Best-of-breed Approach to Finance and Accounting

Introduction

CODA Group, a finance and systems specialist headquartered in the United Kingdom, offers financial solutions that help companies grapple with international business issues such as language, currency, and compliance. Designed to be an "upgrade friendly system", CODA applications offer open and standards-based reporting tools. CODA's alliance with Microsoft Corp. has allowed it to deliver a range of financial and management accounting systems, and it has made several strategic acquisitions to further strengthen its position as a compliance solution.

Part Three of the Composing Collaborative Financial Applications, CODA series.

Among its recent endeavors, CODA has recently announced new set of financial planning and budgeting products: CODA s-Planning ("s" standing for "standard") and CODA c-Planning ("c" standing for "collaborative"), as well as a range of improved analysis and reporting tools, which will be detailed shortly. Nevertheless, to date, these corporate performance management (CPM) capabilities have targeted mainly existing customers of the CODA transactional systems. These users have focused on financial analytics, budgeting, and planning, either through Microsoft Excel integration within CODA c-Planning and CODA s-Planning, or through a partnership with Cognos for enterprise-level planning and budgeting. CODA's consolidation capabilities have traditionally been limited to the basic ones inherent in Coda-Financials. While these are adequate for simpler enterprises, the vendor has thus far been unable to successfully compete with offerings from specialists such as Hyperion Solutions, Geac (formerly Comshare), Applix, Longview, Outlooksoft, or Cartesis. Yet, the importance of these functionalities has been witnessed by Cognos' acquisition of Adaytum in 2003 and Business Objects' recent acquisition of the specialist SRC. See Financial Reporting, Planning, and Budgeting as Necessary Pieces of EPM for information on the functionality.

Thus, this merger deal should benefit both parties for many reasons. While Simple Concepts should get access to CODA's well developed global distribution channel and benefit from its financial stability, CODA should fill the financial consolidation gaps in its solution. Immediate cross-selling opportunities into CODA's install base will expand further as CODA translates OCRA into more languages. Not to mention, there are opportunities coming from OCRA's prior integration with SAP, Oracle, and other leading enterprise resource planning (ERP) solutions. The acquisition also gives CODA a base for strengthening its direct sales operation and presence in Scandinavia.

The two recent acquisitions came at the heels of CODA's June 2005 launch of a suite of add-on applications that extends the range of planning and budgeting requirements: CODA s-Planning and CODA c-Planning . These could offer more benefits for CODA-Financials users. The suite includes Version 3 of the much talked about CODA-XL application. CODA-XL allows the fairly simple and secure output, manipulation, display, sharing, and input of CODA-Financials data within Microsoft Excel. s-Planning and c-Planning were seen to enable users to carry out a range of day-to-day tasks, such as producing and sharing statutory reports; processing expenses; or even developing and setting financial budgets using CODA-Financials alongside Excel and the other familiar Microsoft Office tools that most organizations probably already have in place. These new products were meant to make CODA-Financials the launch pad for a quicker and easier budget cycle. By combining the functionality and embedded control of CODA with the familiarity and convenience of Microsoft Excel, CODA s-Planning and CODA c-Planning should streamline the seeding, preparation, manipulation, and production of budgets, based on (or update) the user's CODA-Financials data. Moreover, CODA continues to develop its relationship with Cognos, offering the Cognos Enterprise Planning product where clients have wider enterprise requirements. The vendor also uses a mix of partnership and in-house development to address other CPM elements, such as activity-based costing (ABC), strategic planning and scenario analysis, shareholder value measurement, activity monitoring, information distribution, etc.

