Integrated Report 2020: Avant Strength and Opportunities

As a CIFO accelerator to help streamline and sophisticate operations under CFO/CIO, the Avant Group provides a wide variety of solutions based on consolidated accounting systems.
This section introduces the benefits and potential of DIVA Corporation’s managerial accounting system “DivaSystem SMD.” This system enables our customers to see sales of a group companies on a “consolidated × multi-axis” basis.

Challenges Surrounding Managerial Accounting

Amid an uncertain business environment due to a series of events like the Heisei recession and the global financial crisis following the burst of economic bubble, the Great East Japan Earthquake, and the global pandemic stemming from the new coronavirus, corporations in Japan are accelerating their business portfolio reforms or selection and concentration of their businesses in order to survive.
On the other hand, since the introduction of the consolidated accounting system to Japanese companies in the 1990s as de-facto standard, following the introduction of the internal control reporting system in the 2000s and the formulation and several revisions of the Corporate Governance Code in the 2010s, these trends in governance reform have attracted the interest of global investors in Japanese companies. At the same time, those investors are asking listed companies to reform their business portfolios based on capital efficiency.

In light of this situation, many Japanese companies and CFOs have expanded the scope of their operations and have strengthened and enhanced the disclosure of consolidated financial information during the past 20 years. However, many of these are financial information that reflects past activities as earnings results and financial conditions. In order for managers to draw up future growth strategies, it is important to conduct detailed and diversified analysis of profit and loss data such as “when,” “where,” “which products,” “costs,” “prices,” and “how much profits were generated,” and to use an approach of managerial accounting to assist in day-to-day decision making and maximization of future cash flows while responding to the annual budget.
Until now, each company has been working on the introduction and integration of ERP in line with worldwide trends (introduction of Big Bang), and on visualization using data warehouses for profit, loss, and budget management, and financial condition analysis. However, integration against frequent changes in the Group’s corporate structure and business structure did not progress as expected, and these existing tools lacked the perspectives of information necessary for management decisions because of the poor usability of output information on a corporate basis or on an area basis. In the end, the staff had to work with spreadsheet software, requiring an enormous amount of time. Furthermore, because these spreadsheet data are basically information intended for management, that is, for internal use, they were not an accurate and convincing explanatory material for outside stakeholders.

Drafting Specific Guidelines for Growth

With more than 1,100 companies adopting the system and the No. 1 domestic market share in the consolidated accounting system~{*}, DIVA, which has been engaged in daily dialog with many of Japan’s leading companies, detected early on these issues related to management accounting. In around 2010, DIVA began developing a managerial accounting system that enables customers to view the earnings on a “consolidated” and “multi-axis” basis. Multi-axis is a mechanism that transcends business divisions and organizations within a group and enables speedy analysis of profitability, investment efficiency, variance analysis on results against plans, and forecasts from a variety of perspectives, including by product, brand, customer, sales channel, and region.

To achieve this goal, DIVA focused on making full use of the information on corporate activities that had been collected through consolidated accounting system “DivaSystem LCA.” DivaSystem LCA enables customers to compile and verify their consolidated financial statements by aggregating their subsidiaries’ financial data. However, in these financial statements data (consolidated packages), information such as sales, production, inventory, and cost was unnecessary for extracting financial accounting information based on accounting standards, and they were referred to as information that was discarded. DIVA tried to utilize that information and realize a function that generates information that contributes to the “improvement of earning power,” the main objective of a managerial accounting system.

Thus, in 2012, we released the pioneering consolidated managerial accounting software the CEO, the CFO, and the heads of the operation wanted. The software visualizes “consolidated” and “multi-axis” results, plans, and forecasts across all group companies, and reveals the true consolidated sales, consolidated costs, consolidated SG&A, and other profit and loss structures (break-even points) for each segment, business, product, area, and customer. Thus, it would support correct business decisions and decision-making. At the same time, since it would free up the workforce from the busyness of operating a vast array of spreadsheets, and management could receive the benefits of returning to the core business of business analysis, we have gained overwhelming support not only from existing customers who do business with DIVA, but also from customers who do not use DIVA. In 2015, DIVA unveiled DivaSystem SMD SX, which dramatically increased processing speed and enabled flexible, non-programming responses and extensions to a variety of managerial accounting requirements and core systems at various partner vendors, while also adding information stored in DivaSystem SMD as a functional platform that can be used for forecasts and advanced data analytics. The new products, based on the multi-axis consolidated profit and loss structure defined by DivaSystem SMD, designed various KPIs as a variable and a calculable data structure, customers could simulate the financial impact of changes in KPIs. In 2018, we released a DivaSystem SMD Cloud that can be used in a cloud environment. DIVA has been expanding the areas of contribution brought about by managerial accounting year by year.

