Auctionwire

Business Plan

Josh Gold and David Romeo are talented entrepreneurs who in early 2004 identified an excellent opportunity within the market to launch an online auction management business called Auctionwire.

The Auctionwire business plan in my opinion is strategically sound with excellent potential for success. First of all, Gold and Romeo have specified that the target segment is corporate clients in Canada. Through focussing on a specific market like this in one geographical location, Auctionwire successfully differentiates itself from other online auction management businesses.

One particularly attractive aspect of the business plan (from a customer’s perspective) is that Auctionwire will charge clients a commission on successful auctions only. This again differentiates Auctionwire from competitors. It highlights that Gold and Romeo have put time and thought into forming a business plan, in this instance thinking up unique ways of offering superior client service and value to help ensure business success.

Another innovative element to the business plan is that Auctionwire will manage the complete auction process for clients. This holistic offering illustrates that the business is likely to obtain competitive advantage through providing a superior unrivalled service to clients, again highlighting the attractiveness of the business plan.

Perhaps overly optimistically, the Auctionwire business plan targeted a May 2004 start date which meant that Gold and Romeo basically allowed themselves a three month period to set the company and software up. I believe that this is a suitable time period but only if Auctionwire uses off the shelf tried and tested software, as opposed to building software from scratch which would take considerable time. If building from scratch is the chosen option, I would conclude that this time projection of roughly three months is not suitable.

Another potentially negative aspect of the business plan concerns the commission charges. With Auctionwire, commissions would range from 40% of low value items to 5-10% of high value items. This is considerable higher than that of other online auction companies such as ebay. However, such competitors do not necessarily offer as many services to the customer. Unfortunately, it is difficult to determine which online auction company’s service is more beneficial to the customer without detailed market research. Subsequently, it is difficult to decide whether this aspect of the business plan is value adding or non value adding to the customer, in the context of competitor comparisons.

In general, it seems that the business plan is extremely client-focussed. This is obviously a good thing, since it is essential that client service is of an excellent standard if Auctionwire is to succeed. From analysing the information, I believe that the business plan outlined will benefit the customer, and thus I believe that Auctionwire have an excellent chance of success.

Software Requirements Specification

In terms of the software required by Auctionwire, most of the features are readily available within all software solutions under consideration. However, some more advanced features are required which complicated matters.

On reflection of Auctionwire’s needs, I think that they will contribute to meeting the objective of providing a superior service to clients. Although, I do not believe that all the requirements are realistic or even necessary, especially when Gold and Romeo do not want to spend more than $15000 on upfront software costs.

More specifically, Gold and Romeo have outlined many needs, all of which would benefit the customer, but some of these needs are particularly demanding and complex, and thus unlikely to be implemented by the launch date. What they should focus on initially is obtaining the essential software requirements, and thereafter try to add to the service over time rather than rush to incorporate too many things at an early stage.

It could potentially be financially dangerous to try and include too many costly software specifications before the company is established. Therefore, I would suggest that Auctionwire take a more cautious approach with regards to this area.

Should they build their own software or buy off the shelf?

In light of the detailed and complex software requirements specification, it could be argued that it is more sensible for Auctionwire to build their own software. This would mean that a developer could build a software solution more accurately aligned with Auctionwire’s needs, or even completely customised to Auctionwire’s needs.

Unfortunately, open source code software would have to be purchased by Auctionwire for $5000. On top of this, the cost of hiring an experienced developer could be considerable. Moreover, there is a risk that the developer might not be able to meet Auctionwire’s complex demands due to inexperience or lack of technical knowledge.

The substantial time period involved in developing software from scratch combined with time committed to upgrading it each year also contribute to me concluding that this is not a viable nor sensible option.

On the other hand, Gold and Romeo can choose to purchase an off the shelf software package for Auctionwire. Buying off the shelf software can also be considerably expensive, however the time involved in setting the software up is considerably less than that associated with developing software from scratch.

Furthermore, off the shelf software packages may be previously tried and tested, meaning that they are a safer and more sensible option for Auctionwire. Similarly, because of this, the risk of failure is reduced since off the shelf software packages are generally more reliable and robust.

On the negative side, Auctionwire requires many detailed specifications in line with its objectives. Unfortunately, off the shelf software can be inflexible, and therefore not able to be customised to meet the detailed requirements of Auctionwire. However, I still abide by the opinion that off the shelf software is a better option to begin with. This is aligned with my views regarding only implementing the essential features first, i.e. those included within off the shelf packages already, before deciding on upgrading or even developing new software from scratch.

Which supplier should they choose?

From analysing the various possible suppliers, I believe that SuperAuction is the obvious choice for off the shelf software. The other suppliers have some major flaws which cannot be ignored. For instance, Canauction and Blackthorn Pro are both particularly new and thus lack testing and reliability. In particular, Canauction’s software solution includes many bugs which still require to be fixed – clearly not a sensible option!

Clear-bid, a long established software provider, has a terrible customer service reputation and is considerably costly to set up, and therefore it would not be desirable for Auctionwire to purchase software from them.

SuperAuction on the other hand is a reasonably priced software provider with a strong relationship with ebay, as well as having relationships with other auction websites as (in line with Auctionwire’s needs).

SuperAuction’s 24 hour customer service team highlights their emphasis on the customer’s needs, in line with Auctionwire’s customer-focussed objectives. Furthermore, the offline system available with SuperAuction is another attractive advantage. Having such a system in place avoids the problems associated with downtime, for instance lost sales, which could potentially damage Auctionwire in both financial and reputation contexts.

SuperAuction is a long established supplier with more experience than some of the other candidates. Therefore, they are a more reliable supplier and thus it is more likely that the software will be implemented in time for the Auctionwire launch.

In addition, with SuperAuction, Gold and Romeo believe that can program workarounds to achieve approximately 80% of the missing functionality, which contributes to my opinion that SuperAuction is definitely the ideal supplier for selection.

Online procurement case

Mars, one of the world’s largest privately owned businesses, recently decided to take advantage of using online procurement auctions. In recent times, online auctions have emerged as one of the best opportunities to reduce costs – something which is of the utmost importance to any company which has growth ambitions. It was apparent to Mars that many other businesses had been achieving savings of roughly 5% through using online auctions, signalling that this was the way forward.

Analysing this figure of 5% in the context of Mars’ procurement costs, it equates to a significant value of savings. Growth is one of Mars’ key objectives, meaning that this opportunity was considered both necessary and worthwhile, and therefore could not have been ignored. The advantages and disadvantages of using this new procurement method is analysed in detail below.

Basically, Mars’ goal was to be able to obtain the required materials from its list of approved suppliers fairly and at a minimum cost. The method of doing so had to encompass their core principal of mutuality, i.e. shared benefits between both Mars and suppliers.

One of the attractive aspects of using online auction systems is that they can be tailor made to suit a company’s needs, meaning that ensuring guidance with company principles is perfectly possible.

Already mentioned above is the fact that savings achieved from using online auctions are particularly high. Thus, from a financial perspective, it is definitely an advantageous process. Research on the subject of online procurement enforces the belief that it is a cost cutting process, since it helps consolidate purchasing practices which in turn leads to greater discounts (Attaran, 2001). Furthermore, research has also shown that online auctions can actually achieve gross savings of up to 40% (Emiliani, 2000).

Previously, the majority of Mars’ annual direct material purchases came from a small number of highly valued suppliers. Strong supplier relationships were in place, which Mars would not want to jeopardise. Under the previous methods, it was possible that these relationships could actually have been jeopardised. This was because supplier negotiations were conducted in an arbitrary manner which meant that situations could arise whereby a valued supplier uncovered that a competitor had been awarded a contract under terms that it would have been prepared to better. Obviously, this was considered a desirable scenario.

This issue highlights one of the key advantages of using online auctions: more fairness to suppliers and more efficient and effective means of selecting a supplier. Through using online auctions, Mars can allow a selection of pre-qualified suppliers to bid for a contract, meaning each supplier is given an equally fair opportunity to win.