In addition to the "standard" budgeting and forecasting facilities provided by CODA s-Planning, users have the option to make their entire cycle more coordinated, efficient, and controlled by opting for the "collaborative" add-on of the CODA c-Planning product. This interfaces with the CODA-Control process management solution, adding a facility to publish budgets as CODA-Control web sites and tasks. This will keep all participants informed and aware of the input needed and when it is required. There are also audit trails and document history to support compliance reporting. CODA c-Planning aims to help organizations set financial budgets and collaboratively develop plans, which both reflect top-down business objectives and assess the need to account for bottom-up creativity and realities. For example, it will give budget managers visibility of process bottlenecks, including vacation and sick days of department managers, information on groups waiting for information from subsidiaries, and vice versa. Conversely, many other peer products focus purely on bringing together and reporting the figures in the system, and not on collaborative processes that are key to collecting and verifying the figures in the first place. The application's aggregation features often make the budgeting and planning process quicker, more dependable, and more predictable, giving financial professionals more time to analyze and consider their overall budget before making decisions crucial to the organization's mid-term plans.

Another analytic module worth mentioning is the CODA Collaborative Scorecard, which helps user organizations link corporate goals through group objectives and individual performance. Designed to be deployed to every desktop in the enterprise, the product supports multiple performance management methodologies. Generally speaking, scorecards assist organizations in monitoring their business performance beyond bottom-line results by tracking both financial and non-financial measures, and then reporting them in a graphical user interface (GUI). A key element is the way they cascade corporate goals through the organization, helping managers to set individual objectives, and then aggregate performance results back up through the company structure, so that management can review the contributions made by individuals and groups. This aligns corporate strategy with the activities of individuals within the organization.

CODA believes that scorecards should be a strategic pillar of any analytic framework, bonding personal accountability to the enterprise's overall performance management. Initial releases of CODA Collaborative Scorecard have complied with commonly used performance management methodologies, such as the European Foundation for Quality Management (EFQM) balanced scorecard, Six Sigma, etc. to provide a relatively functional and flexible method of managing and aligning enterprise, group, business unit, and personal objectives. However, one should note that, although scorecards should be the fundamental link between personal performance and the overall objectives of the enterprise, they are frequently the weak link in the CPM closed-loop cycle, either because they are too difficult to deploy widely in the organization, or because they have fixed, inflexible methodology (see Why Most Balanced Scorecards are Subverted).

Related to the above line of products is CODA Analytic Explorer, which is a business intelligence (BI) tool that allows CODA users to carry out multidimensional browsing across CODA-Mart and any other relational data source. It is a generic, on-line browsing tool with both two-dimensional and multidimensional browsing capabilities built in, and has a separately licensable cube builder that provides extra performance. As finance departments struggle to add value to their businesses, performance management enables them to deliver better decisions more efficiently. However, CPM is not about static plans that sit on the shelf and get dusted off at board meetings, but rather about continuously adjusting to the range of inputs that the business is constantly receiving. To that end, CODA Analytic Explorer provides the ability to investigate exceptions and trends quickly and easily, so that corrective actions can be taken, and forecasts and plans reviewed.

CODA-XL is now in its third release. It provides a two-way bridge between Excel, which is indisputably the most popular spreadsheet, and CODA's enterprise-level financial and CPM products. CODA-XL was launched in 2003 and brings the familiarity of the Excel interface to CODA-Financials. It should provide customers with several benefits, such as reduced training for end users of CODA-Financials during implementation. Other benefits typically include the elimination of transcription errors and file-handling overheads during the transfer of data between CODA-Financials and Excel. Thus, it may prevent the proverbial "islands of information," where local systems containing great value and insight are locked on individuals' desktops and personal computers and cannot be shared across the organization. However, unlike some similar products from competitors, CODA-XL goes beyond exploiting the familiarity of the user interface (UI) and makes use of the success that Excel enjoys as an informal business modeling and planning tool. It provides "What If?" scenario testing with the option of writing back from the spreadsheet to CODA-Financials. For example, the CODA Security Model is fully embedded within CODA-XL, thus ensuring consistent data security. This means that while add-ins to Excel deliver rich CODA functionality accessed directly from the Microsoft Office desktop, they must respect the same CODA security, validation, and business rules. For example, Excel formulas referencing live account balances are stored directly in CODA Database, with all necessary authorizations for users appearing down to the spreadsheet cell level. For more on the advantages and the inherent risks of Excel-based tools, see Vendors Harness Excel (and Office) to Win the Lower-end of Business Intelligence Market.