*Fuji Chimera Research Institute “Software Business New Market 2012-2020 Version” Consolidated Accounting Software (Package) Fiscal Year 2011-2019 Results

Leveraging Its Accumulated Accounting Know-how and Advanced Technologies

There are two major reasons why “DivaSystem SMD” is supported by many customers.
The first is this software brings together the knowledge related to consolidated accounting, group governance, and business management that has been accumulated as the No. 1 platform for the consolidated accounting system.
Management information are important for a CFO organization with expanding responsibilities, that includes regulatory accounting as an obligation to be accountable to external stakeholders such as investors, managerial accounting necessary for decision making in group management and business operations. DIVA, with knowledge in financial accounting since business was founded, understood these challenges. DIVA knew what information was needed for what purpose, at what time, and with what accuracy, both for regulatory and managerial accounting. This is why DIVA were able to create managerial accounting software that met the expectations of CFO organizations while meeting their expanding responsibilities and actual demands.
The reputation for DIVA’s expertise in consolidated accounting that stretch over regulatory and managerial accounting system, was proven by the fact that many companies that have adopted “DivaSystem SMD” as their managerial accounting system have changed their regulatory accounting system from other company’s software to “DivaSystem LCA” in order to upgrade group management.
The other reason is the overwhelming speed of utilizing the technology of SAS in the U.S., a software company that has established itself as an analytics and AI platform company. As an example, data processing time, such as consolidation, conversion, and allocation, which had taken several hours for a data warehouse within a customer, has been reduced by several times or tens of times, and so on. Overwhelming performance to support customized and complex data processing continues to evolve today.

What Are Competitiveness and Appeal Points of DivaSystem SMD?

The strengths stem from real demand, which was the basis for developing DivaSystem SMD. In the 2010s, the U.S. Gartner Group defined CPMs (Corporate Performance Management) as five broad areas of solutions.
(1:Consolidated Financial Results), (2: Budget and Forecast Management), (3: Disclosure Reporting), (4: Strategy Management), (5: Earnings Management and Optimization); Of these, (1:Consolidated Financial Results) is the original business of DIVA and DIVA is the leading company in Japan. On the other hand, other financial accounting software companies focused on the functions of business management and managerial accounting (2: Budget and Forecast Management). In this context, we identified the most important issues is (5: Earnings Management and Optimization) for customer companies that promote group management.
For group companies, when making management decisions based on the current conditions and outlook of the business, that is, people, goods, and financial information, the consolidated accounting system, which uses only the conventional non-consolidated accounting information as the original data, ignores information that serves as the basis for decisions, such as products, customers, production processes, and bases. As a result, they are unable to handle the “consolidated cost” of products manufactured across multiple corporations and locations, as well as the indicators required for management decisions and optimization, such as the volume, unit price, and the actual exchange rate in international transactions.
On the other hand, the products of other companies (2: Budget and Forecast Management) mainly employ the technology called “Multi-dimensional Database (MDDB: Cube).” These products also cannot handle transaction data (details) on a large amount of mono-information that goes beyond the thresholds of pre-established accounts, corporations, and product groups. In addition, since it was difficult to change the set perspectives flexibly, they were unable to follow the business format, products and services, and subsidiaries and organizations that change from time to time, and there was a common tendency for them to become obsolete and no longer used.
DivaSystem SMD was created by focusing on this reality. Our greatest strength is that we create information that contributes to management decision-making from a consolidated and diverse perspective (multi-axis) without compromising large volumes of transactional (detailed) information. While taking advantage of DIVA’s expertise cultivated in consolidated accounting, I am confident that we will broaden the scope of our application to include management information analysis, and contribute as an information source that connects information on goods and money, performance information (past) and future prospects, the frontline of our business and management, and leads to optimal solutions for maximizing corporate value across Group companies.
In terms of its competitive advantage in terms of functionality, it has the so-called Input, Process, Output (I,P,O) of linking data with a variety of information from each location and system, on-line incorporating information such as undifferentiated spreadsheets into a database, data processing that converts large volumes of data into management information at a high speed, and reporting that provides information that contributes to management decisions. In addition, in terms of data processing, it has a number of accounting calculation models, such as conversion, consolidation, allocation, and difference adjustment, that meet diverse needs. It is also easy to customize.

What Is Future Direction of Development Based on the Customer’s Business Environment?

As I will talk only from a development perspective, amid the declining relative presence of Japanese companies in the real economy and the financial economy, awareness of corporate value management is growing, including the introduction of digital transformation (DX) and the Group Governance Practical Guidelines. Corporate value is a function of the future earning power, growth potential, and risks determined by management strategies. By multiplying DivaSystem SMD’s massive management information by its techniques for forecasting and analyzing future risks, we believe that we can achieve the verification of precise and realistic strategies that were not suitable for the formulation of management plans and due diligence thus far, or backcasting management.

What Do You Keep in Mind As You Proceed with Development?

DIVA’s products have very unique characteristics that are used by various stakeholders within customer companies. For this reason, we not only develop products based on the actual demand of diverse users, but also constantly keep in mind that we will be able to respond to the demands of management, who is the ultimate user.
There is no goal in upgrading management. The true initiative begins when DivaSystem SMD mechanism has been implemented within the customer company. We have introduced a system and have shifted to stable operations. Rather, we intend to continue to be a system that can support continuous expansion so that we can always follow the advancement of management information utilization in order to solve new management themes.

Any Message to Stakeholders?

It has been 10 years since DivaSystem SMD was released to the world, and we feel that the reputation and expectations of our customers have changed from “DIVA of Consolidated Accounting” to “DIVA of Business Administration” and “DIVA of Group Governance.” We hope that DivaSystem SMD features will be highly evaluated, and that our customers will be interested in how the products we currently offer are helping them. We would also like to hear your opinions on what information is available for each customer to make their own business decisions and what they would like to see sophisticated products in the future.
We intend to continue contributing to the enhancement of the competitiveness of Group companies originating in Japan through continuous development of products, project support, and collaborative innovation, including through challenges that we believe are difficult to realize solely through our current software.