Finance departments have accumulated a considerable collection of technology during the past decade. An organization may rely on an ERP system alongside separate applications for accounts payable, expense management, planning, reporting, close management, payroll, procurement, tax, treasury, and business intelligence.
Each application may have been purchased for a sensible reason. Over time, however, the combined environment can become expensive and difficult to manage.
As software providers broaden their platforms and organizations reconsider technology spending, finance leaders may be asked whether some of these systems can be consolidated. The answer requires more analysis than comparing subscription costs.
Begin With the Business Process
Technology consolidation discussions often begin with an application inventory. That is useful, but finance leaders should also document the processes those applications support.
Two systems may appear redundant while serving different requirements. Conversely, several applications may support portions of the same process without anyone recognizing how much duplication exists.
Controllers and CFOs should map important finance processes to the systems used at each stage.
For accounts payable, for example, this might include invoice receipt, document capture, coding, approval, payment, supplier communication, accounting, and reporting. Looking at the complete process makes it easier to identify unnecessary handoffs and overlapping functionality.
Determine What Employees Actually Use
Software contracts reveal what an organization owns. They do not necessarily reveal how employees work.
A department may license extensive functionality while employees continue to rely on spreadsheets for important activities. Another system may have hundreds of registered users but relatively few active users. A specialized application may perform one narrow function that has since been added to the ERP platform.
Usage data can help finance leaders distinguish between essential systems and applications that remain in the environment largely because no one has revisited the original purchasing decision.
Employee interviews are equally important. Usage statistics may show that an application is opened frequently without explaining whether it works well or creates unnecessary effort.
Calculate the Full Cost of Each System
Subscription fees are only one component of technology cost.
Organizations may also pay for implementation support, consultants, integrations, data storage, upgrades, training, administration, security reviews, and internal technical support.
Manual work created by a system should also be considered.
If employees regularly export information from one application, modify it in spreadsheets, and upload it elsewhere, the organization is paying for that inefficiency through labor even if it does not appear on a software invoice.
A more complete cost assessment gives finance leaders a better basis for comparing consolidation alternatives.
Examine Integration Before Eliminating Applications
Removing a system can have consequences elsewhere.
An application may feed information into the ERP, supply data to management reporting, connect with banking platforms, support a compliance requirement, or serve as a source for another department.
Before retiring an application, organizations should understand its upstream and downstream dependencies.
This is particularly important in finance, where a seemingly minor data connection may support a reconciliation, control, report, or audit requirement.
A system architecture review conducted with IT can prevent savings in one area from creating additional work in another.
Do Not Assume One Platform Is Always Simpler
Consolidating several applications onto a primary platform can offer meaningful advantages. Organizations may reduce integration requirements, simplify administration, establish more consistent data, and negotiate fewer vendor agreements.
However, consolidation has limits.
A broad platform may provide adequate functionality across many areas while a specialized application performs a particular function considerably better. Replacing that application could require employees to accept weaker capabilities or recreate missing functions manually.
Finance leaders should evaluate the quality of the resulting process rather than pursuing a predetermined number of applications.
The objective is a manageable technology environment that supports the organization’s requirements at a reasonable cost.
Consider Control and Data Implications
Technology changes can alter the control environment.
Moving a process from one system to another may change user access, approval workflows, segregation of duties, system-generated reports, data retention, or audit evidence.
Controllers should identify these changes before migration.
Data deserves similar attention. Consolidation projects can expose inconsistent definitions, duplicate records, incomplete master data, and conflicting reporting structures that developed across separate applications.
Addressing those issues may require more effort than the software migration itself, but doing so can improve the value of the resulting environment.
Account for Switching Costs
A system may be expensive to maintain and still be expensive to replace.
Implementation work, data migration, integration changes, employee training, process redesign, temporary productivity losses, and consulting support should all be included when evaluating potential savings.
Finance leaders should also consider contract timing. Terminating one system while another is being implemented can create periods of overlapping expense.
A realistic business case should show when the organization expects to recover its transition costs rather than presenting only the annual savings available after consolidation is complete.
Establish a Regular Portfolio Review
Technology rationalization should not occur only during cost-cutting programs.
Finance and IT can establish a recurring review of the application portfolio that examines costs, usage, business ownership, security, integration, functionality, and contract renewal dates.
This creates an opportunity to identify redundancy before it becomes deeply embedded.
It also gives finance leaders greater visibility into how technology spending changes over time.
Consolidation Should Produce a Better Operating Environment
Reducing the number of applications can lower costs, simplify administration, and improve information flow. Poorly planned consolidation can merely transfer complexity from systems to employees.
Finance leaders should therefore judge consolidation by the operating environment it creates.
A successful effort should leave employees with clearer processes, reliable information, appropriate controls, fewer unnecessary handoffs, and technology that supports the work the department actually performs.
That standard is more demanding than reducing a software count, but it is considerably more useful.
