A common misconception is that all off-shoring involves outsourcing. This is not true. It is important to differentiate off-shoring from outsourcing, which involves the migration of management and of services to an external provider (ebstrategy.com). Rather, off-shoring refers to taking advantage of lower-cost labour by transferring the process to another country whilst retaining management.
Significant developments in the communications sector have made the off-shoring of accounting processes cheaper and easier than ever before. Nowadays, all that is required to produce a value added service is a server and an internet connection.
This has resulted in an “off-shoring” boom, or as it has also been referred to as “the new redundancy” (Loxton, 2004). Philip Middleton, financial services partner at Ernst & Young, acknowledges that more accounting service sector and research jobs are going to go offshore. In fact, he says “That is inevitable and probably desirable.” (Loxton, 2004) However who exactly is it desirable to? Obviously it is not the UK accountant who finds himself unemployed.
For years processes, such as manufacturing, have been carried out in foreign countries in order to take advantage of low labour costs. However many developing countries have spent heavily on education and training in recent times (eurospe.org), putting paid to the common impression that white collar jobs were somehow insulated from the risk of off-shoring. Recently such perceptions have changed. India for example, can now offer ready trained professionals who are willing to carry out the same work as a British accountant for a fraction of the wage (Anonymous, 2005).
Action has already been taken due to the fear of such job loss. Barclays announced a deal with the finance union UNIFI, which outlined official measures that would protect staff in the event of offshore-incurred restructuring (Anonymous, 2005). While this goes some way to compensate those who suffer as a result, it does not eliminate the problem that off-shoring causes job losses to UK accountants.
Jon Carson, CEO of Cambridge Mass realized this and tried to combine the benefits of off-shoring with those of keeping the business at home and advertised jobs at the lower rates he would have to pay for staff in India (Anonymous, 2005). While such an approach would keep UK accountants in a job, it would also adversely affect them by reducing the wage an accountant can command within this country.
However it is not all doom and gloom for UK accountants according to Middleton; “If I look around our business and ask what kind of tasks might go to Bangalore, for example, the answer is probably not a great deal. A lot of what we do requires proximity to clients - close client relationships,” he says.
I feel this is an excellent point and one which may in fact prevent the accounting profession from suffering from the off-shoring boom. For example audit and assurance is a major source of revenue for the majority of accounting firms but you could not off-shore an audit to the other side of the world. Similarly, as Middleton acknowledges, “much of the taxation and financial reporting work that makes up the bread and butter of UK practices requires an in-depth knowledge of the UK tax and regulatory climate and infrastructure.” In order to accumulate such knowledge and understanding, surely the accountant would have to live and work in this country. Both these points help construct a barrier which will prevent many accounting services from being off shored.
Having worked in an accounting firm myself, I have also seen first hand the emphasis which is put on the client relationship, and how far that “personal touch” can go. It would be very difficult, if not impossible, to offer such a level customer service from the other side of the world. This is a factor that has seen many non-accounting companies refocus their business processes to within the UK (e.g. Direct Line). Off-shoring accounting activities may allow processes to be completed at a cheaper price, but whether the quality of work will remain the same is a contentious issue. In the light of accounting scandals and the introduction of the Sarbanes-Oxley Act, many may feel “you only get what you pay for” may be the safest attitude to adopt and if that requires paying more, so be it.
As mentioned above labour-intensive, back office tasks and administration may well be off-shored and for the good of the economy, probably should. For such staff off-shoring is definitely “destabilising and uncomfortable for individuals” (Loxton, 2005). However, for the reasons outlined above, I do not envisage off-shoring having the destabilizing and detrimental effect on the accounting profession that some are predicting.
Sources Used
http://www.ebstrategy.com/outsourcing/basics/definition.htm
http://www.articlesbase.com/advice-articles/offshore-accounting-bpo-myths-and-realities-211753.html
www.eurospe.org/education/education_developingcountries
“The Off-shoring Craze” Anonymous, Human Resource Management International Digest. Bradford: 2005. Vol. 13, Iss. 3
“Analysis: Offshoring - Offshore Accounting” Liz Loxton, Accountancy. London: Feb 2004. Vol. 133, Iss. 1326
Sunday 18 November 2007
Friday 16 November 2007
Case Study: Geneva ERP Implementation
This case is primarily about the implementation of Geneva Pharmaceutical’s new Enterprise Resource Planning system, R/3 from SAP.
