Also, below is a transcript of the podcast episode:
Jim Hunt: Hello, this is Jim Hunt for Bramasol’s Insights to Action podcast series. Today we’re really pleased to have Pete Graham, who is SAP’s Director Finance Solutions and Mobility with us. Hi, Pete. Good to have you.
Pete Graham: Hi, Jim. Good to be here. Thanks for the invitation.
Jim Hunt: Oh, you bet. For this one, we’re going to do kind of an interesting wrinkle. We’ve had a series of webinars recently on Automated Revenue Management and the Digital Solutions Economy, and we’re going to answer some of the questions that came up in the most recent webinar to drill a little bit deeper those issues. And we’ll also include a link to the video of that webinar for those who are interested in seeing the whole thing. So, Pete, to start off maybe you could provide a quick overview of Automated Revenue Management and how it relates to the Digital Solutions Economy?
Pete Graham: Sure. Jim, As we discussed on the webinar, we have this customer driven model with high flexibility. I think you call it the Digital Solutions Economy, “flower wheel” diagram. That diagram really goes around the six areas of interaction that we see at most companies, between the Customer Engagement solution, Order Creation and Management, Delivery and Fulfillment, Billing and Invoicing, Payment and Collections – – and of course, Revenue Recognition. Now most companies have complex requirements or lots of different potential processes across the six key areas and Revenue Recognition may touch some or all of them in different ways. From our perspective, the Automated Revenue Management solutions from SAP really provide unique differentiators for customers to make sure that they’re keeping up with their compliance and, as we’ll talk about later, how they can potentially optimize and transform it. While, also making sure that they’re achieving the goals that they want to.
Pete Graham: Certainly we feel that the real-time nature of the ARM solutions from SAP really help keep up with this new Digital Solutions Economy paradigm and all the new business models that are being introduced. That also leads to flexibility, right? The ARM solutions are flexible. They’re extensible through SAP technologies, that really allow customers to amplify the innovation that’s already built into the core product. We see a tremendous amount of diversity across the spectrum, from low volume, simple accounting and low complexity to high volume. Actually in some cases ultra high volume complex accounting. We can support those requirements through the spectrum of the right fit-gap and configuration. And of course, one of the things to keep in mind is, with Automated Revenue Management revenue recognition, you always want to make sure you’re still applying the best practices. In terms of making sure you’ve got the detailed requirements down, even to the T account, that you’re doing the fit gaps against the ARM functionality, and doing a targeted pilot program, as well as making sure you’ve got the standard best practice implementation project.
Jim Hunt: I just want to respond to that or amplify a little bit. In the Digital Solutions Economy, the whole notion is to put the customers in charge. It’s a lot more dynamic. They get to make decisions about getting it when they want it, how they want it, where they want it. And companies who are delivering those things still need to comply. They still need to do all the backend things, but it needs to be transparent to the customer. So to me that’s where Automated Revenue Management really shines because it allows people implementing offerings and in DSE to still comply without hampering their ability to serve their customers.
Pete Graham: Yeah. I think that’s a great point. I mean, we deliver the strong accounting capabilities, also the analytics, with the flexibility, let them meet their business goals and keep up with the ever-changing requirements that we’re seeing in Digital Solutions Economy challenges and markets.
Jim Hunt: Perfect. One of the things that came up in the most recent webinar about contract changes that have recently been made to enhance Automated Revenue Management. Maybe you could talk a little bit about those enhancements.
Pete Graham: Yeah, I think that’s a really good question. At the core of most of the revenue recognition processes we see there’s an accounting contract or some kind of object. And, as these come through in the original RAR system, this was what we now call Classic Contract Management. This comes through and we manage it in the way that made sense for the ERP architecture. But now that we’re on the S/4HANA architecture, there was actually a better way to do it. And so there was innovation there and around the contract management and we introduced what was called Optimized Contract Management, which really allows the revenue accounting system to operate even more flexibly with even more high volume situations. So it’s just more efficient, and from that perspective, it can take really advantage of the in-memory technology.
