Continuous Accounting & Improvement

Members of the SAP community met at Frankfurt Airport to discuss the new role of the CFO and current trends in accounting, controlling and bookkeeping. The event was hosted by BlackLine, an SAP partner that is redefining accounting with a cloud solution and is thus a trendsetter in finance.

Since the beginning of SAP's history, finance and controlling has always been the decisive factor for existing customers.

For a long time, accounting and controlling were stable and largely separate departments. Business, technical and social developments also influence and shape finance.

The CFO's role is changing and the challenges are different: Explaining what has happened becomes predicting what might happen.

The entire financial system is no longer a rehash of the past, but provides assistance in managing the future.

"At the beginning of the 1980s, the then doyen of cost accounting at German universities, Hans-Georg Plaut, argued that accounting does not need real-time analysis because accounting is tied to periods. One does, for example, annual financial statements, an evaluation for the quarterly report or calculates monthly results.

Batch processing is therefore not only the traditional technology, but also the right one, said Plaut, whose company will later work closely with SAP.

'What Plaut missed at the time was the connection between technology and content,' Scheer explained, 'that they only did it once a year or once a month was precisely because the technology wasn't advanced enough to make that possible in real time.'"

From: Matrix of the World - SAP and the New Global Capitalismby Ludwig Siegele and Joachim Zepelin, Campus Verlag.

(Note: Quoted is Professor August-Wilhelm Scheer, former SAP Supervisory Board member and founder of IDS Scheer AG).

There is no longer batch processing in an SAP S/4 system. Based on the real-time platform Hana, finance is engaged in predictive analysis.

Existing SAP customers are facing an organizational and technical "S/4 release change". The global SAP community is busy with internal (Hana, Fiori, HCP, S/4 etc.) and external (IoT, Cloud, Globalization, Digital Transformation etc.) changes.

Added to this is the business and social challenge of living and working in "real time".

The goal of this roundtable is to provide guidance to SAP's existing customers and the global SAP community regarding accounting, continuous accounting, real-time and cloud computing.

The round table will start with a short review of the business, organizational and technical development in the SAP community over the past years. In a definition of the current state, the heterogeneity of current challenges (M&A etc.) and solutions through cloud computing will also be discussed.

This is where the E-3 educational work takes place that will convince people of the validity and necessity of continuous accounting and cloud computing.

In parallel, the importance of "real-time" for the global SAP community will also be outlined.

Peter M. Färbinger:

Finance has been a unique selling point for SAP from the very beginning and remains so today. But what changes have occurred over the years in terms of perception and importance? Where does the topic of finance and controlling stand today?

Petra Ellmerich, BlackLine:

Globalization has clearly brought it into focus and significantly increased its importance. Of course, its importance continues to grow because a great deal depends on financial processes.

But we are still a long way from the end. Processes in other areas are sometimes faster, sometimes more efficient. That's why the drive for automation and digitization is particularly important in finance.

One point seems worth mentioning at the outset: when we talk about finance in this round, it is much more than just accounting.

My first contact with SAP was R/2, later R/3, and even then we were discussing controlling and accounting departments.

Today, the CFO is challenged in a completely different way, both by departmental thinking and by the speed of digital transformation. He must be able to provide his CEO with answers within minutes.

Ordering a cab with my smartphone, seeing where it is on its way to me and when it will arrive has become a matter of course. Transparency should also be possible in the financial statement as easily and quickly as in this example.

Dr. Christoph Ernst, SAP:

I worked with R/2 myself when I was still a trainee in the accounting department. What has changed in the first approach, of course, is the paper-based work. Where the task was to bring the information from the paper into the system and map it in a standardized form.

Today, the Board of Management has direct access to the financial figures in meetings via large screens. And can decide immediately where they want to see details, where they want forecasts calculated.

Today, the systems function in a supportive manner through simulations. So access to the data has changed dramatically - but so has the volume.

With IFRS, the need for a new basic innovation also became apparent. We have now taken this step, because ultimately the areas - Finance, Controlling, Accounting - are growing together.

The CFO is concerned with holistic views and concepts. The innovative step that SAP has now taken is to structure and view the entire value flow in finance and accounting in a uniform manner.

What consequences this one-off step may have can only be partially estimated from today's perspective. What opportunities will result from it must first be evaluated. Now we are at the beginning of harvesting the fruits of this innovation.

Dyer:

Mr. Kuche, as a controller from the field and someone affected by the development described, do you agree with what has been said?