Within CODA e-Finance (a Web-based version of the product), all reports validated and cross-checked on-line to validate, to eliminate separate, unsecured reporting tables. "Lights out" scheduling and Web document publishing also eliminate manual intervention. In addition, the data manipulation capabilities of Excel mean that management accountants can build and model scenarios that can be tested against real data relatively quickly, which can be very useful for creditor and debtor management, customer profitability analysis, and ad hoc queries. Furthermore, US Security and Exchange Commission (SEC) submissions can be made through Microsoft Word documents with embedded "live" Excel documents that do not have cut and paste, export, and manipulation functions, which can introduce the potential for errors. Non-programmatic, wizard-driven automation of data entry with real time validation direct from Excel (transactions, allocations, masters, budgets, and forecasts) also eliminates open database connectivity (ODBC), direct structured query language (SQL) updates, relational database management systems (RDMBS) logons, etc., which are also points of risk.

Last but not least along collaboration lines, CODA Collaborative Close is yet another application built using Microsoft Office technologies, one that is designed to help organizations close their books more quickly, more dependably, and more predictably, giving financial professionals more time to analyze and consider data before making crucial decisions. The product was designed to recognize and support the neglected collaborative processes that underpin period close. Other products in this area focus merely on consolidating and reporting the finance figures, but not on collaborative processes that are key to collecting and verifying the figures in the first place. Unfortunately, verification is traditionally carried out manually, which can be time-consuming and makes the process hard to track and improve.

Period-end reporting has always been a challenge for all accounting departments, and this challenge grows when an organization is distributed. The cost of an extended period close in human resources is considerable, since each extra elapsed day can cost a finance department many days of labor. Period-end closing is a collaborative process of questions and answers, of confirming detailed information, and of individuals collaborating to arrive at the answer and generate a picture of numbers about the organization's current financial situation. Every organization in the world has to address this, and they all have different processes; often, financial processes across corporations vary due to merger and acquisition activity, which has absorbed different groups using different business models. This adds complexity to the task of gathering information to close the financial period, and makes it all but impossible to fully automate using conventional systems. Ironically, the aim is to ensure that accountants spend more time adding value to management and performance information, and less time "chasing" data.

The use of technology to render the process less painful, to enable people to collaborate, to progress tasks, and to automate the final postings may be of help in delivering a true, fast closing process to business. Another potential benefit is that CODA's Collaborative Close may uses only information technology (IT) infrastructure and technology that a customer likely already uses. CODA Collaborative Close uses the latest technologies and features from Microsoft Office 2003, Microsoft SharePoint Portal Server, and Microsoft Office Infopath. These, together with task modeling technology from CODA, allow CODA Close to manage approvals, exception reporting, stock reconciliations, aged debt processes, and a string of other potential bottlenecks in the period-end closing process. The application automatically generates a period-end web site through the Microsoft SharePoint Portal Server. Related links then automatically bring up InfoPath forms to gather information from different participants and to drive period-end processes, while the web site dynamically reflects data in the back-office finance system. Real time information sharing between CODA and Microsoft applications is driven through Office Research Panes in Microsoft Excel, Word, and Outlook.

It is a well-known fact that many accountants currently use Microsoft Office tools like Excel in their closing processbut in isolation. Conversely, CODA Collaborative Close integrates these tools with a wide variety of corporate finance systems to bring a unified approach to the problem, with the likely result of improved speed and control over information gathering, allowing more time for analysis and planning. The idea is to help user organizations meet the regulatory demands of the Sarbanes-Oxley Act (SOX), International Accounting Standard (IAS), Basel II, etc., and also to give finance managers more time to analyze their finance figures, and to think about and plan for the near future. CODA Collaborative Close has been designed to work with extensible markup language enabled (XML)-financial applications from vendors such as Microsoft Navision, Microsoft Great Plains, SAP, and Oracle (including PeopleSoft), as well as CODA's own CODA-Financials.

