“Of course it’s about the transactions”
Part 2: The Facts
While technology has facilitated the opportunity for companies to extend their market reach and grow their revenues, it has also increased the level of competition at both national and international level for many. In turn this has fuelled greater demands from customers for better service levels at every stage of the business engagement, resulting in downward pressure on prices, diminished margins, increased overhead and acceleration of the overall pace of business.
Having spent the money on marketing and technology to win the sales, the next challenge for most businesses is to retain as much of their sales margin as they possibly can directly to the bottom line.
Margin retention is determined by the levels of efficiency and economics applied by their back office operations, ERP and accounting systems of record, in processing the transactions from start to finish.
When all is said and done if a company is not making money on their transactions, then everything else will suffer. In short the very existence of a company relies on its ability to profitably manage the costs of its business transactions. Renowned British economist Ronald Coase emphasised the significance of transaction costs as far back as 1937 in his article “The Nature of the Firm” (The Nature of the Firm full PDF article.)
Although we’ve now got the likes of Sarbanes-Oxley Act (SOX), the very fundamental legal requirements for companies of recording, accounting and production of related documents have not changed in decades. Yes, the rules are the rules but the actual core processing of a business transaction is no more complicated today than ever before.
However, what has added more complexity to the mix is the increased volumes in products, customers, suppliers and transactions. Combining these factors with the usual inefficiencies of many business systems, basic human error and miscommunication, business
Transacting is not about what has to be done, it is all about the dynamic of how business gets done. The advent of the internet, mobile and cloud technologies have irreversibly changed the dynamic of doing business. This is why businesses now need smarter systems of record that are digitally connected and can automate processes end to end in real-time, delivering situation awareness for all stakeholders of the enterprise.
As the need for greater collaboration and transparency between businesses continues to increase, the traditional systems of record will struggle to meet these requirements. The vast majority of ERP and accounting financial solutions were designed and built for a different era in business. Their core architecture design will not provide the lean operations and the agility necessary for companies to thrive in the digitally connected markets of the future.
Placing traditional back office solutions on the cloud without changing how the application operates is not the answer. While this is likely to reduce or remove on premise infrastructure costs, companies should not focus solely on the technology, but concentrate more on how their business transacting and operations can be improved. The many challenges facing businesses is outlined in Phil Wainwright’s article “From client-server to cloud: SaaS Evolution”
Technology vendors continue to tackle the problem of disconnect that exists between systems of engagement and systems of record. This is a very substantial challenge, however, there are other areas of disconnect that exist at many stages of the transaction process that must be tackled by the systems of record. Re-engineering the core architectures of existing systems will be painful, expensive and time consuming.
Smarter, cloud based engines can overcome these obstacles for many businesses.
- Part 2 of 3