Reimund H. Kuche, Imperial Logistics:

I can confirm what has been said. The flood of information - not the information supplied, but the information demanded and requested - is enormous. Expectations of the financial system have increased exponentially.

Of course, accounting still exists. Debit and credit are still valid. And there are still people who do not or cannot understand it.

Twenty years ago, it was good if the HGB financial statements were available in March or April. In the meantime, IFRS applies. Other regulations such as tax compliance have been added.

In addition, the expectations of employees outside of accounting, controlling, and bookkeeping have risen sharply to the point of demanding "this has to work".

Often, only the technology is seen and then the question comes: Why can't you do that? Unfortunately, people rarely ask about the benefits; many people in charge simply want everything that seems possible.

Thus, only an earnings forecast in advance towards the end of the month is sometimes already too little.

Dyer:

How to solve the problem?

Kitchen:

This is where predictive analysis could come into play, and a lot is happening in this area at the moment.

I can also confirm the development mentioned by Dr. Ernst that controlling and accounting are growing together. This has been an issue in teaching and in practice since the 1990s - as far as was technically possible at the time.

Now, with S/4, all this is becoming possible. We introduced S/4 Finance ourselves six months ago - it's up and running, but as Dr. Ernst already mentioned: We have not yet adequately answered the question of what opportunities and possibilities arise from it and what you can do with it in practice.

And it is definitely not just a question of the technical system! Innovative use is influenced by the people acting and the level of training of the users.

My function is therefore also to raise this potential and to take the organizational measures to ensure that the above-mentioned demands are satisfied.

Here I then work in two directions. First, in the qualification of my employees and then in the direction of management.

There, I solicit understanding for what we can change, what can be useful and helpful. From this, we then derive our measures and investments in the systems.

Dyer:

Can the trends and movements now described also be observed in the market in general? People want to have everything, and only then do they ask about the benefits.

Are they fads in finance or lasting upheavals?

Martin Wolleswinkel, Hackett:

The function of finance has often been to point out and explain the past: Where are we today and how did we get there?

What's new is the almost limitless expectation of data availability! I press a button, get everything and can drill down to the booking line.

Of course, I then ask myself whether it always makes so much sense - but the expectation exists. And SAP Hana has certainly set a milestone in this respect.

The real-time mentality has established that you get an instant overview of necessary actions and tasks - and this development is more likely to intensify.

German controllers are very good at explaining the past, among other things, and with Hana this is now accomplished in near real time.

Dyer:

And the future?

Wolleswinkel:

I believe that the role of finance has become different. You are expected to actively steer the company - not just explain, but see where the journey is going.

What levers are to be moved - for this, the topic of foresight is then much more important. It is now a question of real decision-making aids, which are expected from Finance.

Joint decision-making together with the operating business is also an essential trend. For this, of course, the controller needs a new understanding of himself and his task.

The classic guru with his Excel spreadsheets has had his day. In business, we need more advisors from the finance sector who can help management set the right course.

This understanding is necessary because external requirements have increased dramatically. Thus, this assistance is required from the CFO and his team.

The importance of finance is therefore increasing very strongly at the moment. A new task is functional controlling, which covers all areas of a company and thus provides a comprehensive picture of where the journey can lead.

If you look at the topic holistically, the topic of big data and the predictive analytics mentioned above follow directly. This then also goes far beyond SAP data.

This is where IoT, social media data, etc. come into play. And it is now also becoming affordable to store and analyze these masses of data.

At the same time, we have to realize that there is a lack of employees who can deal with this productively. The classic controller looks at debits and credits.

What we will need in the future are data scientists who can establish the correlations between the figures and then make appropriate recommendations from them.

Serious:

But is the data scientist then part of the controlling department or does this task no longer belong in sales and marketing?

Wolleswinkel:

That is a legitimate question. Some see this task also with the CIO. But we also see data scientists in sales. No final model has yet been established here - many things are possible.

But if the CFO sees his or her role not only in reporting, but also in helping the board make decisions, then I personally see the data scientist in the finance area.

Of course, this is a very different role for the CFO compared to the past, when he had to hand over the balance sheet and P&L. The self-image of most progressive CFOs, however, goes in this direction.

Kitchen:

Yes, but if the CFO retreats to his classic reporting, then it could be difficult for him. However, it is also not helpful if topics such as data scientist and predictive analysis are assigned to the CIO on the grounds that there is technology behind them - not a good solution either.