We felt the following points were particularly important to this case study:
· The implementation of the system was split into three phases.
· Geneva’s old system, IBM AS/400, had a wide array of software programs for different processes. Each business unit deployed applications that best met their own needs, despite the fact they were incompatible across all other business units.
· Whitman-Hart were initially contracted to assist with migration to the new system. They were a consulting firm who were appointed due to their experience in R/3 implementation. The consultants employed by Whitman-Hart were technical specialists with little knowledge of business domain.
· Verne Evans was initially assigned to manage the project during Phase I.
· In February 1998 Randy Weldon was hired as the new Chief Information Officer (CIO).
· Accelerated SAP (ASAP) was selected for deployment as it promised a short implementation cycle of only six months.
· Whitman-Hart were replaced in 1999 by Arthur Anderson Business consulting to assist Geneva with Phase II and III.
· Phase 1 was not completed efficiently and the implementation had spun “out of control.”
· ERP requires a new way of thinking and is “not only a technology change but also a change is work process.”
· At the time the case was written, Phase II and III had not been completed.
From the key points above we can note some of the key decisions taken by Geneva…
Obviously the main decision that was made was that to replace the old IBM AS/400 system with an ERP system. This decision was taken because the old system was simply not efficient enough. The pharmaceuticals market is a fiercely competitive one and as a result, a large emphasis is placed on the search for higher margins in the industry. For example, operational efficiency plays a major role in this and previously, data which was shared across different business units had to be double-booked and re-keyed manually. This often resulted in data entry errors, higher costs of error processing and greater data inconsistency. This is addition to the additional labour time taken up to input the data.
Once the decision to replace the old system was made, a decision had to be made regarding exactly which ERP system to implement. This was narrowed down to a decision between two: BPCS from Software Systems Associates or R/3 from SAP. The generics division opted for R/3.
The implementation of R/3 threw up more key decisions. The problematic first phase meant decisions had to be made regarding how Geneva could get implementation back on track. The decision was taken to bring in Randy Weldon due to his extensive experience of R/3. Weldon decided to replace Whitman-Hart with Arthur Andersen as consultants since Whitman-Hill had very little knowledge of the business domain making them unsuitable. We have gone into greater detail on this decision below. Other key decisions taken in phases II and III included the re-introduction of the Supply Chain Management initiative and the introduction of “Available to Promise” primary decision metric.
What could we learn from Geneva’s Experience?
As stated above, the case study was written before Phase II and III had been completed. As a result it is very difficult to comment upon the success of these phases or the lessons which could be learnt. As a result our answer will mainly focus on the lessons that could be learnt from Phase I and the planning which preceded it.
The first question that we feel should be asked is why Geneva implemented the IMB AS/400 in the first place. A greater deal of communication and forward thinking would have resulted in the company questioning why they were using different software in each department, each not compatible with the next. We are not suggesting that the upgrade would not have been required, but the initial system itself would have been more efficient.
The case study tells us that Whitman-Hart did have previous experience implementing the R/3 system, however their performance would suggest otherwise. The fact that Whitman-Hart employed technical specialists with little business domain and that Weldon was not in favour of them suggests that, as a company, they were not held in particularly high esteem. If this indeed was the case it is possible that Geneva “cut costs” by not carrying out thorough enough research on Whitman-Hart and perhaps some more time and money spent at an early stage may have saved them a lot more in the long run.
The project manager of Phase I, Verne Evans, had no prior R/3 experience. We feel this is quite unbelievable and in doing so, Geneva immediately put the success of the project at risk. The result was the implementation spinning out of control and issues could not be resolved. In this case, surely Randy Weldon, or someone with similar experience, should have been involved and lead the project from the start. In such a set up Evans could have gained experience working under Weldon thus gaining experience himself.
ASAP was also used in order to cut down the time implementation would take. While good in theory, perhaps in hindsight Geneva would have stayed clear of such a plan. We believe this typifies the way in which Phase I was structured: it was done as quickly as possible as cheaply as possible, a view that is shared by Anne Bourgeois, Geneva’s internal IS team leader.
It appears the project to implement R/3 seemed to lack a sense of leadership from the start. Despite ten IS personnel, ten full-time users and ten part-time users being deployed, they were not efficient. It seems that at the time of writing the case study, Phase II was on track and the project as a whole was looking up. It is unlikely that the introduction of Randy Weldon merely coincides with the up turn in fortunes. We feel the main lesson to be learnt is that in most circumstances a combination of experience and leadership is required to successfully guide any project.
