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Reengineer your accounting, the IBM way.

Information technology has revolutionized the way companies do business. And IBM is not one to let strategic opportunities slip by.

Today, more than ever, businesses need to improve the way they make decisions to become more efficient and effective. Many companies are doing this through a process called reengineering--and information technology is a key component of the process.

In 1979, when IBM reviewed how it used information technology in its accounting function, the company conducted a survey to determine the number of separate accounting systems that supported the function worldwide. The survey focused on these applications: general ledger; fixed assets; intracompany, or U.S., transactions; intercompany, or worldwide, transactions; accounts receivable; and accounts payable. IBM discovered it used 315 separate systems worldwide to support these six basic accounting functions.

At the same time, IBM executives realized the existing systems had several major problems. First, the systems weren't able to respond quickly to the company's changing information requirements. Second, they couldn't consolidate financial information efficiently. And, third, the redundancy in the systems made developing and maintaining them expensive.

To solve these problems, the company--guided by the CFO and the controller, supported by the CEO, and lead by the accounting organization--decided to develop a global set of common accounting systems. The "common systems" approach was to consolidate and standardize the hundreds of different systems into a limited set of applications for each of the basic accounting functions.

IBM pursued this strategy throughout the 1980s. By the end of 1991, the company had reduced the number of systems from 315 to 36. (See the chart below for a breakdown.) Equally impressive, however, are IBM's savings. The company reduced the number of employees required worldwide to support these activities by approximately 20 percent, while increasing worldwide revenue by 300 percent. And the internal rate of return on the investment in common systems exceeds 19 percent worldwide.

But IBM wasn't satisfied. Although the company was tremendously successful solving the earlier problems, the common systems still weren't flexible enough and didn't provide two functions IBM needed: Company executives wanted to be able to use the systems to reengineer enterprise processes so they could continually improve the way IBM delivers goods and services, and they wanted to implement enterprisewide decision-making, essential to competing in today's business environment.


To meet the company's needs, IBM decided to first look at its accounting processes, since many traditional accounting methods have flaws, regardless of the technology the company employs.

From an enterprisewide perspective, traditional accounting has eight fundamental weaknesses. The first four, identified by Bill McCarthy of Michigan State University, deal with the way business data is organized and stored. The last four deal with the way data is recorded, maintained, and reported. Here's a summary of the eight weaknesses.

* Useful integration of financial and nonfinancial information across the organization is limited, if not impossible.

* Stored information is limited to financial measurements.

* The chart of accounts classification scheme is not always appropriate or supportive.

* The aggregation level of stored information is too high, which limits alternative views of the data.

* Recording, maintaining, and reporting information processes seriously limit the system's ability to provide timely information to decision-makers.

* Traditional processing methods tend to institutionalize antiquated, inefficient, and ineffective business processes.

* Implementing and maintaining internal controls is costly, ineffective, and not performed in a timely manner.

* Antiquated processing and storage methods are costly to maintain and operate.

But these traditional weaknesses can be corrected. IBM now applies five solution concepts to guide the company's new financial processes. The concepts combine to create an enterprise information solution that's characterized by business event data passing through a single recording process and being stored in information warehouses available to any business information customer.

These are the five solution concepts IBM uses:

1. Reengineering Business and Information Processes--Reengineering involves eliminating unnecessary processes, doing essential processes more efficiently and effectively, or developing new business and information processes that increase an organization's value. Reengineering is not a one-time effort that results in a company's optimal operation. It's a process of continual improvement, adapting to changing business requirements.

2. Developing Event-Driven Solutions --Having an "events" orientation means you identify key business events, both economic and noneconomic, that drive the business. Business events are fundamental business activities that management wants to plan, control, and evaluate.

In contrast to most accounting systems, which are transaction-driven and record only financial information and only on a limited basis, event-driven solutions are business process-driven and incorporate both financial and nonfinancial information. The events approach allows for modular solutions that support today's business activities and provide flexibility for changing requirements.

3. Integrating Processes--Process integration focuses on dovetailing the functional requirements of the three essential information processes: recording, maintaining, and reporting business information. It also means incorporating the use of information technology in the business process so that business event data is recorded, maintained, and used as the event occurs.

4. Integrating Data--A key to reengineering is developing solutions that support continual improvement. Data integration is the foundation of this concept. It focuses on combining all relevant data, financial and nonfinancial, about business events to define the business information warehouse. The result is the complete integration of enterprise information, in contrast to today's functional solutions, which often have information gaps and overlaps. The business information warehouse then provides all the information required in the decision-making process.

