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Business process innovation - getting rid of manual accounting

October 28, 2019

All large modern ERP systems contain a massive amount of process improvement capabilities as long as the implementing company is willing and focused on reaping those benefits. One such area is within accounting. In theory you are today able to eliminate almost all manual accounting if you really want to. The reason why this is never achieved usually has to do with the affected employees resisting the change – for obvious reasons, their job may be going away and others may not want to fix their own mistakes.

 

Before the steps to eliminate manual accounting was simply not available. You had paper invoices showing up in the mail, you did not provide good information to vendors about how their invoices should be marked or the company accepted strange internal cost allocation practices between departments. Another, but oh so important, reason was the detailed view of what is considered as “fair” inside a company like “department X should not be paying for the pencils used in department Y”. The final one which is still hard to avoid as a company is the change of IFRS rules where new accounting standards are introduced, sometimes it seems just to stimulate demand for accounting consultants.

So in past times, since it was thought to be impossible to eliminate manual accounting, CFOs and CEOs piled on manual tasks on the accounting department just because they were there anyway. Further, with the best of intention CFOs devise KPIs that are supposed to better reveal business performance. As long as the new KPIs do not require a change of database structure in the ERP database or otherwhere there should be now impact on the accounting logic. But if they do change logic, this has a large impact on accountants.

 

These days the potential of eliminating all accounting tasks is in fact a possible idea due to almost all transaction information between companies can be exchanged in electronic messages. And most large ERP vendors have included support in their systems for sending and receiving such messages. Further, templates for accounting can be designed which takes care of how incoming and outgoing transactions should be accounted for. There is very little human interaction needed. Of course, some closing accounting at end-of-year will be challenging to get rid of, in particular when the transaction itself is based on human judgement such as valuation of corporate assets. 

 

So how have we seen this innovation take place in projects we have worked in?

The area of inefficient and problematic accounting practices in a company is typically something that has built up over a number of years and usually there exists a number of strong held beliefs about what these problems are. So it is not that strange to meet stakeholders in a company that is about to embark on an ERP that has a very developed thinking around what wasteful practices that the company needs to get rid of. But in order to uncover the root cause of these problems we have in our projects ensured that the ERP team approach these investigations, and solution designs, in a structured way which means we do not allow the ones that scream the loudest to get their will over everyone else. After all, the client does invest large amounts of money to switch to a modern and supportive ERP solution. The below process is the one we advice you use:

 

The steps taken in finding the Business process improvement opportunity in accounting

From the six sigma practice we can use the DMAIC – Define, Measure, Analyze, Improve and Control model to plan your innovation process but you need to use your judgement in what problem you want to solve. A useful way to proceed may be as below:

  1. Start by identifying the stakeholders that are important for the area of accounting, this may include people from the business that influences what gets done in the accounting department. Try to openly talk about cause and effect of what is going on today and classify it into the 7 types of waste (Overproduction, Waiting, Transportation, Inappropriate processing, Inventory, Unnecessary motion and Defects).

  2. You will find a lot of improvement opportunities so now you are faced with the steps of prioritizing what to aim for. In case of eliminating manual accounting you will need to look upstream (origin of the transactions) and look into the coding logic of the accounting that is being done today.

  3. With what you have found out you will now need to start prototyping various processes and procedures that will reduce variation in the flow of accounting transactions. To experiment with these new processes it will be valuable to dry-run them together with one department or similar so you get to find issues that still remains. Develop a new prototype and try yet another time. Keep all other stakeholders in the loop about the progress you are making. After all, the success of this initiative depends on how well you can anchor new behaviors with all people in the business. If you do not, then the success of this initiative is unlikely to succeed. Change never happens by smart people getting smart ideas. It happens by smart people involving others in the creative process and act as if everyone else came up with the idea and just try to get it to catch fire.

  4. Next you will have a proposal for a process and procedures manual and a list of technical alterations that will be needed in the ERP and friend systems such as for example a scanning application. You will also better understand the cost-benefit potential of the business case in this particular area. The cost-benefit is much more than a number crunching exercise, many times it is the trigger for top managers to get behind the change and start promoting it to the business. After all, their job is about managing a profitable business and profitable initiatives catches their attention.

  5. If the final solution is dependent on a new ERP being implemented you will of course need to wait to realize the opportunity. However, from what we know there is quite some work left in also designing the configuration and potential modifications of the ERP to completely support the designs in the prototype. So it is time to get to work!

  6. Finally you have the implementation. As you can imagine you now have the challenging task of getting the whole business to agree and work like you want them to. If you have arrived at a “near elimination of accounting” solution one way will be to just announce that you do no longer support manual accounting because there is no personnel left. Which means the business just have to do it the right way or they will need to correct their own mistakes themselves (preferably there is no way to make mistakes but human nature typically finds ways to make trouble). That would be a drastic move since processes typically do not work by themselves from day one. So some smoother version is wiser, perhaps with some form of a best-in-class dashboard publicized in the company where process compliance is openly displayed to see, no one wants to be at the bottom of that list. This reinforcement will be needed.

We hope you find the suggested approach understandable, we have seen it work well ourselves.

 

 

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