by Bill Roberts

From...

(IDG) -- Merrill Lynch & Co.'s investment banking division, which underwrites public stock offerings, found itself needlessly shelling out millions of dollars each year on travel and entertainment (T&E) expenses that it could have charged back to clients. Why? Because its parent's accounts payable department couldn't always process the division's expenses within the 90 days allowed by federal regulations.

It couldn't, that is, until early 1997, when it replaced paper expense reports with expense management software that automates the filing, payment, storage and auditing of T&E expenses. The advantages have been remarkable. "So far we've been able to increase the amount of our T&E expenses charged to clients by $5 million," says Heidi Evenson, vice president of business technology for the New York City-based division. And that's with only 1,000 traveling employees in two divisions.

Merrill Lynch's problem might be more costly than most, but other companies are also saving time, money and effort by using expense management software from a handful of small companies that aren't well known yet. The users say these products bring calm to a previously chaotic paper process.

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"It took the frenzy out of the T&E reporting and reimbursement process," says Ron Davis, vice president of information systems for Fujitsu Computer Products of America in San Jose, Calif. Among Fujitsu's 800 employees, only the 300 who travel the most use the software. Yet the company already saves 600 hours of management time it spent each year approving expense reports. It also saves as much as $100,000 a year in travel costs because it now has the information to negotiate better deals with travel vendors.

Other companies offer similar examples: If it had not installed expense management software, Incyte Pharmaceuticals Inc. in Palo Alto, Calif., would have needed to hire an additional clerk to handle expenses for the biotech startup, whose workforce had doubled to 700 in a year.

Cleveland-based Reltec Corp., a telecommunications systems and services provider, cut its expense cycle time from three weeks to one in a pilot test and plans to roll out the system to its 500 workers who travel most.

These companies, among others, report that it now costs no more than $10 to process an expense report, compared with an average cost of $36 for processing by hand, as calculated in a 1997 American Express Consulting Services study.

Obvious benefits, slow adoption

"It is straightforward to see the benefits," says Jim Holincheck, an analyst with Giga Information Group Inc. in Chicago. But he says the products aren't prevalent. Even most companies that have installed new accounting or enterprise resource planning (ERP) systems still process expenses by hand, Holincheck says.

Maybe that's because the developers aren't exactly household names. At 6 years old, Concur Technologies Inc. (formerly Portable Software Corp.) in Redmond, Wash., is the eldest and has by far the most customers and deployments—more than 150 worldwide. Between them, the others have fewer customers, although they include some big names like Ford Motor Co., which has decided to use Bothell, Wash.-based Captura Software Inc.'s Employee Payables product for salaried employees worldwide. Merrill Lynch also uses Captura's product. Fujitsu uses Concur's Xpense Management Solution, and Incyte and Reltec use Expense Reports from Emeryville, Calif.-based Extensity Inc.

Several other vendors hope to play in this space, including Ariba Technologies Inc. of Sunnyvale, Calif., which shipped a T&E module for its Operating Resource Management System in September 1998. Established business applications developers, such as Oracle Corp. and PeopleSoft Inc., already have T&E modules or expect to ship them.

Brian McDonough, a research analyst at International Data Corp., a sister company to CIO Communications Inc. in Framingham, Mass., says Captura, Concur and Extensity appear to be the most widely used.

Holincheck says it makes sense to check out PeopleSoft's expense module first if you're already a PeopleSoft customer. However, he says the core technology in expense management software is the rules engine, and the best rules engines he's seen so far come from the companies dedicated to expense management software.

Holincheck recommends you look at Concur's Xpense Management Solution first because of the company's maturity and customer base. If you're committed to Java, you might start with Extensity's Expense Reports, written entirely in Java. The Captura product's strength, he says, is a rules engine that can scale to high-volume transactions yet easily allows rules changes. There's little difference in price among these: typically $250 per seat in small quantities down to $50 or less for very large installments.

