So, Are Accounting Systems Non-Differentiating?

Do you ever wonder which IT investments really drive competitiveness or comparative advantage for your firm and which are there simply to support mundane processes that are identical to those of all your competitors? Do you ever wonder if it might make sense to standardize on "best practices" for non-differentiating processes and supporting application implementation?

Received wisdom is that accounting processes are not differentiating and so it makes the most sense to support them with packaged apps or maybe with software-as-a-service solutions. Larger firms often implement shared services for financial management across all their business units or even outsource altogether apparently dull processes such as invoice settlement or collections.

But does that really stand up to scrutiny?

One retailer, with which Forrester worked, confessed to having 17 definitions of margin depending on which types of supplier rebates and volume discounts were included. We asked how they calculate markdown and they grinned.

The more I thought about it, the more this fact disturbed me. In some types of specialty retail, inspired opportunity buying is the key to competing with the bulk buying muscle and supply chain scale economies of global discount retail chains.

Many retailers import merchandise and have to calculate "landed cost" based on customs and freight invoices that arrive long after the goods in question have been sold. What price weighted average actual cost accounting, or margin calculation, in such a scenario?

Where is the scope for creative dealmaking in standardized accounting applications that deliver lowest common denominator functionality across verticals as diverse as local government, with its focus on fund or commitment accounting,  engineer to order manufacturing with a focus on multi-period project costs and retail with a focus on margin measurement and management?

And even in supply chain apparently standard functionality varies widely by vertical and sub-vertical. For example, in retail, reorder quantities might be bounded by open-to-buy, or other working capital controls, or by merchandise shelf life considerations, store space or transportation capacity.

To be sure well-established packages offer some serendipitous cross-fertilization opportunities, perhaps adapting local authority fund accounting to the "open-to-buy" requirements of seasonal retail. But, the question still remains how much detail must you consider before labeling a capability (however mundane) as "non- differentiating" and declaring lowest cost of ownership as the sole criterion for choosing its supporting apps?

If you have a point of view I would love to hear from you.

Comments

You're on to someting

George -

When I read this, I was listening from an IT Financial management perspective. i.e. What does the App (or more accurately, the Service) really cost? Should it be measured as a fixed or variable cost? How much overhead is factored-in? How is showback handled? How should infrastructure (depreciation) be factored?

Seems like the costing/pricing of IT-delivered services is facing many of the same questions that commercially-delivered services are facing. Pretty relevant now that IT orgs are beginning to think of themselves as "Internal SPs".

~ KO