Furthermore, since the new process will likely require Mars to evaluate other capable suppliers that they might not otherwise have considered, Mars may actually end up formulating new strong supplier relationships which will benefit the company in the long run.
On the whole, the online auction process is very simple and efficient. Using a procurement website, Mars is able to issue a supply contract outlining requirements, which in turn reduces negotiation time between Mars and a supplier. The auction itself takes place within a certain short time period, meaning that all suppliers are forced to submit their bids quickly, again highlighting the efficiency involved.

Mars’ previous purchasing process was an extremely time consuming inefficient process. For instance, much negotiating time was dedicated to agreeing on price, one of the most time-intensive activities within the purchasing process, (Emiliani, 2000) and quantity. Both are areas where online auction mechanisms would provide an efficient means of settlement (Bell, 2005).

Similarly, the conventional procurement process tends to involve a large amount of paper processing which costs time and money. Through using online procurement, both time and money will be saved. It has even been reported that companies using online procurement have been able to reduce processing costs by a massive 85%! (www.inktec-uk.co.uk). With reduced workload, staff will also have more time to add value to the business in other ways.

In addition, since the online process significantly compresses the time involved with negotiations, the risk of changes in business conditions occurring is reduced. Such changes could potentially affect price meaning that Mars could be at a disadvantage on occasion.

Mars wanted to ensure that they did not become dependant on too small a number of suppliers. Fortunately, through the tailor made design element of online auctions, this was made possible through Mars being provided with the option to enforce a minimum number of winning bids in an auction. This highlights how flexible online procurement systems can be to meet requirements of a client company.

From all the points above, it is clear that online procurement has the potential to save a company like Mars millions of pounds. However, companies need to analyse the potential adverse impact which online auctions could have on their business, most notably on supplier relationships. These disadvantages are highlighted below.

Many believe that online auctions have a negative impact on relationships with suppliers. Firstly, reverse auctions can often force a supplier to offer products at a price closer to their break-even point, or even below it (Chin, 2002). Therefore, this supplier’s financial health is put at great risk, which could subsequently affect the long term supplier relationship.

Additionally, it is likely that relationship with suppliers will suffer anyway because of the abandonment of face-to-face negotiations in favour of the automated bidding process. More specifically, how can a company reasonably expect to build rapport and trust (i.e. any form of sound relationship) with a supplier if they do not deal with each other in person?

It is probable that with the new online process Mars will evaluate other potential candidate suppliers not dealt with before which presents a new element of risk - a new supplier may not prove to be reliable, which could have a detrimental effect on Mar’s business.

Although the long term financial benefits are clear to see, the initial adoption and implementation of online procurement systems can be very costly and problematic. Software licences along with implementation and integration costs can be extremely expensive. Likewise, online procurement software is still fairly new, and while most applications perform some functions well, none does everything well. This means companies may end up using a ‘patchwork’ of products (Emiliani, 2000) which contributes to costs and technical integration issues.

Another disadvantage is that companies choosing to use e-procurement software may encounter difficulty in gaining acceptance by employees. In other words, many staff who previously have had purchasing autonomy will perhaps not like the change of new system.

Finally, although the process is particularly efficient with regards to time involved, sometimes it is not always easy to select a winning bid within such a short time period – one of the problems which highlighted by Mars. In a situation where several bids seem equally attractive, how is a company expected to differentiate in such a short period of time?

Perhaps a solution to this problem is for companies to use a combination of online procurement and traditional processes to avoid making rash decisions, thus ensuring company success.

Conclusion

Through using internet technology, businesses are able to simplify their procurement process significantly which in turn will generate impressive savings, allowing a company to grow. Benefits of such magnitude cannot be ignored, although a company must be prepared for the potentially adverse impacts which could arise when they choose to use online auctions.


References

Attaran, M., (2001), “The Coming Age Of Online Procurement”, Industrial Management & Data Systems, Vol. 101, Number 4, pp. 177-181.
Available at
http://www.emeraldinsight.com/Insight/ViewContentServlet?Filename=Published/EmeraldFullTextArticle/Articles/0291010404.html

Bell, P.C., (2005), “Mars Incorporated: Online Procurement”, Richard Ivey School of Business Case Collection, January.

Chin, S., (2002), “Web Auctions On Rise But So Are Concerns – Suppliers Balk At Online Bidding Process”, EBN, June, Iss. 1318.
Available at
http://proquest.umi.com/pqdweb?index=28&did=128142651&SrchMode=1&sid=1&Fmt=3&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1197477568&clientId=46002

Emiliani, M.L., (2000), “Business-to-business Online Auctions: Key Issues For Purchasing Process Improvement”, Supply Chain Management: An International Journal, Iss. 4, pp. 176-186.
Available at
http://www.emeraldinsight.com/Insight/viewPDF.jsp?Filename=html/Output/Published/EmeraldFullTextArticle/Pdf/1770050402.pdf

McNevin, A., (2001), “Buying Power Through E-Procurement”, Computing, March.
Available at
http://www.computingbusiness.co.uk/computing/features/2072027/buying-power-procurement

Stein, A., Hawking, P., Wyld, D.C., (2003), “The 20% Solution?: A Case Study On The Efficacy Of Reverse Auctions”, Management Research News, Vol .26, Iss. 5, pp. 1-20.
Available at
http://www.emeraldinsight.com/Insight/viewContentItem.do;jsessionid=6240A95A56D290CF70F57148633DA710?contentType=Article&hdAction=lnkpdf&contentId=866863&history=false


Websites

http://www.inktec-uk.co.uk/ecommerce/b2b-ecommerce.htm

Assignment - Case Study 2 - Compound UK

In response to changes in organisational structure, Compound UK decided to implement a software package called Lotus Notes to improve knowledge sharing across the organisation. Essentially, the new software would improve teamwork and communication throughout the business, which in turn would lead to greater success. However, from reviewing the case, it is clear that Lotus Notes could have been introduced, implemented and operated in a more effective way. This is discussed in detail below.

Introduction stage changes

Although the case does not include details of employee training pre-implementation, there are clear indications of conflicts of interest between employees. Basically, Compound should have ensured that all employees fully understood the importance of using the new system in an ethical and appropriate manner before it was put into operation. For instance, it became apparent that many of the sales reps were recording irrelevant contact visits to make their performance seem better. Strict guidelines of use pre-implementation would have helped to avoid such an outcome.

It was clear that many of the sales reps were unhappy with certain elements of the new system. Compound should have actively communicated with sales reps before implementation in order to establish employee opinions and suggestions relating to the new system. By doing this, Compound would have identified possible problems at an early stage, as opposed to encountering issues after the introduction stage. Through such consultation, employees would have felt more comfortable with the new system. As well as this, obtaining and implementing employee suggestions would highlight that Compound value the contributions of its staff, which in turn would likely improve morale and performance.

Similarly, senior management should have communicated to sales reps the purpose and intentions of the new system at the introductory stage. This avoids an upset and subsequent reduction in morale, which did in fact arise when sales reps discovered at a later stage that one of the objectives of the system was to gain tighter control of employees by monitoring their activities profusely.

Operational changes

During usage of Lotus Notes, it became clear that many sales reps were abusing the system's performance measurement element. Compound UK could have managed such occurrences more effectively if they had controls in place to monitor exactly how the system was being used. For example, a team could have been set up to ensure sales reps were using the system appropriately. In conjunction with this, regular feedback sessions could be held to help discover and thereafter rectify any issues which the sales reps raise.

On reflection of the case, it is clear that sales reps fall into two distinct categories: career-orientated and non-careerist. In terms of organisational culture, Compound should have tried to ensure as best as possible that all employees were equally highly driven and motivated individuals, all intent in selling as much possible. This could have been achieved through feedback sessions, morale building exercises and a bigger emphasis on managing people as keeping staff motivated and enthusiastic is key to success within any business. With such changes, all reps would be working towards a common goal, and would thus be more likely to utilise each other as a team through knowledge sharing. After all, this was one of the main objectives of Lotus Notes.

