EMU conversion programmes are complex to design, given the wide-ranging business and operational implications, and in particular difficult to implement. Indeed, responding to EMU is probably the largest and most complex change programme many organisations will undertake.
But enough experience now exists, from across Europe and beyond, for best practice in designing and implementing a response to have emerged. This can help those businesses still early on in their preparations to avoid some of the pitfalls others have fallen into.
Business-led response
Organisations do not need an 'EMU strategy'. Indeed, taking too long over strategy formulation and leaving the issue for too long in the hands of the company economist are easy ways to lose valuable time. But organisations do need to assess the impact of EMU on their existing business strategy, to provide a business context inside which operational changes can be introduced. The single currency will accelerate existing trends in a number of industry sectors and help create the framework in which pan-European businesses will succeed, taking market share from existing domestic players. The euro, therefore, raises significant business issues as well as formidable operational and technical challenges.
Conversion to the euro could cost European business an estimated $100 billion, and some large corporations have in place conversion programmes with a nine-figure euro price tag. Changes span multiple business functions and geographies, covering business processes, supplier/customer relationships, staff training and customer communications, as well as systems modifications. But above all, changes need to be informed by judgements about customer and competitor behaviour, product characteristics and pricing - and the EMU programme needs to have built into it the flexibility to adapt if these judgements prove to be invalid.
Operational effect
Assessing the operational impact assessment involves mapping in detail the EMU 'hit' on processes and systems to identify what is to be done, by whom and when, and at what cost. For a business of any significant scale, operational impacts are very broad and highly inter-connected. It is essential that a fact-based picture is built up of the full implications. Operational impact assessment is therefore a complex project in its own right, but one which is essential if the scale of change is to be properly understood and costed. Skimping the assessment is likely to result in:
- Underestimating the required effort and cost.
- Inadequate re-prioritisation of other initiatives to accommodate the EMU effort.
- Insufficient resource allocation, in a seller's market
- A premature move into implementation, with subsequent need to rewind ill-conceived work when and if the programme is eventually put onto a sound footing.
A number of European businesses have, to our knowledge, been forced to revisit their impact assessments in order to develop comprehensive definitions of business requirements and credible project plans. Doing this work thoroughly at the start, using a tested methodology, can avoid such damaging and delaying rework.
Dangers
Many organisations in core EMU countries have started with the view that EMU is like the Millennium problem - it is about changes to computer systems and should be driven by and funded through the IT function. Ironically, our experience is this response has been less prevalent among organisations and in countries which began serious preparation later.
Confusing EMU and the Millennium is, of course, an error. While the Millennium is an IT issue with business implications, EMU is essentially a business issue with IT implications. For many organisations, the revenue impact of EMU outweighs the one-off transition cost, and only 50% of the transition cost typically relates to IT at all.
Organisations which allow the EMU effort to be driven by the IT function have found that:
- Neither the business-building opportunities nor the defensive responses are identified and addressed effectively.
- The implementation programme founders because of inadequate specification of requirements and inability to sustain change control.
- The focus is on millennium-like code renovation, which is a technical cul de sac.
- The EMU programme delivers 'dumb' compliance rather than 'smart' compliance, making the business euro-compliant rather than aligning it with the post-EMU world.
- The total cost of the transition is underestimated and important components of the change programme such as training and customer communication are inadequately planned.
A successful EMU response programme tackles systems changes alongside changes to the processes which the systems underpin, and does both in the context of an overall business response.
Effective responses
EMU presents a particular challenge to the many large companies which have devolved in recent years, to the point where the centre has only residual capability and capacity to direct.
The experience of businesses across Europe and beyond shows that EMU changes are spread across a large number of processes and systems, supported by many responsible parties in multiple locations, including non-European locations, with heavy interdependency between them. The EMU response therefore has to be co-ordinated.
Local responses, whether local to a single country or to a single business unit, are less than ideal - not because they may be done badly but because a global picture is needed to prioritise and take critical management decisions. Leaving planning to each business unit is tantamount to going to war and leaving each unit commander to devise his own war plan.
No complex global business can allow each operation to tackle euro transition on its own. Interdependency is very high, and autonomous line-of-business projects - even if there was high confidence they would be planned and managed effectively, simply fail to address the problem. You need only consider a few examples to appreciate the chaos that can result:
- Multiple lines of business use the same underlying business and IT systems, yet each is allowed to specify and implement changes to those systems separately.
- Multiple lines of business have the same customers, yet each is allowed to design and implement its own customer communication strategy for EMU.
- Multiple country operations trade with each other, yet each is allowed to decide independently when and how it will convert its trading and accounting processes and systems.
There has been a clear trend over recent months for large organisations in a range of industries to move significantly away from a devolved and permissive approach to the euro - and to move far closer to a 'command and control' approach with strong direction from the centre and much tighter integration of plans and projects. In an effort to manage risk and accelerate progress other organisations in similar circumstances are likely to draw the same conclusions.
Summary
The euro is now almost upon us. There are no Government-sponsored help at hand, and the plain fact is that there will be problems. In the short term, these will arise through failure to put in place an appropriate transition programme, or through failure to implement the programme effectively. In the longer term, there will be problems through lack of an appropriate strategic response and inability to prosper in the new business environment.
For a few industry sectors such as wholesale financial services - EMU comes at once with a 'big bang' on 1st January 1999 and all preparations must be in place by then. For most sectors, however, lower risk approaches are available, to minimise the changes necessary for 1 January 1999 and to proceed to full transition at a more measured pace. Most organisations still have time to define and implement approaches which enable them to cross the 1 January 1999 threshold safely, while putting in place the programmes to implement the full solution beyond that date. But it remains to be seen how many potential casualties manage to live to fight another day.