5. Realigning Information Systems Ownership--To fully realize the first four solution concepts, a company must redefine the responsibility for and ownership of key elements of the information solution. Here's how to divide ownership in the firm:

* The company as a whole assumes ownership of the data resource and accepts responsibility for developing an integrated enterprise data model. The company also specifies the types of data to record and maintain about each event. Finally, the company provides information customers with the tools to retrieve useful information from the business information warehouse.

* Business event owners are responsible for recording all relevant data about each business event and implementing necessary controls. Ideally, business event data is recorded during the execution of the event.

* Each information customer is responsible for identifying and fulfilling his or her own information needs. The company assists information customers by providing them with tools for both standard and ad hoc queries and with training.


Leveraging these solution concepts across the enterprise gives companies a powerful opportunity to gain competitive advantage. They can optimize their overhead, cost, and resources, and they can make essential information available for decision-making. The CFO and controller are critical to making this happen.

For example, IBM applied the five solution concepts to its process for paying employees. The company reengineered into one process four fund-disbursement processes--payroll, travel expense accounting, miscellaneous expense reimbursement, and time and attendance recording--and called the system the National Employee Disbursement Strategy, or NEDS.

Unlike the paper-driven, labor-intensive process of the past, NEDS combines process reengineering and information technology for higher efficiency and effectiveness. (See the figure to the left.) Now, all business events that require reimbursement are considered claims. An employee submits the data required to satisfy a claim, management approves the claim, and the system accounts for it and then pays the employee electronically.

This strategy proves the five solution concepts are indeed valuable. You can measure the initial results in three main areas: financial return, user satisfaction, and improved decision-making. IBM estimates that, when the project is complete, the company will save more than $300 million over 10 years, the majority of which will come from eliminating clerical jobs and redundant systems. Also, surveys following the initial implementation show that customer satisfaction rates are in the 85-to 90-percent range and cycle time reductions range from 65 to 70 percent. Finally, executives are finding decision-making much easier and more effective.

Today, IBM uses the solution concepts tactically. By establishing business information warehouses that combine financial and nonfinancial data, IBM's accounting organization can respond to fundamental changes in information structure and in measurement systems in half the time and with approximately one-third the resources than it could before. The company increasingly uses the warehouses as the sole source of data to support business analysis. And most of the analysis required of the accounting organization to support business decision-making is now done through ad hoc queries totally controlled by the accounting professional.

What do all these changes mean to IBM's controller?

* The controller becomes a catalyst in business process reengineering by identifying essential business events and applying information technology to optimize their impact on the organization. At the same time, he enhances the business and information processing controls that surround each business event.

* The information horizon of the controller expands greatly. Instead of focusing entirely on financial data, accountants now can provide information customers with a comprehensive, integrated picture of the organization and its operations. This, of course, helps in planning, controlling, and evaluating business events.

* Through these solution concepts, the controller can reduce the accounting workload. For example, a study of the accounting function at IBM showed that 60 percent of the work performed by the accounting staff was clerical in nature--for example, reconciliations, error corrections, and data entry. Eliminating these tasks promises an internal rate of return that will directly impact the bottom line of the enterprise.

What's more, when controllers include both financial and nonfinancial information in the business information warehouses, they have the opportunity to assume a more influential role in the enterprise. They're in a unique position to drive the underlying changes that are required. And, by leading this change, they not only contribute to the goals of the enterprise, but they establish themselves as the focal point in the decision-making process.


The challenge to financial executives now is in overcoming tradition. Some have already met the technological and social challenges and are adopting reengineering strategies. Others are pursuing the concepts, but are finding stiff resistance to change. Some executives have decided not to change at all.

Resisting change means frustration for financial executives, accountants, information systems professionals, information customers, and the enterprise as a whole. Financial executives and accountants should view these solution concepts as a strategic opportunity to increase their value to the company. Al Pipkin, the controller for Coors Brewing Company, recently described the impact of information technology on the accounting function in this way:

"Modern sophisticated systems are bringing about a total transformation of the controller's staff and a redefinition of the overall financial system. Technology is changing the culture of the controller's organization just as it is impacting the entire business. In the 21st century, there will be fewer accountants on the controller's staff, but they will perform in totally new and exciting ways.

"You can pick up dozens of newspapers and magazines today that proclaim 'the age of no paper is no longer a pipe dream.' The drudgery of shuffling paper and doing routine manipulations of data soon will be gone. From now on, the controller's staff will add value to the business or it won't exist."
COPYRIGHT 1992 Financial Executives International
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1992, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

Article Details
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Title Annotation:Special Report: Information Management
Author:Denna, Eric L.
Publication:Financial Executive
Date:Jul 1, 1992
Previous Article:Investing by imperatives.
Next Article:Living in the past.

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