On the whole, performance measurement was not effectively managed. As detailed above, league tables were abused by staff to achieve better apparent results. Area management and sales office staff should not misinterpret these results as they are not an accurate reflection of performance. For instance, contact rates are not necessarily a true indicator of selling performance, especially when reps were able to inflate their true levels of contact through inappropriate recording.

Again with regards to performance measurement, not all sales staff should be measured equally since primary care reps do not service an equivalent client base to specialist care reps. The system implemented favours specialist care reps who had more complex sales situations in their territory, which they could subsequently add to the strategic selling database. This made them appear more willing to make use of the knowledge sharing system and gained them credit from management. Obviously, this is unfair on primary care reps.

In general, the e-mail function provided by the package could have been utilised more effectively by managers. In particular, a uniform feedback process providing reps with constructive advice on improving performance could and should have been initiated through e-mail. This would ensure that reps are aware of areas which need improved on, thus helping improve the overall success of the business.

One area which we definitely feel would benefit from change was the reward system employed by Compound senior management whereby individual managers to decided whether or not sales reps should be awarded a bonus. This was problematic since managers in different areas measured success in different ways. A uniform reward system which measured success in the same way across all regions would be much fairer, as well as less time consuming since each individual manager would not have to consider which staff deserved bonuses.

System changes

What is most surprising is the fact that Lotus Notes does not include a figures based on actual sales. Surely the quantity and financial value of sales achieved by reps are the most significant measures of performance. The system would benefit from including such indicators, since management would be able to assess more easily how the reps are performing, discovering instantly who the poorer performers who need to improve are.

The inclusion of league tables is a factor which undoubtedly affects the morale of certain staff. It is commonly known that league tables can have an undesirable effect since staff become de-motivated – surely an outcome Compound wish to avoid. However, it is important that staff see how they are performing in comparison to the rest of the organisation. Therefore, we suggest that sales rep performance be included in a table which organises reps in alphabetical order. Using a sort function, the league table view could still be obtained. In implementing this idea, poorer performers would not feel pressurised to the same extent.

With reference to the discussion databases, Compound UK would benefit from giving all employees, including senior managers, access to the discussion databases. The role of a manager is to help lower level employees, and by implementing this system change, the company would have removed the barriers implicit within the organisational hierarchy, thus creating a more efficient team-working environment.

Finally, to ensure reps make sufficient use of the contact records, we would suggest that each contact record consist of a number of mandatory fields to guarantee that each rep puts in roughly the same effort when completing them.

Knowledge sharing can be a highly effective business tool if implemented in the correct manner and ran efficiently. If Compound UK can refine their system with the aforementioned recommendations, we believe that they can not only experience the full benefits of knowledge sharing, but also improve overall business performance.

This report was prepared in collaboration with Robbie Innes.

MYSQL Database Case - What are the advantages and disadvantages of using open source software in business?

The open source (free software) movement has grown significantly in recent years. The current trend highlights an increasing popularity and interest in open source on a global scale. Everyone from the IT industry to corporations, governments and individuals knowingly or sometimes unknowingly use open source software on a daily business.

On the whole, the effects of using open source in business are advantageous, with the main benefit (not surprisingly) being lower software costs, since open source software is free, not usually requiring licensing fees. Any expenditure involved relates to obtaining documentation and/or support if required.

Due to the competitive nature of the market, many proprietary software vendors have made similar free products available, for example Oracle and Microsoft. These companies felt the need to react aggressively to the success of MySQL’s open source software through enhancing their own product ranges. In other words, MySQL’s advance has had a catalyst effect on the market, forcing vendors to develop open source software, benefiting businesses and other users globally.

As well as lower software costs, another advantage of open source is lower hardware costs. Open source solutions such as those offered by MySQL are compact and portable, meaning less hardware power is required to carry out the same tasks as on conventional servers or workstations. Hardware savings can make a significant difference to a business, making open-source all the more attractive.

Source code availability and the right to modify is another meaningful advantage of using open source software in business. This characteristic means that a business is able to modify parts of the underlying software to more closely meet their requirements and objectives, and in turn help differentiate themselves in their own markets. This is one of the key benefits offered by MySQL software which contributed to the company’s success.

Vendors will frequently make the necessary modifications to their software themselves to benefit users. For instance, MySQL incorporated users’ suggested modifications/improvements in a newer version of its database which not only benefited users through an enhanced function offering, but the company as well since they were thereafter able to compete to a greater extent with competitors (Stanford, 2006).

Source code availability also makes it easier to uncover bugs and get them fixed (Barahona, 2000). In general, bug fixes along with updates and new versions of open source are available very frequently, meaning a business would not have to worry about working with an outdated version.

Another advantage is simplified license management. The fact that a business can download the software and install it as many times in as many locations as need be is a major plus.
The ability to use the software in any way combined with redistribution rights has attracted many business users to MySQL software. Consequently, this increase in users has helped build up a market for support and customisation of the software, which in turn has attracted more and more developers to work on improving the software – a benefit to business users in the long run since product quality and performance will constantly be improved.

The open source software provided by MySQL and similar providers (e.g. Linux) comes complete with scaling and consolidation ability. More specifically, multiple options are available for load balancing, clustering, and open source applications, such as database and email. Combined with an abundance of development resources, this gives businesses the ability to scale up for new growth or consolidate to do more with less (Williams et al, 2005).

What also makes open source an attractive option is the fact that businesses are able to avoid traditional vendor ‘lock-in’ (Williams et al, 2005), e.g. ongoing license fees, lack of portability and the inability to customize software to meet specific needs, all of which arise from being in a contract with a typical closed source software supplier. Essentially, open source provides businesses with freedom of choice and few restraints – more key reasons underlying the success of MySQL.

Nowadays, training packages are made available for open source software, meaning businesses can choose to have their staff highly educated in operating the software. MySQL offers a comprehensive set of training and certification courses across the world, providing users alike with the training option.

Unfortunately, it isn’t entirely benefits that are associated with using open source software in business. There are some major drawbacks which should be considered before a business decides to ditch previous software packages in favour of open source.

First of all, open source isn’t necessarily always free. There are on occasion unforeseen/unanticipated costs, e.g. administration, implementation, service and support costs. A business would have to strategically analysis possible future costs and financial capacity to ensure the correct decision is made.

The fact that no free support service exists is a major disadvantage of using open source software within business. Although, this in turn presents an opportunity for the developer to earn significant revenues. For instance, MySQL in response to this problem produced the MySQL Network - a subscription service available to paying customers which provides various forms of support and updates, making it simple for businesses to solve problems and manage an unlimited amount of MySQL servers (Stanford, 2006).

Although this new service dramatically increased revenues for MySQL, the company encountered large numbers of customer complaints which was an unforeseen outcome. This was down to an increase in customer expectations arising from having to pay for a service.

Through choosing to use open source software, businesses could be limiting themselves in terms of capability. To illustrate further, commercial closed source applications are generally more feature rich (Gittens, 2007) and could thus be a more suitable and valuable option for many businesses. This is a problem for MySQL who recently released an updated version of software which was considered to be inferior in comparison to that of Oracle’s which included better features (Stanford, 2006).

Finally, there is a concern over whether or not open source software is secure. By enabling anyone to view the source code, it makes it easier for hackers to find security holes within the applications, which could potentially compromise a business using the software.

According to recent research, MySQL has 59 ‘vulnerabilities’ in contrast to the safer IBM DB2 (4 vulnerabilities) and Microsoft’s SQL server (only 2 vulnerabilities) (Higgins, 2006). This is obviously a major factor which should make business think twice before choosing open source, at least until the security problem is resolved. On the other hand, this does not necessarily mean that closed source software is a better option from a security perspective, since there are security issues associated with closed source software too.

Conclusion

MySQL’s success has led to key competitors such as Oracle, Microsoft and IBM lowering their prices significantly. As a result, businesses are spoiled for choice when it comes to selecting cost effective software.