Alliances Help Too

Despite its focused and savvy offerings for financial and accounting departments, CODA has been aware of the limited opportunity scope that can come from targeting only one or two functional departments within any user enterprise (which might likely need a more comprehensive enterprise solution). One way of extending the opportunity has been via partnerships with manufacturing- and distribution-oriented enterprise applications providers that have only adequate financial management capabilities. As a result, CODA recently announced that Cubic Transportation Systems, Inc., a subsidiary of Cubic Corporation (AMEX:CUB), has signed a Solution Provider Agreement to resell CODA e-Finance and CODA-XL. The agreement allows Cubic to integrate CODA's accounting software into Cubic's mass transport ticketing systems.

Cubic's automated fare collection systems enable seamless commuter access to bus, light-rail, mainline rail, underground systems, parking, and other public transport systems, in some of the world's busiest cities including London (UK); New York, New York; Washington, District of Columbia; and Chicago, Illinois (US). With the expansion of its base of regional payment systems and services, Cubic has evolved its back-office central system to support sophisticated financial allocation, clearing and settlement, and accounting capabilities. In its search for a multicurrency, multi-country, multiplatform accounting system, Cubic reportedly realized that it might have had the answer in its own backyard, given that CODA supplies financial software for Cubic's corporate accounting function. After evaluating it against the needs of the mass transport ticketing system, Cubic determined that CODA e-Finance met all of its selection criteria. Consequently, in keeping with Cubic's "best of class" development philosophy, Cubic will integrate CODA's financial software with Cubic's Nextfare Central System, whereby CODA e-Finance will facilitate the cross-billing and reporting necessary to ensure that each operator within a regional fare collection system sees its share of the revenues and costs. Typical systems require only four to twenty concurrent CODA e-Finance users to manage all cross-charging and reporting functions. Cubic has recently implemented CODA e-Finance as part of its ticketing system projects in the cities of San Diego, California (US), and Brisbane, Queensland (Australia).

As for manufacturing, CODA has long had a partnership with Cincom Systems, which has resulted in about eighty joint customers worldwide to date, with about forty in the US (see Cincom Sticks to CONTROL of ETO and MRO). Furthermore, in 2004, CODA recorded its fiftieth joint customer with manufacturing ERP specialist SSI-World, the market leader in UK process industry solutions, with its flagship TROPOS ERP system fully integrated with CODA-Financials. It was ironic that Baan's acquisition of CODA turned out to be merely a "wild goose chase" given Baan's acute need to enhance a very basic financial functionality within its core ERP product. The proper integration of the two products was never consummated, and although CODA had more than 2,000 customers at the time, only a handful were also Baan customers; CODA was subsequently sold by Baan in 2000. Therefore, neither CODA nor many of its customers have been affected by the acquisition of Baan. Moreover, the opportunity to leverage CODA seems to have been irretrievably missed, since Baan's current parent company, SSA Global, recently delivered an equivalent corporate-level financial management product, SSA FM that can span across other SSA Global product lines.

Market Impact

In any case, these recent events and product deliveries should clearly illustrate that CODA has experienced a recovery in its fortunes since being sold by its erstwhile, troubled, and short-lived parent. Since then, CODA has signed a few hundred new customers and has shown a renewed appetite for expansion by opening new offices, through selective acquisitions of related solutions, and by launching complementary products. Science Systems also seems to have been ideally placed to reform the acquired vendor, inject fresh ideas, and reposition it competitively in the world of Internet and compliance. However, CODA did not regain the confidence of users without changing its business model. In particular, inspired by Science Systems' consultancy background, the vendor has since made a greater commitment to services. To that end, the combination of the formerly product-led CODA business and the services-led Science Systems group has broadened their offering to include hosted services and an e-procurement product that integrates fully with the financials product. CODA has thereby also introduced disaster recovery services, and has renewed its commitment to support proprietary platforms such as HP 3000, DEC VAX, and IBM AS/400, to reassure customers that cannot move as quickly as market developments. CODA has also appointed several dozen new global resellers and application service provider (ASP) partners to speed delivery to market, extend worldwide coverage, and multiply indirect sales. Indirect channels are becoming an increasingly important part of the vendor's portfolio.