So what is required is a perspective and a person who can see the issues holistically and is also specialized in finance and accounting.

This balancing act has to be mastered. The roles are changing very quickly at the moment.

Dyer:

Historically, this understanding of the role has changed considerably. SAP Hana PAL - Predictive Analysis Library - contains very innovative software modules ranging from complex statistical functions to neural networks. Have these already arrived in practice?

Kitchen:

I am familiar with these topics. But in my professional environment, these options have not yet found application.

It would be interesting, because the demands are always the same - it would be best to have the monthly result and the planning of now, of next month, of next year always immediately ready at the push of a button.

And if an AI does that in the background, then the users don't care either. What matters are the numbers themselves and the knowledge that they are reliable.

Wolleswinkel:

Yes, many DAX companies are currently working on such systems. We spoke to a company that has built an early warning system based on data from an SAP system supplemented by open source data from their market environment.

They pitted the system against the controllers and found that aggregate numbers won out over gut feelings.

Of course, an experienced controller may be better than an automated system, but often here the employees change jobs every two to three years and so knowledge is lost and the reference to history.

The systems, on the other hand, can capture large periods of time very quickly. In this finance and technology community, we are currently experiencing an enormous change in values.

Of course, the broad mass of companies is not yet at this stage, but what can be achieved with modern finance controlling and accounting systems is very impressive.

Kitchen:

Obviously the technology is available - but what does the associated business model look like? I have a central SAP ERP with FI and CO, but eight different upstream systems that can deliver less and less equally structured data compared to an integrated system like SAP.

So what I need is a stable database and a business model for changes like mergers and acquisitions.

Can the current systems also support here?

Serious:

It is amazing how with relatively little data the systems can make predictions.

Of course, a stable business environment is a relief for machine learning. But I have experienced myself what is already possible with state-of-the-art technology even in a very agile environment.

Even in unknown areas, machines can already make very good predictions today - and the initial situation is similar for the machine as it is for the controller.

For us, the challenge is then to make the capabilities available to the users at the push of a button. And that means every user, not just the data scientist.

For this purpose, we are very happy to work together with user companies in order to make optimal use of the predictive analytic engine from Hana here.

So it's not about explaining complex algorithms to the controller, it's about giving them a tool to plan and make predictions - also taking into account external data, which is what makes it really exciting in the end.

Of course, the aforementioned central ERP is very important, but then adding external data is an added value.

Here, everything comes together in a mathematical model. In this way, we support the role change from the system. I support the approach that it is ultimately about the employees who are to implement this change.

Ellmerich:

I agree that technology is changing our world. But that has always been the case - I remember the introduction of R/3.

Of course, the Internet also brought about an enormous change. By comparison, however, the field of finance remained stable over a long period of time. And suddenly, this round-the-clock availability through tablets and smartphones also broke into traditional finance.

This process step has changed our thought processes and business models. With it, the desire for speed, for real time, has grown.

Finance is now coming into focus because it was previously dominated by continuous, stable processes. But now the CFO also has a smartphone in his hand and doesn't just want to use it privately.

Many users are therefore rightly excited about the cloud, because the familiar agility from the consumer world is now also arriving in companies. Now it is up to us, the providers, to provide the assistance for this change and to have answers to the question:

How do I get into this new agile world with my motivated employees?

Dyer:

And what are the reasons for the significance and importance of finance and controlling? Europe has known double-entry bookkeeping since 1494 at the latest, thanks to a book by the Italian Franciscan priest and mathematician Luca Pacioli. What has changed since then?

Ellmerich:

Germany is in a very good economic position. In this area, however, we have perhaps stuck to paper for too long. Digital development may have overtaken us here.

We are very focused on quality. Nevertheless, we also have to deal with the changes in real time and find a way of learning for ourselves.

We must learn to perceive the challenges of digital transformation as an opportunity - and not as a threat.

This is also reflected in the partnership between SAP and BlackLine. The customer is the focus of both of us, regardless of which upstream system he comes from.

For us, it is not about positioning a product, it is rather about solving the problem or setting the task. Today, we are in the fortunate position of being able to cover almost all issues.

Customers today are demanding, they usually need a quick solution, but at the same time they need a perspective on how it fits into their longer term roadmap.

Dyer:

However, the issue of speed, agility and real-time has increased dramatically in recent years - compared to an R/3 implementation many years ago - right?

Ellmerich:

Exactly, and I'd like to give you a practical example. It started with cloud computing. When we discussed how long something would take, I reflexively said it would take a few days.

