currencies and interest rates will at least have to be modified to
take into account the requirements of the Maastricht Treaty.
The sheer size of the operation and the interlinking of programs will cause some severe difficulties and generate enormous costs. The
Wall Street Journal
estimates that all banks worldwide might have to spend as much as $100 billion to adapt to the Euro. Transitional costs for large multinational enterprises could possibly exceed $100 million.
A recent survey conducted by London-based management consultant KPMG reveals that, while the financial and monetary aspects of the union are high on the political agenda, European businesses are far behind schedule with plans for handling the Euro. The survey found that 80 percent of the 301 top European companies have "woefully inadequate" strategies for dealing with the issue.
Another survey, commissioned last year by CAP Gemini, one of Europe's largest computer-service and consulting groups, showed that 91 percent of banks surveyed were confident that their informa
tion technology (IT) infrastructure would be ready to meet the timetable for the introduction of the Euro. Yet 54 percent of the banks interviewed did not have a formal implementation strategy for Euro-related systems, and only 15 percent had actually allocated funds for Euro-conversion projects.
Many businesses' indifference to Euro-related IT issues is partly due to uncertainty about which countries will actually participate and the ambiguous stance of many governmental institutions. "As long as the legal framework remains incompletely defined, a lot of businesses will refrain from allocating adequate resources to the changeover," says Paul Gaiser, a project manager with the Information Services Group at Unisys in Amsterdam, The Netherlands. This attitude is likely to change in early 1998, when the decision on participating states will be made. But for some businesses, by then it might be too late to manage the changeover in an adequate fashion.
"It's the mix of business-process and IT problems
that makes the Euro conversion so complicated," explains Rolff Hubner, an independent industry consultant in Munich, Germany. Even worse, some of the expected benefits of the Euro may not materialize, because there's currently little effort being put into Europe-wide standardization.
For example, a company running a general ledger in each of 15 European countries would no doubt like to replace 15 different sets of procedures with one. But payment systems, taxation, reporting requirements, accounting standards, and many other critical factors will still be handled at the national level. As a result, corporations may well be faced with 12 different conversions rather than benefiting from deep cost savings and consolidation. Says Charles Brewer, chairman of the Euro working party at the U.K. IT-industry trade organization Computer Services and Software Association (CSSA), "We're concerned that the lack of standards and direction -- not politics or economics -- could ultimately cause the failure or delay of
the Euro."
Euro and Millennium Problems Coincide
The shift to a single currency in Europe coincides with the millennium problem, and the magnitude of changes required in information systems for both dilemmas is comparable. Origin (London), an IT-services company, reckons that firms will have to modify between 4.5 percent and 5.5 percent of their financial software's code to cope with the Euro.
However, dealing with a single European currency is not as straightforward as dealing with dates after the turn of the century. According to Sander Verheijen, marketing manager at TechForce, a Dutch software company located in Hoofddorp, "Euro-conversion projects will be far more complex because of the many extensive changes that older financial systems have undergone over the years."
Another part of the problem is executives' limited awareness of the situation and the fact that there are no ready-made or over-the-counter types of solutions for implementing the Euro. Elke Seidel, market-devel
opment manager at Debis Systemhaus (Leinfelden, Germany), notes that "the issue requires a business approach, not an IT one. You need to analyze business processes first."
During the transition period between 1999 and 2002, when companies will have the option of using their home currency as well as the Euro, double bookkeeping will be necessary, and single-currency accounting packages will have to be converted to the Euro or turned into multicurrency programs. The Maastricht Treaty stipulates that all currency conversions must be noted in six-decimal figures. At present, most systems express currencies in only five significant figures.
The issue is made even more complicated by the fact that rounding will apply to both the detail lines and the total, with the result being that the total of the rounded figures will not be exactly the same as the rounded total. This discrepancy will have to be disclaimed in a note at the bottom of documents. Automated systems that depend on an exact match for docume
nt acceptance, such as invoice-versus-order checking, will have to accept variations of a few cents.