We felt the following points were particularly important to this case study:
· The implementation of the system was split into three phases.
· Geneva’s old system, IBM AS/400, had a wide array of software programs for different processes. Each business unit deployed applications that best met their own needs, despite the fact they were incompatible across all other business units.
· Whitman-Hart were initially contracted to assist with migration to the new system. They were a consulting firm who were appointed due to their experience in R/3 implementation. The consultants employed by Whitman-Hart were technical specialists with little knowledge of business domain.
· Verne Evans was initially assigned to manage the project during Phase I.
· In February 1998 Randy Weldon was hired as the new Chief Information Officer (CIO).
· Accelerated SAP (ASAP) was selected for deployment as it promised a short implementation cycle of only six months.
· Whitman-Hart were replaced in 1999 by Arthur Anderson Business consulting to assist Geneva with Phase II and III.
· Phase 1 was not completed efficiently and the implementation had spun “out of control.”
· ERP requires a new way of thinking and is “not only a technology change but also a change is work process.”
· At the time the case was written, Phase II and III had not been completed.
From the key points above we can note some of the key decisions taken by Geneva…
Obviously the main decision that was made was that to replace the old IBM AS/400 system with an ERP system. This decision was taken because the old system was simply not efficient enough. The pharmaceuticals market is a fiercely competitive one and as a result, a large emphasis is placed on the search for higher margins in the industry. For example, operational efficiency plays a major role in this and previously, data which was shared across different business units had to be double-booked and re-keyed manually. This often resulted in data entry errors, higher costs of error processing and greater data inconsistency. This is addition to the additional labour time taken up to input the data.
Once the decision to replace the old system was made, a decision had to be made regarding exactly which ERP system to implement. This was narrowed down to a decision between two: BPCS from Software Systems Associates or R/3 from SAP. The generics division opted for R/3.
The implementation of R/3 threw up more key decisions. The problematic first phase meant decisions had to be made regarding how Geneva could get implementation back on track. The decision was taken to bring in Randy Weldon due to his extensive experience of R/3. Weldon decided to replace Whitman-Hart with Arthur Andersen as consultants since Whitman-Hill had very little knowledge of the business domain making them unsuitable. We have gone into greater detail on this decision below. Other key decisions taken in phases II and III included the re-introduction of the Supply Chain Management initiative and the introduction of “Available to Promise” primary decision metric.
What could we learn from Geneva’s Experience?
As stated above, the case study was written before Phase II and III had been completed. As a result it is very difficult to comment upon the success of these phases or the lessons which could be learnt. As a result our answer will mainly focus on the lessons that could be learnt from Phase I and the planning which preceded it.
The first question that we feel should be asked is why Geneva implemented the IMB AS/400 in the first place. A greater deal of communication and forward thinking would have resulted in the company questioning why they were using different software in each department, each not compatible with the next. We are not suggesting that the upgrade would not have been required, but the initial system itself would have been more efficient.
The case study tells us that Whitman-Hart did have previous experience implementing the R/3 system, however their performance would suggest otherwise. The fact that Whitman-Hart employed technical specialists with little business domain and that Weldon was not in favour of them suggests that, as a company, they were not held in particularly high esteem. If this indeed was the case it is possible that Geneva “cut costs” by not carrying out thorough enough research on Whitman-Hart and perhaps some more time and money spent at an early stage may have saved them a lot more in the long run.
The project manager of Phase I, Verne Evans, had no prior R/3 experience. We feel this is quite unbelievable and in doing so, Geneva immediately put the success of the project at risk. The result was the implementation spinning out of control and issues could not be resolved. In this case, surely Randy Weldon, or someone with similar experience, should have been involved and lead the project from the start. In such a set up Evans could have gained experience working under Weldon thus gaining experience himself.
ASAP was also used in order to cut down the time implementation would take. While good in theory, perhaps in hindsight Geneva would have stayed clear of such a plan. We believe this typifies the way in which Phase I was structured: it was done as quickly as possible as cheaply as possible, a view that is shared by Anne Bourgeois, Geneva’s internal IS team leader.
It appears the project to implement R/3 seemed to lack a sense of leadership from the start. Despite ten IS personnel, ten full-time users and ten part-time users being deployed, they were not efficient. It seems that at the time of writing the case study, Phase II was on track and the project as a whole was looking up. It is unlikely that the introduction of Randy Weldon merely coincides with the up turn in fortunes. We feel the main lesson to be learnt is that in most circumstances a combination of experience and leadership is required to successfully guide any project.
