Vulnerabilities


12

Microsoft Office Excel Worksheet




Microsoft Office Excel Chart

Contracts

Terms

Backlog

Milestones RevenueRecognition

History

DeferredRevenue

Unbilled


Services

Microsoft Word Document


Approvals


ProcessDocumentation



Microsoft Office Excel Worksheet Microsoft Office

Excel Worksheet

FMV/ VSOEPricebook





Revenue AllocationFMV/ VSOE

Revenue treatment memo


Compliance Documentation


AuditDocumentation

Revenue Forecast

Revenue Process Definition

Revenue Analysis


JournalEntries


Billing





Microsoft Office Excel Chart

Contracts

Terms

Backlog

Milestones RevenueRecognition

History

DeferredRevenue

Unbilled


Services



Approvals


ProcessDocumentation



Microsoft Office Excel Worksheet Microsoft Office

Excel Worksheet

FMV/ VSOEPricebook





Revenue AllocationFMV/ VSOE

Revenue treatment memo


Compliance Documentation


AuditDocumentation

Revenue Forecast

Revenue Process Definition

Revenue Analysis


JournalEntries


Billing


View of a Spreadsheet-Driven Process


• Until recently, 40% to 60% of software in an ERP system was custom-coded for that installation

• Only 11% of organizations implement ERP without customization

• Relieves the symptoms but does not cure the fundamental issues

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37%

31%

12%

5%4%

11%

Minor (1 - 10% of Code)

Modest (11 - 25%)

Significant (26 - 50%)

Extreme (50+% of Code)

Completely Custom

No Modification

SOURCE: Panorama Consulting (2013)


Customizing for Near-Term Relief…But at What Price?


14


”Rip and Replace” Considerations

• Will it solve the problem?

• Do you want to start over?

• Will you lose anything?


• 61% of implementations took longer than expected

• 53% of projects suffered cost overruns

• 60% of companies received less than half the expected benefits from their new system

(Panorama Consulting 2013)

15


The End Results of Rip and Replace


• What is ERP augmentation?

• Keep existing ERP leveraging its strengths

• Take a seat at the table: fill gaps with modular best-in-class solution

• Modular applications that work in conjunction with existing ERP to solve

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ERP Augmentation: A New Way

Modular Solutions to Fill Functionality Gaps


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• Retain the Value of Existing Systems

• Continue leveraging what works in existing systems to protect your investment to avoid disruption, risk, cost

• Enhance the Overall Value of Existing Systems

• ERP augmentation solutions work side-by-side with existing systems delivering targeted resolutions

• Minimize the need for customization, maximize use of productized functionality

ERP Augmentation: A New Way

Significant Value Points

ERP Augmentation at Princeton Financial Solutions / State Street BankKen Riley

VP of Finance, State Street Bank

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Agenda

• About Ken and State Street

• Project Background: Systems and Pain Points

• Making the Decision

• Preparing for the Implementation

• Implementation Status and Next Steps

• Takeaways

19


About Ken

• “Big 8” audit experience• Exposed to wide range of industries

• Fascinated by small technology companies

• 25 years in technology – primarily software industry• Private & public companies

• Controller / CFO roles

• 4 years as CFO of State Street’s software division

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http://www.linkedin.com/company/1073?trk=prof-exp-company-name

http://www.snapclose.com/

http://www.linkedin.com/company/145050?trk=prof-exp-company-name


About State Street Corporation

• Top 10 US bank

• #2 US custody bank

• $10B in annual revenue; 30,000 employees globally

• State Street Software Solutions• Part of State Street Global Exchange

• Consists of three companies:• Princeton Financial Systems

• State Street Portfolio Solutions

• Allocare

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The Bigger Picture: Princeton Financial Systems

• Acquired by STT in 1996

• Operated independently of STT

• Growth pre-financial crisis

• Finance teams in Princeton, NJ and Frankfurt, Germany

• Historically disconnected infrastructure – no ERP• Lead tracking (Onyx & Excel)

• Contract management/billing (CMS, HS, Projectile)

• Customer support (Onyx)

• Project management (Projectile, Bugzilla)