Challenges

CODA still faces challenges as it must continue to defend its narrow finance specialist and best-of-breed approach against the larger-scale integrated enterprise systems offerings of giant vendors such as SAP, SSA Global, and Oracle. Like others in the highly volatile mid-range financials sector, such as Epicor Software/Scala, Lawson Software (which does not include Intentia, yet), Deltek Systems, Exact Software, Systems Union, Unit4 Agresso, Open Accounting, or QSP, CODA must overcome the pressure for lower pricing, while pouring substantial resources into the continued development of new solutions, its partner network, and the introduction of more efficient support options. This all must be done owing to its limited means when compared to many larger competitors.

For instance, many of the competitors outlined above have significantly greater financial, technical, and marketing resources than CODA, and, since experiencing a deceleration in their core large enterprises business, these companies have refocused their marketing and sales efforts to the upper-middle market where CODA actively markets its products. Consequently, one should expect such competitors to implement increasingly aggressive pricing programs. Moreover, certain competitors, particularly Microsoft, SAP, and Oracle, have well-established relationships with many of CODA's current and prospective customers. Additionally, major accounting and consulting firms may also have an incentive to recommend such competitors over CODA, which will also increase competition. These vendors, which may be weaker in financial, project-oriented, or in other service industries, will influence some customers' purchase decisions by offering more comprehensive horizontal product portfolios, touting superior global presence, brand, and viability, which are still hurdles for CODA to overcome.

However, CODA has been nimble in its marketing. In its traditionally strong regions like the UK, where no financial solution selection goes by without CODA being invited, it offers its full breadth of products. In other markets where CODA has less recognition and presence, the vendor will have to rely on its alliances, or try to gain a foothold via simpler, less expensive, and quicker solutions that solve the market's burning needs, such as the US SOX compliance. CODA has also gained entry into the smaller enterprise market with its acquisition of SquareSum. SquareSum was established in 1998 by former CODA employees and exiles, and based its product on the same "unified accounting" concept as CODA-Financials and both companies share a similar architecture. Consequently, CODA has renamed SquareSum's product CODA Dream. Yet managing the sales channels for the two products has been challenging, given CODA's long focus on direct sales. The vendor will need to further boost and nurture its network of value added resellers (VAR), a community of which it still has relatively nascent experience. Given all of these factors, CODA will be challenged to compete successfully outside of its user base against better-known competitors with broader ERP and CPM offerings. CODA apparently plans to increase its functional footprint, but it has to complete this before the market is conquered by larger, more-established vendors.

Narrow functional scope is both a blessing and a curse. It is a blessing because of its sharp focus, domain expertise, and best-of-breed financial functionality; however, it is a curse because it offers limited scope for expansion. Even peer companies like Deltek, Agresso, and Lawson have a greater functional footprint beyond finance and accounting, at least in the realm of human resources (HR) or project portfolio management (PPM) and related analytics. Certainly, with its slew of solutions, CODA has responded well to the fact that finance departments in all industries and of all sizes are going through a tremendous reformation, driven by what often appear to be conflicting pressures—the demand for systems' standardization and conformance, accountability and performance, and cost reduction and corporate responsibility. Finance departments are increasingly required to operate within tighter business regulations and under greater shareholder and stakeholder scrutiny than ever before, and one key to their success is having applications that work the way they do, evolve as internal and external pressures change, and are implemented and supported by experts that truly understand finance.

Moreover, nowadays, the pressures of competition, economic conditions, and regulatory compliance are mounting, bringing a need for more predictive planning, aptness, and accuracy. In some instances, changes are being imposed upon "finance" departments where it is reinventing itself to deliver efficiency gains internally, or to even drive accountability across other departments through performance management initiatives. Finance departments need to evolve to become contributors and strategic enablers, rather than remain the traditional gatekeepers and scorekeepers for organizations. A finance department can no longer wait passively until results come in, sum them up, and then, after the fact, instruct the other parts of the organization on what they can and cannot do from a fiscal perspective after the fact. In order for the financial department to help the organization feel the business pulse, and put information and accountability into the hands of the right people on the operational, management, and administration sides, it must have a much broader picture of the business.