No! It just takes a few more hours sometimes - we have to learn to rethink quickly.

Kitchen:

We use our system as a combination of on-premise and cloud computing. We use a cloud solution for communications with the banks - a complex issue when you are in contact with many different banks or bank locations.

Despite the SEPA standard, each communication channel must be configured individually. In this sense, there is no standard in bank communication.

Of course, you can do that in your own system, but then you have a constant maintenance and upkeep effort. That's why we went the cloud route to a service provider that is also a partner of SAP.

The service provider organizes the connection to the bank and provides us with the uniform interface. Of course, this was also a topic of discussion among the management at the beginning. After all, we are going into the cloud with bank data, but realistically, there were enough risks to manage in the old analog world as well.

We are currently building a second cloud solution with colleagues from Dr. Ernst at SAP. Here, the focus is on credit checks, information and ratings.

Again, the same principle: SAP goes to the external information sources of business partners and ensures a standardized data flow. We are very satisfied with both of these approaches.

Serious:

That is now a very interesting point and approach. With S/4, we have a stable core that is now being implemented. The other question, however, is how do I bring innovation into my company in conjunction with this stable core?

One example of innovation here is the BlackLine cloud solution, which can be used to quickly answer very focused questions from the business.

Complementing the stable S/4 core, one can also mention Mr. Kuche's example of bank communication and our credit rating.

These two elements of a business strategy - the stable core and the flexible, agile cloud solution - are an expression of innovation. And that is precisely the answer to the customer's question: How can I innovate and still keep my traditional business stable?

Wolleswinkel:

At the moment, there is a very clear trend that, starting from a stable basis, people see the need for innovations. In the past, planning in Germany often took a long time and was then implemented flawlessly.

Today, we see companies launching proof of concepts or pilots with the knowledge that many of these experiments will fail.

The management culture has to change here because mistakes used to often lead to career setbacks, but now they are deliberately wanted. This willingness to experiment - starting from a stable basis - is very remarkable.

But with this willingness to experiment, we also have to approach the so-called boring topics - such as master data management. Other processes only run in a limited way because the master data doesn't fit, and so this topic suddenly becomes a boardroom topic as well.

Kitchen:

I can confirm that. In my department, I have established a "Master Data Management" team. Of course, it doesn't cover everything, but it does cover all the data of the business partners.

It is extremely important for the system to ensure that master data management is structured and operated cleanly right from the start.

At the moment, I even have to increase the number of staff in this area, which I didn't expect myself.

Ellmerich:

At this point, it seems important to me to point out that it is a matter of reducing complexity in certain areas, and not just at present, but via an ongoing development in the coming years.

At the end of the day, it's about doing something good for your own business, and this is where cloud solutions are very important. Managing all the challenges mentioned at the speed desired today, while at the same time taking care of all aspects of security and user benefits.

In other words, to develop the ability to become faster and at the same time increase safety and comfort.

Dyer:

Accounting is not new for SAP or existing customers?

Serious:

That's a nice new development, that the users are getting much more involved and helping to decide where this journey should go. So it's no longer so much about offering a ready-made plan for the next three years, but rather about involving the users.

This is also a complete change in development cycles, listening more to the users and letting them have a say in the planning.

But of course, that also takes some getting used to when they ask: Where will SAP be in three years? Where is the next release change?

This expectation is, of course, ingrained through decades of practice. Now this paradigm is changing - we have our ideas, of course, but we coordinate them with the users in a much more differentiated and intensive way.

Wolleswinkel:

This involvement of the users in cloud computing also leads to standardization.

People used to spend months discussing a connection to Concur or Ariba. Today, they say this is the globally aligned cloud solution, so it will be good for everyone - similar to Apple or Google.

The cloud brings security and binding standards here. Because accounting is similar everywhere and not much has changed since 1494. And the fact that you can now roll out a solution globally with cloud computing is just tremendous.

Serious:

With cloud solutions, standardization requirements can be achieved much more easily and elegantly. In principle, therefore, standardization is an important topic.

Kitchen:

It is exactly as you described it. We also noticed it in our S/4 project. There, we spent 97 percent of the budget on best practice and only three percent on customization.

At the moment, I am even considering whether this three percent would have been indispensable. Standardization is thus an issue.

This does not necessarily mean that everything will become easier. Finance is already complex. It will possibly become even more complex. But complexity can only be mastered with complex systems.