From analysing the advantages and disadvantages of using open source in business, it is evidently justifiable to conclude that open source software is highly advantageous and beneficial. The quality and dependability is of a very high standard and according to some research, perhaps even equal to that of closed source software (Halloran & Scherlis, 2002).


References

Gittens, C., (2007), “Open Source is still fighting against fear”, Willodale, March, Vol.33, Iss.4, p.25.
Available at
http://proquest.umi.com/pqdweb?index=7&did=1252213981&SrchMode=1&sid=3&Fmt=2&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1197083184&clientId=46002

Gonzalez-Barahona, J., (2000). “Free Software/Open Source: Information Society Opportunities for Europe?”, European Working Group on Libre Software, April.
Available at http://eu.conecta.it/paper/Advantages_open_source_soft.html

Halloran, T.J. & Scherlis, W.L., (2002), “High Quality and Open Source Software Practices”, Position Paper.
Available at http://opensource.ucc.ie/icse2002/HalloranScherlis.pdf

Higgins, K., (2006), “Databases At Risk”, Information Week, Iss.1116, p.62.
Available at
http://proquest.umi.com/pqdweb?index=9&did=1176667721&SrchMode=1&sid=3&Fmt=3&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1197083184&clientId=46002

Stanford Graduate School of Business, (2006), “MySQL Open Source Database in 2006 (B)”, Stanford Graduate School of Business, May.

Williams, J. & Clegg, P. & Dulaney, E., (2005). Expanding Choice: Moving to Linux and Open Source with Novell Open Enterprise. Novell Press.
Available at http://www.informit.com/articles/article.aspx?p=376255&rl=1

Assignment - Long Essay- SEPA

Introduction and overview


Now that the euro is firmly established within many European countries, the next major advancement set to take place within the European economy is the implementation of SEPA. SEPA (Single Euro Payments Area) is the area where consumers, companies and other economic players will be able to make and receive payments in euros, whether between or within national boundaries under the same basic conditions, rights and obligations, regardless of their location (ECB, 2006).

When the euro was introduced, Europe’s payment instruments and clearing infrastructures were not upgraded accordingly. More specifically, payments between countries remained extremely costly to make and process. This acted as an ongoing barrier which inhibited the formation of an efficient single market whereby businesses could trade as easily within Europe as they could domestically (Sultan, 2007). This was obviously not classed as a desirable position for the European economy to be in, and thus the SEPA initiative was formed.

According to the European Central Bank (ECB, 2006), the aim of SEPA is to advance European integration through forming a competitive and innovative euro payments market area that will subsequently provide higher service, levels, more efficient products and cheaper methods of making payments.

The new system will standardize the core payment products, services and procedures used within the euro-zone, as well as streamline the payment and collection process which in turn will support and enhance customer/supplier relationships across the region. Basically, it is a necessary initiative which will benefit various parties since electronic payments between countries will be made much easier, more efficient and cheaper. SEPA will not only make Europe an easier place to do business in, but will also make it an easier place to do business with (Sultan, 2007).

In essence, SEPA is the solution to achieving broader commercial harmonization within the euro region, leading to an increase in cross-border purchases of goods and services. Illustrated below is the fact that every citizen, merchant, public administration and corporation with a banking relationship within the euro-area will be impacted by SEPA in some way, as will all parties involved in the payments supply chain.


Stakeholder impacts


Consumers

Apart from the obvious reduction in transaction costs, the main benefit for consumers stemming from the Single Euro Payment Area will be in terms of transaction efficient from the faster settlement speed that new payment system will offer. More specifically, SEPA will allow priority credit transfers to be settled within one banking day, greatly improving efficiency of urgent payments (ECB SEPA Brochure, 2006). Another possibility is that SEPA will allow payments to be made without the Bank Identifier Code (BIC) which should, again, speed up money transfers.

Consumers will also benefit from requiring only one bank account for both domestic and foreign transactions. This will be particularly advantageous for those who have emigrated but still make payments in their home country to elderly parents, for example, or for people who have holiday homes abroad and have to pay utility bills and other fees.

However, the potential services which many anticipate will follow SEPA’s implementation are arguably those which will be of most value to consumers. When SEPA is established there will be the scope to enhance e-payments systems which will further simplify payments for pan-European consumers. One such example is the use of automated e-invoicing whereby companies will invoice their customers by e-mail, reducing office costs and increasing convenience for both parties. This is expected to be the way in which all bills are circulated in the future.

Banks

The implementation of SEPA will have a varied impact on the banking industry. All banks will suffer from lost revenues as they will no longer be able to charge customers additional overseas transaction costs within the euro area. However, for large banking corporations this should be more than offset by the new business opportunities, and subsequent revenues, that the SEPA initiative will facilitate. These value added services include the improvement of current pan-European credit and debit cards, as well as the implementation of a new cross-border direct debit instrument which will expand the market euro-wide. It should be noted though, that banks will be forced to make substantial investment into researching and developing new technologies before this can be achieved. This may not be as simple for smaller banks, many of which will suffer heavily from the introduction of SEPA if they do not have adequate funds available. However, some banks already have the infrastructure in place to deal with the SEPA changeover. For example, Deutsche Bank have already developed a strategic plan to outsource their new systems and technology in an attempt to maximise the potential earnings that SEPA promises (Diana, 2007).

SMEs and SME merchants

A typical merchant will deal more frequently with cross-border transactions than an ordinary SME and, therefore, will receive greater benefit from the additional banking services that will become available subsequent to SEPA’s implementation. Meanwhile, both will be able to make use of standardised payment procedures in the euro area and from the “common settlement timetable for cross-border and domestic receipts and payments” (Imeson, 2006). This will be particularly beneficial to smaller companies who may control order management manually. Moreover, the possibility of electronic mandates inherent in the proposed standardisation of the direct debit system will go some way to achieving the ‘paperless office’, contributing to savings of time and money in the back office functions.

Large companies

Similarly to SME merchants, larger merchants will experience and all-round benefit from the standardisation that SEPA offers. However, they will also benefit from large economies of scale as training across the whole company, for example, will become standardised too, after the introduction of the single SEPA software application (Imeson, 2006).

Large corporations will receive great benefits, too. A single billing/payment system will be able to deal with foreign and domestic transactions, greatly simplifying head office operations. And as well as profiting from smoother running of day-to-day banking as a result of the harmonisation in the single euro payment area, multinationals will also be able to exploit the increase in competition of the euro-banking market. SEPA will massively expand the number of banks available to process the direct debits and payment transfers of large corporations which will drive banking costs down and force level of service up. Subsequently, their customers will also receive a cheaper and more efficient service which is obviously to the advantage of these companies.

Impact on European economy

“Most of Europe will soon take another step toward making it a unified economic power” (Diana, 2007). This view is shared by many financial commentators, who believe that the implementation of SEPA will allow the EU to fully exploit the benefits of the single European currency and be vital to economic prosperity.

SEPA will make cross-border payments as secure and efficient as the market leading state-wide system that currently exists in the USA, and will create a more competitive and integrated payments market. This increase in competition throughout the euro area will allow European economies to continue to flourish and will be instrumental in strengthening the single euro currency.

Subsequently, the single currency will become more attractive to non-members. The fact that the currency itself will become stronger, coupled with the additional enhancements that the SEPA systems will present to euro currency states, will hopefully encourage more non-euro member states to convert to the single currency. By persuading such a financially secure country like the UK to make the changeover this will further contribute to the stability of the euro in the foreign exchange market, and ensure economic progression. Despite the strength of the pound, from a personal viewpoint I believe that this would be a sensible decision for the UK, especially with the arrival of SEPA. With the euro in place, companies, banks and UK citizens will be able to take full advantage of the benefits of SEPA by operating with a seamless yet inexpensive money transfer service without any inherent foreign exchange risk.