Sunday 4 November 2007
Why did Taurus fail and Crest succeed?
Following years of unglamorous dealings in streets and coffee shops, the London Stock Exchange was officially born in 1881 as an approved, regulated exchange (Head, 2001). Today it is at the heart of global financial markets and is home to some of the biggest companies in the world.
There have been many historical moments along the Stock Exchange’s timeline, each helping it on its way to worldwide prominence. One of the most significant of these was the “Big Bang” on 27th October 1986 (londonstockexchange.com).
On this date of deregulation, the London Stock Exchange became a private limited company and the abolition of fixed commission charges precipitated a complete alteration in the structure of the market.
In 1987 London's antiquated paper-driven procedures almost collapsed under the sheer weight of trading volumes resulting from the unusually buoyant market (Drummond, 1998). These procedures simply had to advance in order to compete with other financial markets worldwide.
Taurus was a computer program that was intended to provide the Stock Exchange with a "state of the art, all conquering" automated system of electronic transmission. This would enable the securities industry to remove paper from the system (in the form of physical share certificates). However, the UK securities industry is very diverse and everyone in the market wanted something different. No one was prepared to compromise so the only solution available to the Stock Exchange was to combine all the various Taurus models (17 in all) into one immensely complex hybrid (Drummond, 1998).
Unsurprisingly, it was an extortionate flop costing £75million. In March 2003, Taurus was abandoned by the London Stock Exchange (euroclear.co.uk).
In July of the same year, work began on a phased approach to the cost effective improvement of UK equity settlement (euroclear.co.uk). It was envisaged that the new system, called Crest, would bring London into line with big financial centres such as New York in having a modern method of settlement.
Crest, unlike its predecessor, has been a resounding success. In fact CrestCo (the company that owns and operates the Crest system and now known as Euroclear) was awarded one of the three trophies in the 1997 British Computer Society Awards, the most prestigious form of acknowledge of excellence in the British Computer Industry (bcs.org).
Simply put, Taurus appears to have been too complex and ambitious a system, overcomplicated further by the hundreds of staff that were involved in its development (Head, 2001). Crest on the other hand was co-ordinated by a core, high level design team of 4 or 5 who kept an overview of the entire project (Currie, 1997). This relatively simplistic (in comparison so that adopted by Taurus) approach appears to have been the secret behind the success of Crest. In trying to meet all the demands of all the transactions, an uncontrollable monster had been created in the form of Taurus. Learning from this, Crest catered only for the 10-15% of business functions that made up 85-90% of transactions. “The market went wild” at such a minimalist system (Head, 2001).
Furthermore, Taurus dictated that all member firms would have to use the system and there was no option to retain share certificates. As a result of this legal problems arose. Crest however, did not force shareholders to relinquish certificates, thus avoiding legal problems and making the system politically acceptable to its institutions.
Crest was also designed after Taurus and therefore benefited from greater technical advances and maturity. From the outset, Crest had a better chance of success. Similarly, many of the software developers who worked on Crest had previously been involved in the design and implementation of Taurus (Currie, 1997). As a result those workers had gained experience in the field and thus started from a position of strength. As had the Bank of England, who set up a company to develop Crest, in order to avoid the inherent organisational politics and difficulties which beset Taurus (unknown, 1993).
When designing Crest, supplier contracts were negotiated at a fixed price whereas those for Taurus were more fluid (Currie, 1997). This prevented suppliers prolonging jobs in order to maximise their own profit and gave an incentive to deliver their product on time and on budget. Had Taurus put similar contracts in place, it may not have cost the £75million that it did. Whilst this can go some way to explaining why Taurus was ten times over budget, it is the reasons outlined above which made Taurus such an infamous failure.
Sources Used:
Articles
Currie, W “Computerising the Stock Exchange: A Comparison of Two Information Systems” Blackwell Publishers Ltd, 1997
Drummond, H “Riding a Tiger: Some lessons of Taurus” Management Decision, 1998, Volume 36 Issue 3
Duffy, M “London’s Embarrassing Mistake” Wall Street and Technology, 1993, Volume 10 Issue 10
Head, C. H “Taurus and Crest, Failure and Success in Technology Project Management”, Henley Management College, 2001
Unknown “Crest: Little Taurus” www.practicallaw.com/7-100-4206, 1993, accessed 25th October 2007
Websites
www.londonstockexchange.com/en-gb/about/cooverview/history.htm
www.euroclear.co.uk/home/home.html#/company/timeline.html www.bcs.org/server.php?show=conWebDoc.1926
There have been many historical moments along the Stock Exchange’s timeline, each helping it on its way to worldwide prominence. One of the most significant of these was the “Big Bang” on 27th October 1986 (londonstockexchange.com).
