Ready For The Euro?

Dec. 21, 2004
Adapting systems is almost as complex as Y2K.

Now that your company has averted one potential four-alarm systems crisis by addressing the Year 2000 date change, you can rest easy, right? Unfortunately, no. At least not if you do business in Europe or with European suppliers, customers, or partners. On Jan. 1 the European Monetary Union (EMU) converted to the new euro currency. All 11 countries in the EMU -- Austria, Belgium, France, Finland, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal, and Spain -- have now begun using the euro for noncash transactions as well as their own national currencies and must convert entirely by mid-2002. This means that before long, marks, francs, lira, pesetas, and other European currencies will be put out of circulation. It also means European companies must be able to handle euro transactions effective this month and be fully compliant with the euro by the close of a three-and-a-half-year transition period. Among U.S.-based companies, those impacted most directly are multinationals with major operations and part of their value or supply chains in the euro zone. "But, really, any American company that is doing substantial business directly or indirectly within the euro zone is going to be affected," says Jaak Jurison, an associate professor at Fordham University's Graduate School of Business, New York. American manufacturers with European ties are especially vulnerable. "Manufacturers have to ask themselves, 'Can we afford not to be euro-compliant?'" says Ken Ramoutar, vice president of marketing at Acacia Technologies, an enterprise-software firm in Lisle, Ill., that is a division of Computer Associates International Inc. "For them it hits in two places, especially if they're medium-size manufacturers in the middle of the supply chain. Many of these companies are purchasing components and supplies from Pan-European sources. If they're not euro-compliant, they may find themselves with a major bottleneck on the back end of the supply chain." Ramoutar and others point out that there's much the same dynamic here as was evident with the move to electronic data interchange (EDI) a few years ago when the big retail outfits such as Wal-Mart Stores Inc. insisted that suppliers adhere to their EDI requirements. An estimated 10 million software programs must be changed to achieve euro compliance, while about 36 million are being altered in preparation for the new millennium. He estimates that the price tag for conversion will run about one-third the Y2K cost estimates, which range from $600 billion upward. What makes the euro transition especially troublesome is that it overlaps the Y2K dilemma, forcing many businesses to deal with the two issues concurrently. "The risk is severe because the deadlines are unforgiving and the euro transition is taking place at the same time," says Jurison. He adds that with most IS departments up to their eyeballs in the Y2K adjustments, resources are at best scarce. "The competition for technical people such as systems analysts is so heated that 15% of the positions are currently not filled," he adds. For manufacturers, who traditionally run lean and mean IS departments, finding the necessary technical muscle and brainpower to deal with euro conversion may prove particularly difficult. Finally, while some U.S.-based multinationals such as Ford Motor Co., General Motors Corp., and Unisys Corp. are already moving aggressively to make their systems euro-capable, many American companies have clearly been caught unprepared. "We did a survey of 200 of our clients in July," says Bruce Fiumara, a partner with Ernst & Young LLP. "Seventy percent of European companies are moving to become euro-compliant, while only 20% of U.S.-based companies are doing so." Grasping the problem In reality, the picture may not be quite so bleak. With Y2K fixes, the problem is pervasive -- users must effectively change data fields throughout their systems. In contrast, euro adjustments are more focused, because the fixes need to be applied only to currency fields, those areas of your business where currency makes a difference. "The euro is a little easier to get your arms around," Ramoutar says. "The conversion isn't as costly as Y2K, and it's a little more straightforward." Even so, the impact is far-reaching. The range of software programs and computer hardware that are affected starts with ATMs, keyboards, and printers, all of which need to be modified to include the new euro currency symbol. It also includes spreadsheets; financial-tracking software; accounting, payment, invoicing, financial-planning, pension-calculation, treasury-management, and data-warehousing systems; and anything to do with stocks and bonds. Note also that even though Y2K implementations and euro conversion initiatives share many of the same technical characteristics, tools, and processes, they present different challenges to the user company and certainly to senior management. The reason: Y2K is a technical issue that has business implications, while the euro is a business issue first and a technology problem second. "The euro represents a major business problem that impacts IS," explains Wayne Snell, director of euro-currency solutions at Viasoft Inc., a Y2K and euro software firm in Phoenix. "It's the business criteria that are really important in doing the implementation." "There are definite business implications for euro conversion," adds Ernst & Young's Fiumara. "Our position is that companies that don't move quickly are missing a big opportunity. With the euro you're focusing on how you want to do business if you want to grow in Europe." The euro transition will have a wide impact on a number of key business segments, including