However, CODA's expertise in leveraging BI outside financial departments is very limited, if not non-existent. It needs to partner with domain expert vendors in the areas of supply chain or CRM. The vendor has admittedly realized that customers do not want just financial solutions, but want solutions that can be integrated within a broader context of enterprise solutions and be built to meet their exacting needs. To illustrate, CODA's procurement and account payable (AP) module fully encompasses accounting functionality (or commitment accounting for the UK). When issuing orders, the system checks the amounts already invoiced, plus the amounts for which requisitions and orders have been issued (but not yet invoiced), to determine if sufficient budget remains for a purchase order (PO) to be authorized. This capability is often used in the public sector to implement tighter cost control for projects with pre-determined spending limits based on grants, etc. Basically, there is no reason why this, in principle, cannot be used in any vertical sector, since it is a generic functionality, and not a module for a specific vertical. However, the issue with implementing this in manufacturing- or supply chain-oriented environments is that order processing is typically handled in an operational manufacturing system rather than in CODA financials, and hence the commitment checks need to happen in that system rather than in the CODA system. This leads us to the need for interfacing and integrating disparate systems; although CODA's integration-friendly approach is commendable, some users might still cringe at the mention of any interface. Although the vendor has built on its transactional engine and added analytical and planning systems, it has to seamlessly partner with many more vendors to achieve the true integrated value chain that would entail both the financial and supply chain aspects.

For example, an answer to a problem of excess inventory or customer retention can be found in the BI realm, since these tools can answer many of the problems in supply chain and partner relationship management (see Why Are CRM and Analytics Intrinsically Connected?). By applying analytical technologies to supply chain or trading partners data, managers can find answers to such questions as, "How do seasonal or any (un)expected sales impact the raw materials inventory and purchasing plans?"; "How will cash flow be affected by switching suppliers or a major order cancellation?"; "What inventory shortages need to be addressed first?"; "What is the likely impact on labor and capacity of a proposed rush order?"; "What customer orders have been the most or least profitable?"; and so on. To meet this need, many traditional ERP vendors are increasingly providing supply chain analytics tools that include applications such as supplier evaluation, spend optimization, demand aggregation, strategic sourcing, inventory analysis, and manufacturing analysis. Among the suppliers of mainstream query and reporting and BI/analytical tools, MicroStrategy, Informatica, Cognos, SAS, Applix, and Hyperion all now offer products aimed specifically at supply chain analysis, well beyond their initial financial strongholds.

One should never forget the competition from other "point" vendors that have developed software to deal with specific aspects of financial analytics and compliance. These also include balanced scorecard vendors such as CorVu, whose systems allow organizations to measure historical or future financial performance against a set of pre-set metrics.

User Recommendations

Prospective and existing CODA customers, especially those that need to comply with existing and emerging regulations should look positively and with a keen interest at CODA's recent moves. They should consider OCRA and SOCET products when evaluating respective financial consolidation and compliance systems, if the appropriate delivery capability and language support is available in their region. The vendor's largest customers have over 3,000 people using its financial accounting software, but a typical sweet-spot customer has about 300 financial users, spread across 10 or more countries. CODA's zero-install browser client and single instance architecture (where support for all multinational and multilingual functionality is within a single version of the application) make it a good fit for centralized shared services or business process outsourcing (BPO) requirements, helping user organizations further reduce the cost of the finance function. Existing OCRA and SOCET customers should rest assured that CODA will most likely continue to develop the products.

On a general note, when evaluating enterprise applications, a commonly-asked question is whether the particular solution is SOX compliant. However, more suitable questions might be whether the package will support management's efforts at developing the appropriate business processes and accompanying controls to enable compliance, and, more importantly, whether it will be a useful tool for management to compete effectively in the marketplace. Before companies can benefit from this technology, prospective users must select the right tools, which are also fairly intuitive and easy for external auditors to learn, and certify the state of affairs of compliance within the organization. As with any piece of software, user enterprises have to know what to look for to meet their organization's expectations and avoid disappointments. For more on the critical attributes of SOX tool sets, and a discussion on how to utilize them effectively to maximize payback on the investment of time and money, see Attributes of Sarbanes-Oxley Tool Sets.