On this date of deregulation, the London Stock Exchange became a private limited company and the abolition of fixed commission charges precipitated a complete alteration in the structure of the market.
In 1987 London's antiquated paper-driven procedures almost collapsed under the sheer weight of trading volumes resulting from the unusually buoyant market (Drummond, 1998). These procedures simply had to advance in order to compete with other financial markets worldwide.
Taurus was a computer program that was intended to provide the Stock Exchange with a "state of the art, all conquering" automated system of electronic transmission. This would enable the securities industry to remove paper from the system (in the form of physical share certificates). However, the UK securities industry is very diverse and everyone in the market wanted something different. No one was prepared to compromise so the only solution available to the Stock Exchange was to combine all the various Taurus models (17 in all) into one immensely complex hybrid (Drummond, 1998).
Unsurprisingly, it was an extortionate flop costing £75million. In March 2003, Taurus was abandoned by the London Stock Exchange (euroclear.co.uk).
In July of the same year, work began on a phased approach to the cost effective improvement of UK equity settlement (euroclear.co.uk). It was envisaged that the new system, called Crest, would bring London into line with big financial centres such as New York in having a modern method of settlement.
Crest, unlike its predecessor, has been a resounding success. In fact CrestCo (the company that owns and operates the Crest system and now known as Euroclear) was awarded one of the three trophies in the 1997 British Computer Society Awards, the most prestigious form of acknowledge of excellence in the British Computer Industry (bcs.org).
Simply put, Taurus appears to have been too complex and ambitious a system, overcomplicated further by the hundreds of staff that were involved in its development (Head, 2001). Crest on the other hand was co-ordinated by a core, high level design team of 4 or 5 who kept an overview of the entire project (Currie, 1997). This relatively simplistic (in comparison so that adopted by Taurus) approach appears to have been the secret behind the success of Crest. In trying to meet all the demands of all the transactions, an uncontrollable monster had been created in the form of Taurus. Learning from this, Crest catered only for the 10-15% of business functions that made up 85-90% of transactions. “The market went wild” at such a minimalist system (Head, 2001).
Furthermore, Taurus dictated that all member firms would have to use the system and there was no option to retain share certificates. As a result of this legal problems arose. Crest however, did not force shareholders to relinquish certificates, thus avoiding legal problems and making the system politically acceptable to its institutions.
Crest was also designed after Taurus and therefore benefited from greater technical advances and maturity. From the outset, Crest had a better chance of success. Similarly, many of the software developers who worked on Crest had previously been involved in the design and implementation of Taurus (Currie, 1997). As a result those workers had gained experience in the field and thus started from a position of strength. As had the Bank of England, who set up a company to develop Crest, in order to avoid the inherent organisational politics and difficulties which beset Taurus (unknown, 1993).
When designing Crest, supplier contracts were negotiated at a fixed price whereas those for Taurus were more fluid (Currie, 1997). This prevented suppliers prolonging jobs in order to maximise their own profit and gave an incentive to deliver their product on time and on budget. Had Taurus put similar contracts in place, it may not have cost the £75million that it did. Whilst this can go some way to explaining why Taurus was ten times over budget, it is the reasons outlined above which made Taurus such an infamous failure.
Sources Used:
Articles
Currie, W “Computerising the Stock Exchange: A Comparison of Two Information Systems” Blackwell Publishers Ltd, 1997
Drummond, H “Riding a Tiger: Some lessons of Taurus” Management Decision, 1998, Volume 36 Issue 3
Duffy, M “London’s Embarrassing Mistake” Wall Street and Technology, 1993, Volume 10 Issue 10
Head, C. H “Taurus and Crest, Failure and Success in Technology Project Management”, Henley Management College, 2001
Unknown “Crest: Little Taurus” www.practicallaw.com/7-100-4206, 1993, accessed 25th October 2007
Websites
www.londonstockexchange.com/en-gb/about/cooverview/history.htm
www.euroclear.co.uk/home/home.html#/company/timeline.html www.bcs.org/server.php?show=conWebDoc.1926
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