Pete Graham: In S/4HANA, the Intelligent Enterprise is built in with the Universal Journal. So that’s really why customers may have seen this, and it has caused obviously a lot of questions because it’s something new. So, this is functionality that we’ve introduced with S/4HANA. I think it was the1909 version. It’s optional, meaning customers can opt in to it. So we, we have seen some customers that move from ERP to S/4HANA and they stay on Classic Contract Management, which is possible for some customers if that makes sense for them. It makes the migration a little easier. But for other customers, they can also phase in, they can move over to S/4HANA on Classic Contract Management and then new business can be done on the new Optimized Contract Management.
So basically you can run the older business on classic and you start up the newer businesses on optimized. I think that’s a really nice way in which the development team did a very good job of being able to make sure customers could do consume that. Of course, if you can start on the Optimized Contract Management kind of functionality, you’re better off in terms of the flexibility and the volume. And you’ll save a little bit on migration as well. So hopefully that clears up some of the questions we’ve been getting on on that functionality. Delivery of Optimized Contract Management also is coupled with the Fiori UI and embedded analytics. So it’s actually like a 1, 2, 3 punch, right? When you move over to Optimized Contract Management, you then also are picking up the Fiori UI benefits as well as the embedded analytics benefits.
Jim Hunt: And, there again, with the Digital Solutions Economy being dynamic and also potentially having much higher volumes than some companies are used to, going to Optimized Contract Management could be a real benefit there. So, the next question that came up was a kind of general one, but important: are there levels of compliance and how do you know if you’re a hundred percent compliant with IFRS 15?
Pete Graham: Yeah. That’s always a question that a lot of customers ask and essentially, you know, customers are responsible for their own compliance. SAP provides advanced tools for them to achieve that compliance. We’re using the tool ourselves. But of course, SAP’s RAR software and the Automated Revenue Management solutions from SAP are used by customers to manage the revenue recognition and revenue accounting processes, according to the statutory regulations, such as IFRS 15 and ASC 606. But like any sophisticated accounting software, there really has to be proper configuration and implementation of the software to make sure that all of the requirements are met and that specific use cases the customer needs to meet are successfully satisfied. So the configuration, and going through the fit-gap in detail, we talked about down to the T accounts. Then we would recommend a pilot or some kind of proof of concept to be as a pilot and then standard implementation with best practice and testing.
Pete Graham: This is all the responsibility of the customer in the long run, as it is ultimately for compliance with any accounting standard. The company has to sign off on their financials and this is the responsibility of the customer. Some customers have assumed that the SAP software license and support agreemententitles to them to this compliance automatically, and actually that’s not the case. So, you can’t rely on us to make you compliant. We are constantly improving the tool. We’ve got now well over 200 customers that are using the tool every quarter for their compliance, but, ultimately it’s the customer’s responsibility to ensure that they’re compliant to their stakeholders and to their regulators.
Jim Hunt: Good point. But, I’d like to add that the tool itself needs to cover the whole spectrum of issues that a customer might run into. So if somebody were trying to make a standalone tool or spreadsheets, (oh my God, not spreadsheets), if they were trying to address these issues with those, they wouldn’t have the full breadth of functionality to apply to their specific needs.
Pete Graham: Right. Look, any customer could build their own software. (With significant time and investment!) But these regulations are extremely complex and, you know, there are hundreds and hundreds of pages and they cover lots of scenarios. We don’t cover all the scenarios out of the box, but we’ve got a lot of experience in this area. We’ve been working on it now almost 10 years, and we’re constantly improving the product and covering more cases and our customers are covering more cases. So there’s a lot of built-in success. So really by using the solution, customers in most cases, almost all cases, are getting a jumpstart, right? We’re giving them the framework of the five steps within the compliance, that’s needed within the regulations and things like that. So certainly I agree there’s always a way to augment it if the customers want, there’s always ways to extend the tool. Like we do have these extensible options that amplify the innovation or the capabilities of the solution. But, it always goes down to what your stakeholders want and what your regulators want, your requirements of fit-gap, and then you see how much the solution can do. And then you may have to augment depending on the situation of your requirements.
Jim Hunt: And it’s always helpful to work with an SAP partner that has the ability to go deep with you, not only on the implementation of the tool, but also can offer some accounting advisory expertise and help you. Again, not that it takes the responsibility away from the customer, but it’s good to work with people who can go deep with you and understand your business needs as well as how to implement the tool.