Mimicking the paper-based system

Features don't vary much either. The software typically includes a user interface that resembles a paper expense report, a database to hold filed reports, and business rules and workflow engines that can be programmed by your IT staff. The available packages all link into ERP systems and legacy accounting systems. They also offer other benefits such as direct payment to credit card companies for better cash management.

Here's how they typically work. An employee fills out an electronic form either from a PC-based client or through a browser at an internal Web site. The packages have prompts to make sure the employee provides all the information needed. The employee submits the electronic form, and it is routed wherever the business rules dictate. The software can be programmed to issue red flags for exceptions to company policy. Some companies choose to bypass the supervisor's sign-off and route forms straight to accounting, where only exceptions are reviewed—expenses that are over set limits, for example.

The electronic form gives the employee a tracking number. The employee stuffs receipts into an envelope, puts the tracking number on the outside and then sends it along via office mail to accounting. Some companies scan the receipts into databases, using the tracking number for easy access later.

Fujitsu is still on the PC version of Xpense Management Solution, according to Davis. "A Web-based version wasn't available when we selected Concur, but we probably wouldn't have pushed for a Web-based solution because our heavy travelers have to be able to work offline with a laptop," says Davis. Once Fujitsu moves to the Web version, which the company probably will do, they'll let the most-traveled road warriors use the client software when they're offline and have others access the software through the Web browser.

Extensity's Expense Reports offers an interesting solution to the problem of the disconnected worker. The same Java code comprises both a Web applet and a client application. The first time a user logs on, Extensity downloads the Java code to the PC. In the future, the user can either fill out the electronic form and submit it while connected to the intranet or use the Java application in disconnected mode first. When the user links to Extensity, the server first determines if the application on the desktop is the most current and transparently updates it if necessary, prompting the user of any changes that this might require.

Side benefits abound

The more employees you have using the software, the greater the benefit, Giga's Holincheck says. This might seem obvious, but few companies that have adopted these products have rolled them out to all workers. In some cases, just putting the sales force on the system was enough of a savings to justify the purchase. Other companies plan to roll out the software throughout their companies, but like any deployment it takes time.

Merrill Lynch, for example, expects to have another 1,000 employees in its investment banking and institutional sales divisions on Captura soon. Evenson says that when a Web version becomes available, she expects Merrill Lynch will roll out the software in all divisions to the company's 27,000 travelers because of the residual benefits expense management software provides. At Merrill Lynch, it assists with compliance in a highly regulated business. The automated form requires the employee to enter affiliations of individuals who were entertained in the course of business. The system automatically flags for a manager's preapproval any expenses connected with government officials. This helps Merrill Lynch avoid the embarrassment of overlooking dubious payments.

Many companies use expense management software to automate payments to corporate credit card providers. Telecom giant Sprint Corp. in Westwood, Kan., has roughly 50,000 employees using Concur's Xpense Management Solution on the corporate intranet. Workers used to apply for reimbursement from Sprint and write a personal check to the corporate credit card company. Now they never see the cash because it's paid directly and electronically to MasterCard, says Mike Egan, Sprint's director of employee disbursements.

Egan acknowledges it took some time for employees to get used to this. Sprint helped by conducting training for about 700 administrative assistants on the assumption they would be filing many of the reports for others and could also serve as a resource to anyone else using the new application.

As with any new application, expense management software will affect your workers in ways you cannot foresee. But if the experience at Sprint is any gauge, you're not going to face too many problems.

Sprint devised a careful plan to roll out Concur in two phases of 25,000 workers. The first phase was supposed to happen over three months. But nobody adhered to his careful scheduling, Egan says with a chuckle. The users were so jazzed by the idea of computerized expense reports that many of them jumped the gun. "We got a lot more workers on day one than we planned for. By the time we started the second phase of 25,000, we already had about 80 percent to 85 percent of the workforce on the system."

Bill Roberts, a freelance writer in Los Altos, Calif., covers business, management and technology.