Reengineer your accounting, the IBM way.

• Author: Andros, David P.
• Position: Special Report: Information Management

Information technology has revolutionized the way companies do business. And IBM is not one to let strategic opportunities slip by.

Today, more than ever, businesses need to improve the way they make decisions to become more efficient and effective. Many companies are doing this through a process called reengineering--and information technology is a key component of the process.

In 1979, when IBM reviewed how it used information technology in its accounting function, the company conducted a survey to determine the number of separate accounting systems that supported the function worldwide. The survey focused on these applications: general ledger; fixed assets; intracompany, or U.S., transactions; intercompany, or worldwide, transactions; accounts receivable; and accounts payable. IBM discovered it used 315 separate systems worldwide to support these six basic accounting functions.

At the same time, IBM executives realized the existing systems had several major problems. First, the systems weren't able to respond quickly to the company's changing information requirements. Second, they couldn't consolidate financial information efficiently. And, third, the redundancy in the systems made developing and maintaining them expensive.

To solve these problems, the company--guided by the CFO and the controller, supported by the CEO, and lead by the accounting organization--decided to develop a global set of common accounting systems. The "common systems" approach was to consolidate and standardize the hundreds of different systems into a limited set of applications for each of the basic accounting functions.

IBM pursued this strategy throughout the 1980s. By the end of 1991, the company had reduced the number of systems from 315 to 36. (See the chart below for a breakdown.) Equally impressive, however, are IBM's savings. The company reduced the number of employees required worldwide to support these activities by approximately 20 percent, while increasing worldwide revenue by 300 percent. And the internal rate of return on the investment in common systems exceeds 19 percent worldwide.

But IBM wasn't satisfied. Although the company was tremendously successful solving the earlier problems, the common systems still weren't flexible enough and didn't provide two functions IBM needed: Company executives wanted to be able to use the systems to reengineer enterprise processes so they could continually improve the way IBM delivers goods and services, and they wanted to implement enterprisewide decision-making, essential to competing in today's business environment.

A FIVE-PRONGED SOLUTION

To meet the company's needs, IBM decided to first look at its accounting processes, since many traditional accounting methods have flaws, regardless of the technology the company employs.

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