Pete Graham: Yeah, I totally agree. I mean, partners such as your firm, right? You guys have a revenue recognition practice and you’ve seen a lot of these different cases. And so when you go to the next customer, you bring that knowledge with you.. And that’s always kind of an ever increasing set of knowledge, that you’re bringing to the customers. And similarly on our side, we’re always trying to make incremental improvements to the product, every release. And in some areas like currently with the OCM side, we’re making what I would call step-wise improvements. As with the introduction of some of the real-time processing that we introduced in 2020, as well as the real-time posting to the Universal Journal, that’s coming up in 2021 in the fall.
Jim Hunt: On to the next question, where there was a little bit of confusion it seemed in the webinar about implementation either in the cloud or on premises. What’s appropriate, when each could be done, whether or not there are any limitations to one of the other, etc? Could you kind of amplify on cloud versus on-premise?
Pete Graham: Sure. We see that the Automated Revenue Management solutions from SAP are deployed across the market spectrum, right from the low complexity and low volume and simple accounting all the way up to the high volume, high complex accounting situations. And really what we’ve we see is that essentially the selection ends up being based on what makes the most sense for the customer’s requirements and goals. So if we take the requirements and try to do a fit gap against the available solutions within the Automated Revenue Management portfolio, we come to a fairly quick conclusion about what makes the most sense for that customer.
Pete Graham: To give you some examples, for the ultra high volume customers that we see in high complexity situations, typically these are telco or high-tech customers, we’re still seeing a lot of on-premise deployments or private cloud deployments. Whereas, in professional services industries, a lot of that business is more subscription based and we’re seeing a lot of cloud deployments. You can also do a hybrid if you want. I haven’t seen a lot of that yet, but we do have customers thinking about it. But really it’s what makes the most sense from the customer’s perspective in terms of requirement fit gap, and what their end goals are in terms of is it a transformation project, or is it an optimization project or is it just a compliance project? So all those things factor into what makes the most sense for the customer.
Jim Hunt: Yeah. That helps clear it up perfectly. We have a few minutes left and what I’d like to do is turn to look to the future. So let’s talk a little bit about the forward-looking product roadmap.
Pete Graham: Sure. We continue to have a very strong investment in this area as you can see from the trends. Certainly, some of the differentiators like the real time optimization, you’ll see that we’re continuing to try to streamline the integration between the different revenue recognition streams and the operations. Also, we will continue to make improvements to optimize contract management. Inbound processing was recently introduced and now the outbound for the Universal Journal is coming. We have more analytics that are going to be introduced in terms of enhanced disclosure reporting, as well as just some better explanations. We have some document flow features within the product with OCM. And there’s also some explanation features and improvements to the migration tools, so when you’re moving on to the platform. That’s some of the things that we still have customers requesting. Those are tools are built in, and that a lot of customers use them. I would say over half the customers use the migration tools now.
Pete Graham: Also, going forward, we’re still looking at things like predictive accounting and support for different additional revenue, accounting scenarios. Certainly looking at also improving revenue recognition margin analysis for asset centric, service industries. Also, improving decision-making through this Universal Journal management, that’s actually, planned for the Fall, as well as some controls and there are still some coming improvements on the audit side. The customers always ask for, because if you can improve your audit side, you cut a few days off your close in some cases. So we are working with SAP, financial compliance management for basically kind of a plugin that would help customers take advantage of that functionality.
Jim Hunt: That’s great. That’s a good overview. I’d love to have you back in the future to talk about some of those enhancements as they unfold. Also, I should mention that you host, I think it’s quarterly, the revenue management user group meetings. In addition to a link to the recent webinar, I’ll include a link to the user group meeting. So if listeners haven’t joined, maybe they’ll join and stay abreast of what’s going on.
Pete Graham: Yeah. That’s a great idea. The next one’s on September 16th. So, if you can include the link to the Global User Group homepage, that’s kind of our new home and it’s open to the public. You can get the latest registrations to the upcoming meeting September. I believe we also have one in December and in Q1 and in February. That’s a great place to get the latest information on some of the user group activities.
Jim Hunt: Definitely. Pete, thank you for both of your time and your expertise today. I think listeners will get a lot of benefit out of this.
Pete Graham: No problem, Jim. Thanks.