marketing and sales, manufacturing, and distribution. As an example, instead of being able to sell the same product at different prices in Spain and Germany, with the switch to the euro there's likely to be price transparency throughout Europe. "That impacts marketing, sales, manufacturing, and distribution," says Fiumara. Similarly, if a manufacturer sells widgets in France, rounding out (the difference between the price in francs and the euro dollars) can make a big difference on a number of counts. For instance, for the widget that was priced at a psychologically attractive level -- 9.9 francs, say -- preconversion might come out to 104 euros after conversion. "The 104 number is less appealing than 9.9, so do you round up or down?" asks Snell. That's a business decision that directly impacts profit margins. Snell sees euro conversion as an opportunity for companies to move to technologies such as e-commerce and new applications and become more competitive by reengineering at least some of the business processes affected. The alternative: make the fewest possible changes or do nothing at all. "Some companies simply don't care," he concedes. Alternative routes Realistically, however, even those corporations that seek to ignore the euro issue will ultimately have to respond in some fashion. For example, assume a company completes a financial transaction with a German customer that involves both marks and their euro equivalent, and its back-office financial system isn't equipped to deal with dual currency transactions. "In that case," notes Paul Basson, CEO of Point Information Systems Inc., a Dublin-based software provider with U.S. headquarters in Wellesley, Mass., "you're forced to use manual procedures." That means recording information on calculators, translating amounts expressed in one currency unit to the other, then manually piecing together schedules that show the amounts in both currency units and finally storing this on the system. "The method is very time-consulting and causes administration costs to grow exponentially," Basson warns. As such transactions begin to multiply with more and more of the business world embracing the euro, it is likely that even the most reluctant companies will wind up undertaking a progressive, if gradual, change of their existing system to prepare them for the different phases of euro implementation. Viasoft breaks down these phases into a "pre-euro" state, a "dual-currency-processing" state, and a "euro-only" state. Within these categories there are a variety of approaches that can be taken, depending on the user company's budget and degree of exposure. As an example, companies can achieve what Viasoft calls "euro tolerance" by modifying a system that operates and stores data only in a single national currency to be able to receive inputs in both the national currency and the euro. Determining a euro-systems strategy is really a matter of balancing opportunity and risk as well as available resources, all within a tight time frame. There are also a number of software tools and applications on the market that can be used in migrating to euro compliance. For instance, most of the enterprise-resource-planning (ERP) vendors such as SAP AG, Baan Co., J.D. Edwards & Co., QAD Inc., and Oracle Corp. offer euro functionality as part of their ERP portfolios. As an example, SAP has developed a euro solution it claims can support customers at every stage of their euro project from preparation to execution. Likewise, J.D. Edwards' solution addresses everything from multicurrency functionality and triangulation with the euro as the third currency, to tax reporting and pricing functionality. "Implementing euro functionality is just like implementing our regular OneWorld software," company product manager Geri Studebaker explains. "It includes enhancements, and it lays over existing software." Viasoft offers what it bills as a comprehensive solution that addresses each phase during and beyond transition and includes an integrated tool-set that enables organizations handling the project in-house to convert systems to the euro. Finally, Acacia, which focuses on manufacturing and distribution enterprise software, is providing euro capability to two of its ERP solutions, PRMS and KBM. "We try to supply one-stop shopping," says Ramoutar. Success factors Whatever strategy and software tools are chosen, their effectiveness depends on a number of critical success factors, according to Fordham's Jurison. These include:

  • Early planning. Companies need to determine how much impact the euro will have on their business and prioritize what needs to be done, pinpointing where they want to upgrade, modify, or add new applications. Some vendors -- such as Point, which offers euro-capable solutions for customer relationship management and call centers -- provide customers with a technical audit to determine which areas of their software will be affected by the euro.
  • Significant resources in terms of people and budget. GM, working with Electronic Data Systems Corp., has at least 100 people focusing on its euro conversion. As for budget, some full-blown conversions among European companies are projected to cost more than $100 million, but obviously there are much less expensive ways of becoming euro-compliant.
  • Strong central project management.
  • Top-management support and participation, especially from the financial side.
  • Close coordination between Y2K and euro initiatives.
  • Careful management of the interface with customers, suppliers, and business partners.
The bottom line is that the euro will not be an easy nut for most companies to crack. And, as is the case with Y2K, time is running out.

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