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A B2B Financial Ecosystem Provides Opportunity for the Greater Good – A guest blog by Fis

The business world is broadening access to customers around the globe at an exponential rate. The ability to connect and interact virtually has made essential communication easier than ever. The shocking reality however is that many businesses are still limping along with the same technological infrastructure that has been around since before the invention of the fax machine. With the pace at which technology is evolving, why are businesses falling behind?

Lost in another business cycle

If one system could rule them all, it seems that it would have been invented already.  Technology has outpaced everything in our daily lives and continues to advance at a pace we have never seen before. A graphic I found on the internet (so it must be true), shows that the Apollo 11 mission that landed on the moon had 1,300 less processing power than an iPhone.  And not just any iPhone. An iPhone 5s!  Let that sink in for a minute.  A computer was able to take off, land on the moon, and return astronauts home safely with only 74 kb of memory.

Since 1969, technology has come a long way.  In that time, if one solution could be the best at supporting all financial processes for a business, doesn’t it seem that it would have already been invented?  Some have tried…and failed.  Others continue to offer additional capabilities by acquiring other businesses that allow them entry into each vertical.  There is an inherent flaw in that logic, however.  The systems are still separate.  They operate independently to do what is best for that function they are supporting.  Some of the mega ERP systems in the marketplace claim to fully support every function under the sun.

Everyone knows that while they may have ‘a module for that’, the reality is it takes you twenty-plus clicks to access and execute anything.  And don’t even get me started on having to memorize transaction codes to navigate through the system.  After all those clicks and t-codes, you are still left with sub-standard functionality just so they can say they have that.

One approach for businesses is to allow their different departments to operate independently.  Each department can select its own solution based on its unique requirements.  There is merit to this approach.  Who knows what works best as payables, receivables, or treasury system than someone who works in that department and within those systems?  There is certainly something to be said for the wisdom of experience.

As with any enterprise in the business world, the approach taken is cyclical.  Remember when six-sigma was the rage after Toyota developed the Toyota Production System (TPS)?  Every company and every function within that company tried to adopt the six-sigma methodology.  Many abandoned it.  It certainly has its place and has lasted the test of time, especially within manufacturing environments.  But many businesses realized the six-sigma approach doesn’t fit in every situation.  Trying to force it created more problems than it solved.  Finding a black belt who could oversee six-sigma initiatives across so many different disciplines became extremely difficult.  It requires someone with some subject matter knowledge, incredible people management knowledge, and someone with the patience to properly train others on the concepts when they have not had the same formal education with it.

A hybrid approach to break the cycle

With many cyclical business initiatives, a “new” (new meaning it hasn’t been tried in the last 10-plus years) approach will be mandated only to have it swing back the other way a few years later.  Either when the executive sponsor moves on or the costs just become too high.  Trying to combine every financial system into one solution is simply an exercise in futility.  I propose a hybrid approach.  Perhaps this hybrid approach will also be cyclical.  But the merits underscore the idea a solid and will remain intact for many cycles to come.

This hybrid approach allows individual systems to continue to focus on what they do best.  A receivables solution will focus on efficiency and bringing cash in the door quicker.  A payables system will continue to look for the least expensive payment method that also allows them to hold onto their money longer.  A treasury system will continue to improve working capital and provide visibility into a company’s liquidity position.  The list goes on and on, but you get the picture.

So far, it sounds a lot like the previous approach of allowing individual departments to operate independently.  The twist is that these systems can, and should, work together.  No one department or system is the master of the others.  Each solution will support the goals of the department while sharing information and insight with the other solutions for the good of the entire company.  To state it another way, it will become a financial ecosystem.

The very nature of an ecosystem includes internal (department) and external (other departments and the economy) factors that influence whether something survives, thrives, or becomes extinct.  Ignoring external factors will eventually cause an ecosystem to fail.  With this financial ecosystem taking into account internal and external factors, a business will thrive.

Practical applications

I can throw around the term B2B financial ecosystem all day long.  But, without describing what that means, it isn’t very helpful.  The first and most fundamental part of this financial ecosystem is communication.  The different solutions must be able to share information seamlessly.  Application Programming Interface (API) is the closest thing we currently have to supporting natural, human-like communication between systems.

APIs allow for the real-time transfer of data in two directions.  It is not perfect, but it is the best we have for now.  APIs tend to struggle with large sets of data.  This can be overcome through proper design and development of processes to initiate the transfer of data as events happen rather than allowing large sets of information to build up.

Another downside to APIs is the requirement that each system must talk the same language.  In today’s environment, one solution/provider will publish an API library which basically defines the language that must be used to “speak” or transact with their solution.  That is equivalent to someone going to a foreign country and not being willing to learn the local language.  If someone wants to talk with that person, they must learn the visitor’s language.  You can see how that would be problematic.

So, what is the answer to this problem?  One approach would be to force every system around the globe to use a standard language…not likely to happen in this lifetime.  Another approach, and one that is more likely, is to utilize systems that are already using the same language.  Rather than piecing together solutions and investing millions in developing translations that allow each system to communicate, why not utilize solutions that already have these connections built?

I mentioned another fundamental element of this financial ecosystem above.  That is each solution must meet the individual needs of each department.  If the financial ecosystem has weak internal pieces, it will only be as good as the weakest link. If you’re haemorrhaging cash in one area, it makes the entire company suffer.  Having strong solutions that continue to develop and advance to support not only the current needs but also the future needs of a business is paramount.

Finally, and maybe the most important factor for an ecosystem to thrive is the ability for each solution to utilize the data that is provided from the others.  Communicating is one thing, but if you don’t, or worse yet, can’t act on what has been communicated, the intent has been completely lost.

I have experience across just about every financial discipline within a business, but I am partial to receivables.  So, lets use that as the basis of this example.  I think that we can all agree that one of the main goals or ambitions in receivables is to increase cash flow for the company.  There are other goals but that is usually the top one.  If the receivables solution doesn’t possess capabilities to improve cash flow independently, full stop, the ride is over.

Assuming the receivables solution possesses some form of artificial intelligence to identify trends (good or bad) and possesses the appropriate levers to drive improvements in customer payment behaviour to make an impact on cash flow, that information gathered by the receivables system would be extremely beneficial to a treasury system.

Accurate cash flow forecasting is like the holy grail for treasurers.  At the same time, if the treasury system determines that there is going to be a shortfall in cash six weeks into the future, that information would be beneficial for a collection system to know so adjustments can be made (i.e. early pay discounts) early enough to make an impact and turn the shortfall into a surplus.

Ecosystem designed for the greater good

The overall intent of a financial ecosystem is to support the greater good.  Creating an environment that ensures individual department success but with the ultimate goal of determining what is best for the entire company.

I have worked for businesses that couldn’t agree within individual divisions on what the best approach was, much less at the total company level.  Without visibility and oversight at the top level, each department will do what is best for them.  I use this phrase a lot, “people do what they are incented to do”.

If I am a payables manager that is incented to issue payments at the lowest cost possible, I am going to find the cheapest payment rail possible and issue all payments that way even if it means adding multiple days onto the delivery of the payment, regardless of what that means for the procurement teams that are trying to purchase new materials or the production team that need those materials to build the product to ship to a customer.

That example is a bit extreme, but if that was the only goal someone had, that is exactly what they would do.  With a B2B financial ecosystem with interconnected best-in-class solutions that work in tandem for the benefit of the entire company, we can finally move into an era of collaboration and success while supporting the greater good.


Author: Keith Cowart, Global Market Owner, Renewables – Fis