It is also important for the progression of the European economy to respond to the growth in electronic payments such as internet banking (often used for one-off payment transfers or standing orders) and direct debits. Due to convenience and security, cash is becoming less frequently used, therefore it is essential to implement SEPA in order to satisfy the changing needs of the European citizens. However, for those who still carry cash, SEPA will address the imbalance of charges that exists between instant cross-border ATM withdrawals and pan-Euro payments, which is SEPA’s main objective (ECB SEPA Brochure 2006).


Timing issues

Banks as well as other businesses and organisations are supposed to be ready to implement the initial payment/debit changes associated with SEPA on January 1st 2008. These changes involve the introduction of new payment instruments (credit transfers, direct debits and cards) which are intended to operate in conjunction with existing processes until full migration is achieved in 2010.

Although, it is evident that many believe this is not a realistically projected timetable of events (Diana, 2007). Initially, it was planned that a so-called “critical mass” (Global Finance, 2007) would be operating using SEPA instruments by 2010. However, it is now believed that a more realistic expectation is 2011/2012 (Diana, 2007). This expected delay is due partly to legal issues, since it will take time for the new directive to be adopted and recorded as legislation by each country within the region (Global Finance, 2007). Countries perhaps should have been given more time to make such changes. In other words, the time taken to reach full migration has been underestimated which highlights a poor planning process.

In general, it is clear that migrating to the new SEPA process has proved not to be as easy as regulators and banks initially thought. A recent survey of European banks has uncovered worrying news that regulators might need to provide further incentives to persuade companies to adopt the new SEPA instruments (Hawser, 2007), which contributes to the consensus that critical mass won’t be reached until 2012. Many companies believe that it should be the responsibility of banks and regulators to fulfil their business requirements with regards to SEPA implementation, instead of them having to do it themselves. In response to this, the European Payments Council (EPC) should offer regulatory as well as business incentives to such companies if the goal migration is to be achieved.

Unfortunately though, it is highly likely that even if such incentives are provided, some countries will continue to use current payment systems and instruments as long as the demand is still present. Also, many of these companies believe that the new SEPA instruments are not a significant improvement on existing national instruments (Hawser, 2007), therefore they do not see the need to change things – a problem which certainly needs to be rectified if the SEPA initiative is to achieve widespread adoption by the target dates.

These points highlight some negative aspects concerning how the SEPA initiative has been introduced and implemented. The European Commission (EC), EPC and ECB should have enforced the SEPA initiative to a much greater extent to avoid the outcome (mentioned above) where some companies refuse to adopt the new initiative. In relation to this, more time should have been spent communicating and negotiating with countries to ensure that all relevant parties were on board and in agreement.

In general, implementation of SEPA seems rather rushed and poorly managed. Potential difficulties have been underestimated by governing bodies, highlighted by some of the problems discussed above. The primary parties involved in the implementation process (ECB, EC, EPC) should have been doing more to ensure that countries and organisations are fully prepared for SEPA, well in advance of migration dates.

Is it a good idea?

From our analysis of stakeholder engagement, it is evident that SEPA will not only benefit European customers but also the large banks and multinational corporations across the whole of Europe. And while a large part of this benefit will be in terms of lower costs and increased revenues, it is a commonly held view that it is the efficiencies of the SEPA initiative and the value added services in electronic banking that it will facilitate which will provide greatest improvements to banking in Europe.

However, in our opinion it is the impact on European economy which is the most attractive aspect of the SEPA initiative. By creating a highly competitive and integrated banking market, European economies will continue to strengthen. The new SEPA integrated payments environment when put in place within the euro-zone will also systemically strengthen the euro currency itself (EPC, 2007), which subsequently supports the argument for a single currency to be used throughout Europe. On a personal note, we ourselves support the belief that a single euro currency should be implemented in the UK and, indeed, throughout the rest of Europe. With the euro in place, UK customers and companies will be able to experience a seamless yet inexpensive money transfer service without the risk of foreign exchange rate fluctuations, confirming our view that the list of potential benefits (ec.europa.eu) of a single currency are to good to ignore.

To conclude, we can see that SEPA is undoubtedly a highly beneficial initiative and therefore unquestionably a good idea. SEPA will generate, through harmonisation, more efficient payment systems which in turn will provide various benefits for the economy and society as a whole.

References

Diana, T., (2007), "Europe Readies For Unified Payments System", Business Credit, July/August, Vol.109, Iss.7, p.64-67.
Available at
http://proquest.umi.com/pqdweb?index=28&did=1336142001&SrchMode=1&sid=1&Fmt=4&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1196113386&clientId=46002

ECB, (2006), The Single Europe Payments Area (SEPA), European Central Bank.
Available at http://www.ecb.int/pub/pdf/other/sepa_brochure_2006en.pdf

EPC, (2007), “Making SEPA a Reality”, European Payments Council, April.
Available at
http://www.europeanpaymentscouncil.eu/documents/EPC066_06%20SEPA%20Overview%20v1.4.pdf

Global Finance, (2007), "Sepa Answers", July/August, Vol.21, Iss.7, p.S11.
Available at
http://proquest.umi.com/pqdweb?index=30&did=1315952671&SrchMode=1&sid=1&Fmt=4&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1196113643&clientId=46002

Hawser, A., (2007), "SEPA Rollout Faces More Hurdles", Global Finance, October, Vol.21, Iss.9, p.14.
Available at http://proquest.umi.com/pqdweb?index=9&did=1385836231&SrchMode=1&sid=1&Fmt=4&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1196109585&clientId=46002

Imeson, M. (2006), “The Banker Guide: SEPA For Corporates - Small Savings, Wide Efficiencies”, The Banker, London, pg. 1
Available at http://proquest.umi.com/pqdweb?did=1145054151&sid=6&Fmt=3&clientId=46002&RQT=309&VName=PQD

Sultan, N., (2007), "SEPA: Reaching Beyond European Borders", Global Finance, October, Vol.21, Iss.9, p.42.
Available at http://proquest.umi.com/pqdwebindex=8&did=1385836391&SrchMode=1&sid=1&Fmt=4&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1196109585&clientId=46002

Websites

http://ec.europa.eu/economy_finance/euro/benefits/benefits_main_en.htm

BBC IT Outsourcing case

Were the BBC wise to outsource their IT?

It is difficult to determine at this point in time whether or not it was wise for the BBC to outsource their IT division to SBS. Only time will truly reveal if the change was beneficial. Fortunately, early indications, evidence and justifications combined with current IT outsourcing research go some way in highlighting the fact that outsourcing was a good decision and in the best interests of the BBC.

The initial reasons provided by high ranking BBC members certainly justified the decision to outsource. After a thorough review of potential outsourcing benefits, it was revealed that the BBC would likely save roughly £30 million per year over the contractual period of ten years. The potential to make such savings cannot and would not be ignored by any company, especially in today’s competitive market environment.

In general, cost reduction is the main reason for outsourcing (Jones 2006), and if a significant cost reduction opportunity arises, a company should certainly pursue it. Understandably, other factors must be taken into consideration as well. The decision to outsource IT is a significant strategic one which requires careful proper planning (Lemon 2005). The BBC did implement this necessary planning through conducting an extensive benefits review and a lengthy supplier selection process. Moreover, the candidate suppliers consisted of world class experts in the IT field, leaving the BBC spoiled for choice.

Through outsourcing their IT division, the BBC has got much less to concern themselves with technology wise. As a result, they can focus far more on their core activities which are crucial for future success, e.g. programming content. Similarly, advanced IT problems are dealt with instead by the supplier, meaning the BBC do not have to purchase new equipment and retrain (or hire new) employees. Furthermore, when a company deals with an experienced supplier such as SBS, they are able to themselves gain valuable expertise which is an added inducement for outsourcing (Tesler 2005).

It was apparent that if the sale did not go through, the BBC would have to cut more than 300 jobs to meet internal savings targets (Kumar 2006) – an outcome which they were fortunately able to avoid. Severe pressure from the UK government to cut costs and increase revenues also meant that it was not just wise, but to an extent essential, for the outsourcing to take place.