What we need to avoid is complexity - and I still see a lot of need for action here, when I think, for example, of our eight upstream systems resulting from history and company acquisitions.

This should often be similar elsewhere. The problem is usually not the upstream systems themselves, but the interfaces. And this is where the standards help.

We adhere to the specifications of S/4, where there is of course complexity behind it, but which can be managed through the holistic system.

Serious:

That's the interesting thing about working with partners. We have the standard with our systems, but a solution like BlackLine helps to overcome the system limits.

In this way, we can solve customer problems even more individually - without leaving our successful path. And that's the challenge I mentioned earlier with upstream systems, which don't necessarily have to be SAP systems, that BlackLine can be a link here - softening the boundaries.

Ellmerich:

The success of our solution is then customer satisfaction. We do not think about large or small systems, but only about the satisfaction of our users.

Because cloud computing has also brought that with it, you have to make a lot more effort to retain the user. Of course, our systems also have to be attractive in order to convey a positive workplace feeling.

Wolleswinkel:

The competition for talent is a key issue here. There are employers who are attractive by themselves, but then have an Excel culture and technology from the previous century in the workplace.

Many employees are then gone again after two years. Users want to be creative and get involved, and that requires innovative solutions.

Kitchen:

To come back to standards and thus to the design of the working environment - after all, it doesn't just mean that there should only be less complexity in technical terms.

Interfaces of a non-technical nature between areas such as accounting and controlling are also a problem. Some calculate with plus and minus and P&L, others with debit and credit and look much more closely at the balance sheet and cash flow statement.

I also consider it an important challenge to create common perspectives and eliminate differences of opinion. And here I expect system support instead of an Excel culture.

Wolleswinkel:

For the subject of controlling, the topic of dealing with the past is probably becoming more and more trivial. Future controllers are expected to have a view of the future.

Where can the company develop? What needs to be done to achieve certain goals? This will develop in the direction of simulations and predictive analysis.

Despite all the technology in finance, the user will continue to be the focus in the future, but will be entrusted with completely new and different tasks.

In stable environments, of course, you can automate a lot or compensate with robotics - but finance is not stable, here I will always need people who can manage the complexity and react in an agile way.

It won't work without the core competency of experienced employees.

Ellmerich:

Ultimately, this is also about reducing errors. This is almost always a holistic approach that hardly any machine learning or robotics will be able to provide.

This requires human intelligence and the experience of employees who have been with the company for a long time. Like other SAP solutions and partners, we are specialized in this area and deliver solutions that have been tried and tested in practice - including compliance.

Unfortunately, there are still far too many spreadsheets in use.

Kitchen:

That is definitely the case. With our bank communication solution, we can, for example, dispense with corresponding cover letters and confirmations from the banks in the future after training and consultation with all parties involved.

Because it's always about people and systems, my idea is also that the auditor, for example, no longer has to come to us, but gets the information on the screen in his office.

Ellmerich:

Yes, he should be able to see on the screen what is going on, and for everyone else in the process, he should also know beforehand and automatically have that information on his screen whenever it is requested.

Dyer:

Does the CFO gain further or even new importance in this environment?

Wolleswinkel:

Absolutely. The Chief Financial Officer's understanding of his role is changing. He is also an advisor to the management. In Germany in particular, you can see that many CFOs then become CEOs over time.

Ellmerich:

The CFO has always been able to solve problems - in the past perhaps with many employees and their ability to suffer at the latest in the closing process, today better with the support of appropriate systems. Nevertheless, the processes must be controlled by the employees - and this awareness is just emerging.

It is not because it is in the system that the problem is already solved, but because people fill appropriate roles, are responsible for processes, and can now take care of the essentials because automation makes it possible.

Of course, in this transformation, it also means moving from one position to another in accounting, in controlling, in accounting, to get to know new views and also each other's views.

Kitchen:

In the end, financial statements in accounting should be no different than a good, stable, quality-monitored production process in manufacturing. Not every annual financial statement should degenerate into a project.

Figures often come to light whose origin is not always transparent. But if the process is now clearly defined with the systems mentioned, then I can also understand and interpret every figure.

Ellmerich:

In addition to the speed mentioned, the quality of the processes is then also enormously important in the operations mentioned. And one of these important processes is what we now call Continuous Accounting, which can change so much because it ultimately has to do with quality.

Quality is enormously important for the CFO. The figures must be right for him - as part of a continuous and stable process and not as a one-off project.

So it's about knowing that with systems like SAP and BlackLine, there are no question marks left.