• Operations now coalescing around single platform (SalesForce)

22


The Contract Management and Billing System

• Built on old technology (Access 97)

• Developed in-house by staff who:• Lacked an understanding of software revenue recognition rules

• Were no longer with PFS at the time of the changeover

• Serious issues uncovered by 2009 audit• Failure to implement SOP 97-2, leading to:

• US$5M revenue adjustment

23


Our Pain Points

• Lack of technical expertise in:• Software accounting standards

• CMS design and maintenance

• GAAP compliance issues discovered by audit

• Unsustainable accounting processes• Manual spreadsheet manipulation

• Manual journal entries (JEs)

• Lack of integration with STT and PFS systems

• Disparate practices and reporting platforms• 2 finance teams, 3 billing /revenue systems

24


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Advantages of a Custom Solution

• Flexibility – build vs. buy

• Design focus to address specific pain points

Risks

• Iterative cycle requires time and money – design, develop, test, evaluate

• Problems with ongoing maintenance and support• Concentration of knowledge

• Version stagnation

• Cautionary tale: Base Ten

Making the Decision: Custom or Off-the-Shelf?


Our Project Objectives

• Reach GAAP compliance

• Create processing efficiencies• Scalability: automate JE calculations

• System integration: STT accounting systems, PFS’ CRM platform / project management tool

• Automate commissioning processing

• Create a single billing platform• Improved reporting – one version of the “truth”

• Risk mitigation through cross-training

26


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The Criteria

• Quality

• Service Capacity/Domain Expertise

• Compatibility with Key Systems

• Pricing

• Financial Stability

• Commitment

• Contract

The Evaluation Team

• Finance

• Project Manager

• IT

• Sales & Marketing

• Customer Services

• STT Corporate Accounting Platforms

RPF and Vendor Analysis


Preparing for the Implementation

• 1. Identify and prioritize functions• Billing

• Revenue recognition

• Contract management

• License Key Generation

• Commissions

• Time Tracking

• 2. Synthesize processes between US, German teams• Contract process and setup:

• Terminology, data fields, SKUs & other codes

• Workflow – review and approvals

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Challenges Facing Implementation

• Regional differences• Contractual terms impact revenue

recognition

• Language on invoices

• Sales tax vs. value added tax (VAT)

• License key generation process

• System integration• New requirement added – integration with

auto-reconciliation tool

29


Current Implementation Status

• Phase 1: Go-Live• Achieved in November 2013

• GAAP compliance

• Enhanced revenue recognition subject matter expertise

• Automation of JE generation

• Integration with Oracle & auto reconciliation system

• Replacement of 2 systems

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Next Steps

• Phase 2 – Q1 2014• Partial integration with SalesForce

• Replication of license key generation process

• New functionality development: security, audit tracking

• Phase 3 – Q4 2014• Full integration with SalesForce

• Future Phases• Integration with project management system

• Automation of commission processing

• Allocare & any future acquisitions

31


Key Lessons and Takeaways

• Changes in project scope are inevitable• Post-contract requirements added by STT Corporate

Accounting Systems

• PFS project management tool replacement postponed

• Success means devoting sufficient resources• Remember that project management is a full-time job

• Accounting staff supplemented by temp resources

• Customers and vendors are partners in the process

32

© 2014 Proformative33

Learn More About ERP Augmentation at 11:30 AM

Revenue Manager

Revenue Allocation

Revenue Scheduling

Revenue Recognition

CORE ERPOrder Management Billing Fulfillment General Ledger

Billing Data Usage Data

Fair Value Determination

Signals to Relieve Revenue

VSOE/TPE/BESPPrice Books

JE Generation

Journal EntriesSales Orders


34

Q&A


Contact Information

35

Ken Riley

Vice President

State Street Corporation

p 609-580-5970

[email protected]

Graham Hulme

Director of Product Management

SOFTRAX, Inc.

p 972-715-4041

[email protected]

Managing Financial Technology Through Times of Change

Thank You For Attending

managing financial technology through times of change

Business

business factors

change times of change

aspects of business

multiple erp systems

erp customers

erp augmentation9

new management

new products