The successful complex IT infrastructure that SBS built to receive and collate election results and present these to television viewers in an engaging way is a clear indicator that IT outsourcing is not just beneficial from a cost reduction point of view. Such displays of technological master-class could quite easily help boost BBC revenues and ratings.

To analyse things from a different perspective, it is worth discussing some of the opposing arguments surrounding the IT outsourcing. Although IT outsourcing is usually a financially beneficial process, there is always a risk of failure – research shows that 1 in 5 outsourcing deals is terminated due to poor performance (McCue 2005). Similarly, studies also show that 20% to 35% of IT outsourcing contracts are not revived after they expire (Tesler 2005), which suggests that service quality is poor or prices are too high.

The loss of control of the IT division through outsourcing is classed by some as a disadvantage due to the potential for things to go wrong, while being out of the BBC’s hands. However, this is the risk that has to be taken, and is hopefully eradicated through selection of the right supplier. The BBC’s supplier selection process did seem extensive and sufficient enough to ensure that the right supplier was chosen.

As recently as 2006, not long after the change, it was revealed that the BBC had substantially over-estimated the cost savings which subsequently detracts significantly from the attractiveness of the initial savings proposition. Savings for the first year were £22m - 38% short of the guaranteed £35m target (McCue 2007). However, this is still a substantial saving which indicates that the BBC’s outsourcing decision was beneficial and correct.


Supplier selection process

Positive aspects of the process

It was clear that the BBC did employ an extensive supplier selection process from the outset. The evaluation team put in place to select the right supplier consisted of 26 key individuals which was more than efficient. The criteria they used for evaluation were specific and thus ensured that the team would ultimately make the best decision.

The initial contract requirements advertised were detailed and specific which meant that those suppliers not able to meet these requirements refrained from applying meaning evaluation time was saved – an example of process efficiency.

An exhaustive and robust research driven process was implemented to help in the hunt for the right supplier. A pre-qualifying questionnaire sent to all bidding companies was a useful method for information gathering, as well as proving effective in cutting down the candidate list (Kumar 2006).

Even when the list was narrowed down to 3 candidates, the process did not become any less intensive – a point which illustrates how thorough the overall process was. A team of more than 100 BBC employees carried out more than 1000 man days of communications (including negotiations and expectations discussions) with the three finalists to ensure that the best candidate finalists were chosen.

Negative aspects of the process

When selecting a supplier, companies must assess the capabilities and competencies of potential candidates rather than their resources (Willcocks & Cullen 2006). John Varney (Chief Technology Officer of BBC) said SBS were picked partly due to the “vast resources available” within the company (Kumar 2006). Perhaps capabilities and competencies were overlooked to an extent, highlighted by recent indications of minor failures in the form of over budget projects and various delays in project completion (McCue 2007). Capabilities and competencies could have been further assessed, perhaps through consultation with other companies which have worked with each of the suppliers previously, which would have undoubtedly helped in the decision making process.

Research has shown that the CEO of a company must be involved in the process of selecting the supplier because, while some organisations perceive outsourcing as an opportunity to pass on risk, in practice such risk displacement is often illusive (Willcocks & Cullen 2006). The supplier selection decision was of massive importance to BBC. The wrong choice could potentially have drastic consequences for the company. Thus, it would surely have been sensible for the CEO to have been involved within the selection process, especially since the CEO is the head decision maker within an organisation.

Furthermore, the evalulatory team in place could have and should have been in constant communication with both the CTO and CEO to provide progress reports and report on any developments/issues relating to the supplier selection process. This would have helped make the overall process more efficient and effective, increasing probability that the best possible supplier would have been chosen.


Conclusion

It is my opinion that the BBC were definitely right to outsource their IT. Although there may be some potential disadvantages from doing this, the positives definitely outweigh the negatives.



References

Jones, C., (2006), “When Outsourcing Isn’t a Good Option”, IT Business Edge, February.
Available at http://www.itbusinessedge.com/item/?ci=15413

Kumar, M., (2006), “Information Technology Outsourcing at BBC”, ICFAI Centre for Management Research.

Lemon, S., (2005), “Outsourcing requires careful planning”, InfoWorld, July.
Available at http://www.infoworld.com/article/05/07/20/HNoutsourcingplanning_1.html

McCue, A., (2005), “CIO Jury: Does outsourcing work?”, http://www.silicon.com/, June.
Available at http://management.silicon.com/itdirector/0,39024673,39130905,00.htm?r=2

McCue, A., (2007), “MPs condemn BBC outsourcing costs”, http://www.zdnet.co.uk/, June.
Available at
http://news.zdnet.co.uk/itmanagement/0,1000000308,39287767,00.htm?r=4

Tesler, B., (2005), “Outsourcing IT Development: Advantages and Disadvantages”, http://www.webspacestation.com/
Available at
http://www.webspacestation.com/it-outsourcing-news/articles/outsourcing.html

Thomas, D., (2005), “Preparations pay off for the most technically advanced election yet”, Computing, May.
Available at
http://www.computing.co.uk/computing/analysis/2076054/preparations-pay-technically-advanced-election-yet

Willcocks, L. & Cullen, S., (2006), “The CEO guide to selecting effective suppliers”.
Available at
http://66.102.9.104/search?q=cache:3gqO8-ND_3MJ:www.logicacmg.com/file/5419+The+CEO+guide+to+selecting+effective+suppliers&hl=en&ct=clnk&cd=2&gl=uk

How will offshoring affect UK accountants?

Offshoring – the process of relocating business processes from one country to another, is a growing activity within the service sector. In recent years, US businesses have highlighted the cost benefits of offshoring, which has subsequently put pressure on UK businesses to follow suit, perhaps to the detriment of UK accountants.

Basic accounting, transactional and lower-level bookkeeping processes are certainly ideal functions for offshoring. These are standardised areas which can be codified and easily conducted abroad, since face to face client interaction is not required. In broad terms, any area within accounting not involving face to face relations can be offshored (Rudiger, 2007).

Because of the current wage differential between the UK and other countries ideal for offshoring, UK accounting firms could save millions from implementing the change. Illustrating this further, net cost savings could be in the region of 20 to 40 percent (Myers, 2007), which, for an accounting firm, is too good an opportunity to pass up. Overheads are lower in such countries, and their education systems are more than sufficient and constantly improving, meaning highly skilled and talented accountants are in abundance. Research carried out has also shown that in India for example, the work conducted by accountants is of a particularly high quality (O’Donnell, 2007).

In an era of globalisation, where English is spoken at an advanced level on a global scale, and communications technology is particularly efficient, there has never been a more suitable time for offshoring. Understandably though, such change will have a negative impact on UK employment within the accounting sector.

Research conducted by PWC (PWC, 2005) has revealed that by 2008, the vast majority of financial services firms will offshore. Figures released by Forrester Research predict that over 3 million professional positions, a large proportion of which are financial service related, will move offshore by 2015 - a worrying statistic for UK accountants (Pinto, 2005). If such research is accurate, then as time progresses, a decline in UK based accountant positions will definitely occur, subsequently increasing competition for places.

It is predominantly lower-value added activities which are offshored. If such activities are relocated abroad, then an accountant’s job within the UK becomes more value adding, since more time can be spent on value-adding tasks. This not only benefits accounting firms, but also the accountants themselves, since the job becomes more attractive and enjoyable since trivial tasks would be generally avoided. Nevertheless, fewer tasks means fewer accountants required. Perhaps though, due to the current market demand for audit/consultancy (client-facing) work within the UK, the effects of offshoring on UK employment could infact be offset to an extent.

The effects offshoring would have on UK accountant salaries are difficult to predict. With equally skilled individuals abroad, willing to work for less, accounting firms may decide to pay their UK based accountants less. Adversely though, talented UK individuals could thereafter be more attracted to other professions with more lucrative salaries – an outcome the profession would surely wish to avoid.

Looking at things from a different perspective, accounting firms could actually afford to pay their UK based accountants more since fewer will be required. Subsequently, firms could focus their efforts on only hiring the very best individuals as well. Better individuals mean better productivity, better results, and more adherence to ethical standards – some obvious benefits to the firms involved. An increase in value-adding tasks means that getting the right work force is more critical for success, so paying better salaries for better individuals is a small price to pay.

