The advantage of using a hybrid financial management system

by  — 17 April 2016

In the face of continuous changes in the global economy, regulations and compliance, traditional enterprise resource planning (ERP) systems have proven inflexible, time consuming, and costly to change. As a result, more and more mid-market finance and insurance companies are deciding that a hybrid approach is the optimum way forward, writes Monzer Tohme.

A hybrid approach that combines a best-in-class financial management solution with line-of-business applications has been shown to generate very positive results for mid-market finance and insurance companies.

Finance and insurance companies can no longer afford to be constrained by their financial management systems, knocked of course by every regulatory change, and left exposed to the enormous cost and disruption of implementing change. They need to lighten the burden of managing complex industry requirements and ensure financial management systems that enable growth rather than obstruct it. The big question is how they will do this.

Mid-market finance and insurance companies have a variety of options available for meeting their financial management needs. Often, in fact, the choices can be too plentiful, making it difficult to thoroughly assess the benefits and downsides of each approach. However, the process can be simplified by classifying financial management technology strategies into the three broad categories outlined below.

These strategies will inevitably evolve along with technology, although companies can easily become locked into systems that are unable to adapt as the business changes and grows. That is why it is so critical to choose a strategy that can accommodate a company’s needs both now and over the long haul. Whether the company is starting from scratch or replacing a key piece of its overall technology puzzle, making the right decisions now can ensure that the financial management system is an asset to long-term growth and profitability.


The big ERP approach

ERP systems have long been a challenge for mid-market finance and insurance companies. They offer name-brand credibility, promise robust functionality, and often seem like a safe choice in a sea of options. However, the promise of large-scale ERP for the mid-market has rarely lived up to reality. A primary source of ERP’s failure to meet expectations in the mid-market is the one-size-fits-all approach that big ERP companies take – and that size is large. Mid-market companies that choose this route often find themselves with solutions that are expensive, inflexible, unnecessarily complex, and ultimately unable to meet their industry-specific requirements. So while ERP systems have much to offer, finance directors in the mid-market often look to other options that are more adaptable, far more cost effective, and more closely aligned with their specific business needs.


The line-of-business approach

Line-of-business applications can be defined as systems developed to address a particular business process or need (for example, claims processing), but they frequently have broader functionality (for example, financials) built in. These systems can be vendor-provided, homegrown, or some combination of both. Line-of-business applications are chosen for their focus on complex, industry-driven business needs that broader systems may address at only a superficial level. They have typically been developed over time, and provide deep functionality and industry expertise in their given area of focus.

However, the strength of line-of-business applications is also the source of their weakness, particularly when it comes to financial management. Precisely because they are so focused, line-of-business applications rarely provide robust functionality outside their area of expertise. Often, companies will start using whatever financial management capabilities are provided when they are small and their needs are basic. Within a very short time, however, most outgrow the limited financial management functionality and find themselves stuck with a system that is unable to adapt or grow. The bottom line is that line-of-business applications have much to offer and can be a valuable asset, particularly in the complex finance and insurance industries.


Best-in-class and line-of-business applications

Best-in-class applications can be defined as systems that address a single, core business area (for example, financial management) that is common across industries. These solutions have typically been developed from the ground up to address their area of focus, rather than added on to other applications to create a packaged offering. While there is no official classification, best-in-class solutions are those that have a singular focus and robust functionality that broader-based solutions cannot match.

For mid-market finance and insurance companies, a hybrid approach that combines a best-in-class financial management solution with line-of-business applications has been shown to generate very positive results for the simple reason that everybody wins. Financial executives get a highly flexible system that can keep pace with business needs that change overnight, while others get the systems they need to manage complex, industry-specific business processes. Best-in-class financial management solutions put the power in the finance department’s hands, providing the flexibility to adapt without the assistance of consultants, application specialists, or even IT. This is especially welcome in mid-market enterprises, which very often have limited IT resources and skills at their disposal.

By leveraging best-in-class financial management systems that have robust integration capabilities, they can leverage third-party applications without jeopardising data accuracy, reporting, and control. The result is the best of both worlds – applications that are the best of the best for their specific business area but able to work seamlessly together.

When evaluating financial management systems, companies must get beyond today’s needs and keep an eye on what is coming, both in terms of organisation’s needs and market trends. The right decision will put businesses in control and ensure that they have a finance department with the tools and resources to handle anything that comes their way.

Monzer Tohme is the country manager, Middle East, at Infor.


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