Some organizations will be able to handle these problems by upgrading their systems or buying new ones. But such complications are a factor that prompted the CSSA to report that the
timetable
for the introduction of one European currency will be exceptionally difficult to meet.
Other issues are more mundane but nonetheless might cause inconvenience. For example, today the Euro currency symbol, which resembles the Greek epsilon, is absent from all keyboards and printer character sets. Businesses will have to use the letter
E
instead until the technology catches up.
Euro Solutions
To contend with the Euro, two of Europe's biggest business-application developers -- Baan (Ede, The Netherlands) and SAP (Walldorf, Germany) -- are working on Euro-compatible updates of their software. But although multicurrency functionality, which strictly separates the transact
ion currency and home currencies, is already at the core of these applications, migration to a Euro-compatible financial environment is not just a matter of patching up a few pieces of software.
SAP unveiled its SAP Euro package for its R/2 and R/3 systems earlier this year. SAP Euro is designed to handle the dual-currency phase and enables users to display either Euro or a local currency, or both simultaneously. A conversion tool converts all local currency amounts stored in the database into Euros, automatically documenting and reconciling differences caused by the rounding off of figures after conversion. SAP Euro also includes business-partner-specific conversions of stocks and parallel-reporting facilities. It translates reports and tax returns into the new European currency, even if companies process their accounts in a local currency. This functionality will also be included in the next R/3 release, 4.0, which is slated for distribution early next year.
Baan is now incorporating multi-home-
currency functionality into its business-application software. "This allows businesses to select either the Euro or one of the national currencies as the basic home currency and use the other currency as an additional home currency," explains Michiel Holthuis, product marketing manager at Baan Nederland. So, users of Baan's applications can work with multiple home currencies in addition to the chosen transaction currency.
Baan's Euro solution further incorporates automated conversion routines. When a company decides to start using the Euro as the leading home currency, it has to perform a conversion only once. As a result, all financial transactions in the company's administrative and financial systems are automatically converted to the Euro as the home currency.
In addition, Baan's Euro solution allows for the automatic conversion of a customer's or supplier's default currency to Euros. It also converts the transaction currency to Euros in a company's quotes, orders, and invoices.
In cases
where custom-made software integrates with packaged applications, changing program code may be inevitable. Code-analyzing techniques, such as those used in TechForce's Cosmos and Origin's Lida, facilitate this task (see the sidebar "Finding All Currency Fields"). These tools trace all data paths of a given application and retrieve the currency fields that need to be adapted. They also calculate the amount of code in need of change to help estimate the cost and time needed for the conversion process.
Debis's Eurosys tool, on the other hand, helps companies conduct an initial impact analysis on a business-process level. It supports project planning for the implementation of the new currency and provides detailed action plans in a database. Impact analysis with Eurosys results in a "Euro Roadmap" containing project objectives. It also includes cost estimates of project activities, an assessment of the required resources, and the expected benefits.
Historical Baggage
Not only will product pri
ce lists and accounting have to change to the Euro, calculations that include historical data or future projections will have to take different currency rates into account. Many kinds of documents and data sources will span both the multicurrency and single-currency worlds. If companies use historical data to analyze the performance or profitability of their business, inconsistency of currency will, for some time, make this kind of analysis less useful. Fixed exchange rates after January 1, 1999, will help, but they will also require a complex conversion of historical data, with its inherent rounding problems.
Many experts recommend that companies be prepared for unexpected complications. Because the introduction of the Euro promises to be so complex, and because it touches on so many aspects of business computing, no one knows exactly what will happen during the transition period. Says Jan Kalff, chairman of the managing board of the Dutch ABN-AMRO Bank: "No one in the bank can guarantee that we'll be
ready on time. We still come across things that no one has previously thought about."
Where to Find
Baan Nederland B.V.
Ede, The Netherlands
Phone: +31 318 691691
Fax: +31 318 691680
Internet:
http://www.baan.com/
Euro-Conversion Scenarios