Apart from removal of trivial tasks, offshoring provides some other benefits for the UK accountant. A reduction in recruitment within the UK could make career progression easier. Obviously, with fewer accountants employed, there are more opportunities to excel and be noticed, i.e. more chances of climbing the corporate ladder. Also, with fewer individuals working and training within the profession, the experience of an accountant within the UK may become more highly regarded and sought after, which again could lead to increased salaries within the UK.

Although offshoring is a desirable process from an accounting firm’s point of view, there are some factors which inhibit it to an extent. Firstly, the role of an accountant is a client-centric one, requiring on occasion face-to-face interaction. Also, the extensive audit process requires on-site attendance, often for substantial periods of time. Thus, geographical proximity is important. Many firms also offer consultancy services to clients, which again require face to face interaction between accountant and client.

Security issues also discourage the implementation of offshoring. Not so long ago, a security breech in an Indian call centre involving UK customer details being made available for sale occurred (Accountancy Age), significantly damaging client trust in the company involved. Although many security measures are in place to protect clients, there is still a public perception concerning data safety. Some accounting reforms may have to take place to eradicate this negative public perception. For example, a more thorough audit process could be made statutory so that internal controls in operation abroad are sufficiently analysed and tested. Perhaps some experienced UK accountants could be offered more senior supervisory type roles to oversee practice abroad.

In summary, it is clear that UK accountants will be effected by an increase in offshoring in the future. Unfortunately, it is difficult to predict the magnitude of this impact. However, what can be said is that an increase in offshoring activity within accounting firms will almost certainly lead to a decline in UK employment of accountants.



References

Accountancy Age., (2005), “Outsourcers play down security risk”, Accountancy Age, July (http://www.accountancyage.com/accountancyage/analysis/2139277/outsourcers-play-security-risk)
ICAEW, (2004), “From outsourcing to offshoring”, ICAEW online (http://www.icaew.co.uk/library/index.cfm?AUB=TB2I_70989)
Maher, K., “Now in Offshoring’s Sights: High-Level professionals”, The Wall Street Journal Online (http://www.careerjournal.com/myc/survive/20040324-maher.html)
Myers, R., (2007), “Offshoring benefits too good to pass up”, CFO Magazine, May (http://globaltechforum.eiu.com/index.asp?layout=rich_story&channelid=5&categoryid=18&title=Offshoring+benefits+too+good+to+pass+up&doc_id=10645)
O’Donnell, A., (2007), “A challenging environment for UK accountancy firms”, RCM Associates (http://www.rcmassociates.co.uk/files/accountancy_services_may_2007.pdf)
Pinto, L., (2005), “Swimming against the tide: The hidden costs of offshoring”, The Online CPA Journal, January (http://www.nysscpa.org/cpajournal/2005/105/perspectives/p9.htm)
PWC, (2005), “Offshoring in the financial services industry: Risk and rewards”, PWC.com (http://www.pwc.com/extweb/pwcpublications.nsf/docid/2711A28073EC82238525706C001EAEC4/$FILE/offshoring.pdf)
Rudiger, K., (2007), “Offshoring: A threat for the UK’s knowledge jobs?”, The Work Foundation, June (http://www.theworkfoundation.com/Assets/PDFs/ke_offshoring.pdf)

Websites

http://www.accountancy.com.pk/articles.asp?id=161

http://agonist.org/ian_welsh/20070512/accounting_offshoring_within_10_years

Assignment - Case Study 1 - Geneva ERP implementation

In previous years, Geneva Pharmaceuticals' information systems were unable to operate effectively with each other. This caused data entry errors, higher costs and 'dirty data'. In an effort to eradicate these problems and improve efficiency of business processes, the company implemented the SAP R/3 Enterprise Resource Planning (ERP) system provided a comprehensive set of integrated, cross-functional business processes. What was particularly important to Geneva was to have an integrated system whereby data entered is instantaneously updated across all business units, subsequently improving operational efficiency and preparing the company for technological innovation. Choosing to introduce this holistic package was an important decision for the company to take which would potentially yield significant benefits both in terms of revenues and market position. Many key decisions had to be made during the three phase project, some of which had a significant impact on the success of the project, as discussed below.

Phase I

Phase I focused on improving the supply side processes, transferring them from a manual system to the automated ERP system. This was necessary because previous processes were both manual and labour intensive, i.e. time consuming and costly. Such change could only be beneficial since overall efficiency would be improved. To ensure success, Whitman-Hart, a consultancy firm with relevant experience, were hired during this phase to assist in the implementation of the new system. Although their assistance was considered crucial, since Geneva had no internal relevant experience with this type of system, these technical specialists had little or no knowledge of the pharmaceutical industry. This led to various design problems forming. So much so, that after 4 months of the 6 month Accelerated SAP implementation cycle, appropriate progress had not been made. It should have been ensured well in advance that the consultants involved had sufficient knowledge of Geneva's business requirements. This lack of planning is a serious error which both we and Geneva can learn from.

Obviously, Geneva had to act quickly to rectify the situation. The decision was taken to appoint Randy Weldon, an experienced project manager, as CIO. The introduction of Weldon and his new project team was a pivotal decision which not only got the project up and running again, but undoubtedly contributed to its overall success. As well as this, Anna Bourgeois, with over 3 years relevant experience, was hired to lead Geneva’s internal IS team. This was another decision which proved to be highly successful within the next project phase. Ensuring that a project has the best individuals working on it is crucial for success. Geneva were lucky that changes in personnel took place early enough to salvage the project.

Overall, Phase I was not conducted in an efficient manner. The initial work in this phase was rushed, and thus did not allow the design team sufficient time to customise the software. There was a lack of communication between parties involved, and a lot of time was wasted. Communication in any line of business is always essential for success, an important point highlighted by the case. On the plus side, Geneva benefited from encountering problems at an early stage, effectively improving its approach in the next two phases. The team analysed problems and dealt with them accordingly, showing us that every problem has a solution.

Phase II

The objective of the second phase was to amend the demand side processes, subsequently improving sales and operations planning. Again, an important change to processes which would improve efficiency and reduce costs, two major benefits of an ERP system. However, this phase did prove to be far more complex than the first, due to Geneva’s advanced sales and service procedures.

Fortunately, this phase was far better structured and managed than the first, with Anna Bourgeois being assigned project manager. Perhaps the issues encountered during stage one were beneficial to the success of the project, since a more effective tactics were employed thereafter. Previous consultants Whitman-Hart were replaced with Arthur Andersen and Oliver White to assist with the final two phases. This change in personnel was a key decision at an important time during the design phase. Expectations for each consultancy firm were made clear from the outset, which allowed more effective collaboration and meant that there was a clear understanding of objectives between all involved.

As mentioned, Phase II was structured more appropriately than phase I, with three clear stages being defined - the first of which being conceptual design. This stage consisted of collaboration by a number of relevant groups, most importantly Geneva employees, who would be the main users of the application. This highlights an effective approach, since those consulted sufficiently aided in the design configuration of the new system. Through an exhaustive process, many problems were identified in current procedures, and several new and useful ideas were generated. These ideas were developed into prototypes which were tested by employees and then further refined by Oliver White, before formal implementation. Using Geneva employees was obviously a good decision, since potential problems were subsequently eradicated, as well as new creative ideas being formed.

In the final stage, labelled ‘change management’, functional managers and ‘super users’ of current company systems helped Oliver White train users of the new system. The training team took the decision to seek help from those within the company as they felt that the users of the new system would benefit from being mentored by a familiar face. The judgement to include employee interaction at every stage in Phase II proved to be one of the key successes of the entire R/3 implementation. It solved cultural issues and helped define employee roles, which the company felt would lead to greater productivity, and uncovered the need for customer education programs, which would ultimately lead to a greater number of sales. Such decisions on the grand scale of things would significantly contribute to improving Geneva's position within the global market place.

