InformationWeek

May 25, 1998

Euro Benefits Explored

Companies anticipate financial consolidation

By Bruce Caldwell

he years of debate about if--and when--the euro would be introduced are over. The first 11 countries planning to adopt the single currency, which will replace national currencies in Europe on Jan. 1, 1999, were identified earlier this month--and companies have begun searching for ways to take advantage of the change.

One opportunity identified at a euro conference in New York last week is the freedom under the new currency to consolidate financ ial operations and systems into one location, instead of maintaining separate operations in each country. Bristol-Myers Squibb CIO Jack Cooper told the gathering that his company is centralizing all financial systems at one location in Europe.

"We are moving to a single service center globally," he said--one that will manage accounts payable and other financial transactions. The euro, and Bristol-Myers Squibb's implementation of the euro-ready SAP R/3 enterprise resource planning system, make that possible, he explained.

Other companies at the conference, co-hosted by Ernst & Young and SAP, agreed that the opportunity to build shared service centers in Europe was a major benefit of the euro, which also brings with it IS challenges and costs that some say are as great or greater than the year 2000 computer problem.

"There is a very pronounced shift from decentralized operations to centralized operations, emphasizing shared service centers," says Stephen Wilder, senior VP of global ca sh management at Chase Manhattan Bank. "The shared service center we see evolving is focused on payable and receivable functions."

The centralization of its clients' operations also signals a major opportunity for Chase, one of the world's largest corporate payment-processing institutions. Companies that now do business with different banks in each European country will be free to consolidate that business with one bank. This means companies should be able to demand better prices based on the larger volume of business, and reduce internal administrative costs, says Wilder.

Only a handful of banks are likely to win European-wide accounts because of the massive technology investments necessary, says Wilder--and he expects Chase will be one of those. The bank has already centralized its global processing operations in London, reducing its costs to prepare for the euro to about $75 million in system upgrades at the processing center and branch operations.

Requests for bids on corporate euro accounts are already starting to come in, Wilder adds, as many companies, particularly brokerage houses and other financial institutions, seek to establish their accounts before next January--when every financial institution will need to begin coping with the new currency.