Phase III

The purpose of the final phase of the project was to integrate both supply and demand side processes. The key point during this phase concerned the design team discovering that the SOP (Sales and Operation Planning) module supplied by the new package was not intelligent enough to generate the necessary production plan. Although, the future decision made by the project team to combine the R/3 SOP with an APO (Advanced Purchase Optimizer) module, which was not previously available, provided the optimal solution to Geneva’s complex requirements - clearly an excellent decision made by the team.

Conclusion

It is obvious that during the implementation of a major project, set-backs often occur. However, from reviewing the Geneva case, we learn that such problems can be overcome through good management and better planning. Emphasised also is the significance which people have on the outcome of a project. With Geneva, human failures disrupted the project significantly during the initial stages. Although, through the subsequent appointment of more suitably experienced individuals, the importance of having the right project team was highlighted.

This assignment was prepared in collaboration with Robbie Innes.

Taurus & Crest case - why did Taurus fail and Crest succeed?

If a stock exchange is to function well, then having the right technology in place essential. For the London Stock Exchange (LSE), the largest stock exchange in Europe, implementing new technology has proven to be problematic over the years.

The LSE has had somewhat contrasting fortunes in selecting a computer system to handle the settlement of trading transactions. TAURUS, a well publicised technical failure set the LSE back years and cost millions. On the other hand, CREST was a fantastic success and for a time was widely regarded as the best securities processing system in the world.
(http://commentisfree.guardian.co.uk/daniel_davies/2006/09/dont_just_do_something_stand_t.html)

Why though did CREST succeed and TAURUS fail?

TAURUS was designed to tackle the back office function of the LSE. Its purpose was to handle the settlement of trading transactions in a more efficient cost effective way.

The new settlement process provided by TAURUS once live would dematerialise stock certificates, reducing stock ownership to a simple entry in a computer database, which in turn would eliminate masses of paper work and hundreds of jobs, saving the LSE millions. Unfortunately though, the project failed miserably for the reasons outlined below.

The most significant issue which led to failure was the fact that the system was designed to do too much. TAURUS had to be “all things to all men” (Head, C., (2001), “TAURUS and CREST, Failure and Success in Technology Project Management”, Henley Management College), and as a result, was overly complex. Implementing a standard system meant that standardised working was imposed on member firms, who each ensured that the system was specifically tailored to their needs. On top of this, the government produced an extensive legal document detailing masses of complex regulations with which the system had to comply. Not surprisingly, the design team were unable to get to grips with the sheer complexity of all the requirements. The project was almost certainly doomed from the beginning.

Secondly, the package solution selected required significant modification to meet the various demands referred to above. This led to further delays and increased costs, as well as an increased level of risk stemming from the use of unproven software.

Even the computer trade press publicly reported problems. The TAURUS project and its shortcomings became well documented, to the extent that Computer Weekly even published an extensive expose, adding to the onslaught which helped kill TAURUS off.

When it became clear that the LSE was in serious danger of losing its position in Europe, it was decided that the TAURUS project was to be terminated. The collapse in 1993 was a catastrophic disaster for the LSE, resulting in a public inquiry which concluded that TAURUS had been fundamentally misdesigned. (http://commentisfree.guardian.co.uk/daniel_davies/2006/09/dont_just_do_something_stand_t.html).

It was crucial for the LSE to rectify the situation and move forward once again. The Bank of England decided to step in to resolve the problem. A new design team of talented civil service individuals was formed and a new system named CREST was designed. CREST was thought of as the simple solution which provided the London market with the settlement facilities required to remain competitive into the next century (http://www.practicallaw.com/7-100-4206).

In contrast to TAURUS, the CREST team adopted a minimalist approach, and used tried and tested technology. Because this system was designed by the Bank of England and deemed as optional (in terms of usage purposes), there was no requirement to consider LSE member needs – something which was detrimental to the outcome of the TAURUS project.

CREST was designed to perform just two vital business processes. Comparing this to the twenty-one specified by TAURUS highlights the clear difference in complexity between the two systems. The CREST system was similar to other systems which the design team had worked on, meaning they kept to what they knew, rather than experimenting with the unknown. This was a safer option, which paid off.

On the whole, CREST was far better managed than TAURUS was. A senior level team was put in place to overview all aspects of the project, and the main team consisted of a small number of experienced individuals, in contrast to the over crowded, less experienced and less efficient team who worked on TAURUS. Any requests to add more business functions to the CREST system were only recognised if 80% of customer representatives within a business area demanded it, as opposed to the constant adhering to member needs implicit with TAURUS.

CREST, unlike its predecessor, was a fantastic success which proved that less is definitely more. Delivered on time and on budget, this system was at one point classed as one of the best securities processing systems in the world. Fundamentally, the minimalist approach employed by CREST was the critical factor which led to its success. TAURUS, as previously stated, was too ambitious. Constant modifications combined with a high level of complexity and poor management ultimately led to its downfall.

Database Form Exercise

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How could the ICAS website be improved?

The Institute of Chartered Accountants of Scotland (ICAS) is a world renowned and highly respected professional organisation. The ICAS qualification is widely regarded as the premier accounting qualification to obtain within the business industry.

Due to such prestige, it is understandable that many wannabe accountants and professionals alike visit the organisation’s website regularly. An organisation of such magnitude and reputation undoubtedly boasts an impressive professional website which fulfils user needs successfully. Unfortunately however, the ICAS website falls well short of this expectation.

Unlike rival organisations, ICAS have opted for a second rate website which does not engage or interest the user in any way. Website users generally “equate a poor site design with a poor organisation” (http://www.webreference.com/), meaning that the organisation’s reputation could be adversely affected. Subsequently, interested job candidates visiting the site may be put off applying - an outcome which ICAS surely wish to avoid.

In order for the website to succeed, drastic improvements are required. Initially, changes should concern the layout and content of the home page. As well as a poor colour scheme, there is far too much material on the home page, highlighting a lack of organised structure. Font sizes in the side category list are too small and there are too many headings and non-important information.

ICAS should instead create a colourful welcome/home page with a shorter condensed list of user tailored options (headings) to choose from, similar to what is displayed on the ACCA (http://www.accaglobal.com/) and CIMA (http://www.cimaglobal.com/) websites. On these pages, a much more efficient and attractive use of the screen is evident. This will help users when navigating around the site. A further improvement relating to this could involve the addition of a site map for navigation purposes, again with user needs being considered.

Recruitment is a very important area for ICAS. Currently, the vacancies section can be accessed at the almost unnoticeable bottom of the category list on the home page. It would appear that ICAS do not want to attract any new talent! Instead, the recruitment heading should be made a focal point of the home page. Also, more detailed employer comments on the benefits of the ICAS qualification should be provided to further encourage potential members to apply.

The only advertisement on the page is an out of place flashing advertisement for CArecruitment.com. Surely other employers would pay good money to advertise on such a prestigious organisation’s main page to take advantage of marketing opportunities, something which ICAS should consider implementing. This would not only help job hunters and employers, but would highlight the link ICAS have with premier business organisations, thus encouraging students to pursue the qualification.

The site clearly does not take advantage of current technology which would unquestionably make the site more interactive and attractive if utilised. For example, latest news which is scattered across the screen could be presented in a scrolling news panel which would minimise the amount of screen space taken up. In relation again to recruitment, podcasts entailing recorded interviews could be made available for users to view, as is currently the case with many other recruiting organisations. Videos with younger happy looking employees would also help eradicate the stereotypical consensus that accountants are old and boring, thus helping to attract young recruits.

Finally, because the ICAS website does not reside at a dot com address (currently http://www.icas.org.uk/ as opposed to http://www.icas.com/ which is occupied by a different company) like rival bodies do, it may be presumed by people that ICAS is perhaps inferior to their competitors, when this is not the case. If possible, they should rectify this.

All of the above suggested improvements are not difficult or costly to implement. If ICAS wishes to maintain its global reputation, then it is necessary for them to maintain a respectable professional website.