EURO - Money for nothing

The introduction of the euro has failed to win over a number of UK companies. Many view euro-compliance as a waste of resources, but does the lack of interest mean the same companies will be left out in the cold when the currency is finally adopted?

The euro was greeted with more than a degree of ambivalence when itcompanies. Many view euro-compliance as a waste of resources, but does the lack of interest mean the same companies will be left out in the cold when the currency is finally adopted? was first mooted. Years later, the single currency still hasn't won over the UK. That's not to say that UK businesses aren't embracing it as a huge opportunity to broaden their potential customer base - at least a third are doing exactly that. It's just that the majority of the country's corporates and small businesses have done absolutely nothing to prepare for it.

Although it will be a case of 'when' not 'if' the UK signs up fully to the euro, preparing for its physical implementation a few years down the line will probably be too late for most businesses looking to compete on the European stage. The euro is here today and it's here to stay - like it or not.

Come the end of 2001, countries in the eurozone - which does not include the UK - will have to be euro-compliant. Once the euro kicks in, and as companies harmonise prices and business processes - something they are doing now - the supply chain will shrink, leaving many SMEs out in the cold. The UK could be set for a deep freeze.

According to one recent report, most of the UK isn't bothered about going to the euro party let alone deciding what bottle to take. 'Joined at the Hip Series: The Eve of the euro', conducted by research analysts Neaman Bond Associates, interviewed 1,003 senior IT managers, strategists and business managers in 14 European countries. It found the UK is lagging behind the likes of Germany and Ireland in euro adoption, with a third of corporates stating the currency is a distraction and they plan to do the bare minimum about it.

According to the report, there are several factors holding back euro adoption. The most significant concerns the millennium. Year 2000 bug fixes have been more time and budget-intensive than imagined and many companies simply don't have the resources to test and develop systems for an event they don't feel requires such immediate attention.

Graham Brown, director of Neaman Bond, explains that many organisations have left the euro simmering on the back burner while they address the more immediate problem. 'There has been a rebalancing of priorities in Europe as year 2000 has come to outrank the euro in mindsets and priorities, because year 2000 is the bridge you have to cross before you enter Europe,' he says.

According to Brown, and many resellers, it's not evident that SMEs are even addressing the year 2000. 'As far as the euro is concerned, wait and see is the typical attitude. Some fast adapter organisations will see the euro as an opportunity. Most say they believe it's an opportunity but that they are going to hang on,' says Brown.

What the report finds more worrying is that however complex year 2000 fixes are, they're a doddle compared with euro compliance. Leading a customer through the euro-ready minefield - if, of course, they can be persuaded to take the plunge - is a high-level transformation that affects everyone from helpdesks to account departments.

For anyone who's part of a supply chain, it's a case of the right hand needing to know exactly what the left is doing at every stage, says Brown.

The report states that even the most reluctant SMEs may find themselves sucked down the euro route by their larger clients. Neaman Bond also found that euro implementation is three times more expensive to address than the year 2000 date change. Even early, grass roots attempts to integrate the euro - software wrapping, accountancy packages and add-ons for print drivers - can turn out to be a red herring. The euro symbol may appear on keyboards and screens, but it's pretty redundant if printers can't handle it. Even many banks have had to take the decision to use alphabetic symbols for now.

Elizabeth Bradley, UK managing director and chief operating officer of Decision Vision Europe, the euro transformation consultants that commissioned the report, puts the problem in a broader perspective. 'The main difference between the year 2000 and the euro is that year 2000 is a technical issue that has an impact on a company's business. The euro is a business issue that has an impact on a company's technology. It's this distinction that adds to the complexity and cost of implementation.'

The channel certainly carries evidence of this trend. Tim Hall, marketing manager at Bytes Technology Group, says: 'We are definitely lagging behind.

The common view is that the euro is something dreamed up by bankers and financiers.'

Ben Rapp, managing director of Emerthames, a Var and services supplier, takes the view of many in the channel. 'As a sales pitch, the euro is even more suspect than the year 2000,' he says. Another cause for hesitancy, he says, is triangulation, the process whereby businesses use a central currency to calculate rates. 'We're used to going from pounds to dollars to krona in many cases. The European Central Bank has created specific rules for triangulation from the euro. In the eurozone there are bizarre rules about accuracy of calculation and rounding off.

Rapp continues: 'You can't do anything in euros anyway - there's no cash.

You'd have to dual-price.' He adds that it's not such a big switch for most companies. 'If you're not already a multi-currency operation, you're not dealing with Europe. If you are, it's no hassle to invoice customers in euros.'

At the user level, the effects of not being euro-compliant often don't justify the huge costs involved in overhauling PC systems. As many are quick to point out, if a computer Bios doesn't know what day it is on 1 January 2000, then it just has to be told. Likewise, most users are perfectly capable of typing in the word euro if the symbol doesn't exist in their keyboards or fonts. For many, it's less vital than historic reporting if and when companies decide to switch to euro triangulation.

This is certainly Rapp's view. 'Unless you're a customer-oriented business, or you're in the eurozone, it's not cost-justifiable,' he says. 'Let's say a customer has 300 desktop machines, 80 per cent bought before 1988.

You're looking at replacing 260 keyboards just to have the symbol on your keyboard and in your font. At £30 per keyboard, you're immediately looking at £7,600 - did you budget for that?

'Then you're looking at 30 minutes to install each keyboard, time to install the software and show the user how to use it. Before you know it, you've spent £20,000 to put a symbol on a keyboard that hardly anyone uses - you go and justify that to a finance director. As people replace kit over time it will be compliant. But let's face it, what does anyone gain from this? And let's remember that most email systems can't even handle the symbol,' adds Rapp.

The EC places no obligation on the UK to be euro-enabled, so in a perfect world, we'd be able to ignore it and hope it goes away. However, Brown and Bradley also point to the effect on the supply chain. They say a single currency will enable large corporates to halve their suppliers, and those that can't deal in their currency will naturally be the first to go.

Bradley says: 'Up to two thirds of large corporates across Europe are using the euro as an opportunity to consolidate and rationalise their suppliers. One large financial institution is planning to downscale from 950 bank accounts across Europe to 50. Large UK corporates such as Shell, BMW Rover, Marks and Spencer, ICI and Unilever are already planning their commercial strategies. Their suppliers will need euro compliance if they are to remain in the supply chain.'

It is estimated that one third of UK corporates are, or soon will be, working in euros. The research found that corporates are likely to either increase outsourcing or rationalise suppliers. If the large IT vendors and distributors choose to do the same, the report says the impact for resellers not operating in the single currency could be extremely damaging as they find themselves competing more and more against their peers across the EC. Moreover, it's the reseller's job to prepare their smaller clients for the onslaught. SMEs, which have less time to concentrate on transformation, could have no option but to follow large corporate clients into the quagmire if they are to stay in the game.

However, Hall is sceptical about rationalisation. 'It will only happen quickly where there are no products to deliver,' he says. 'This fits best with software licensing - we already know Microsoft is harmonising pricing across Europe. However, I don't believe it will happen from a hardware point of view. Multinational vendors such as Compaq have to deliver services locally.'

The supply chain transmutation is an ongoing process that many say would have happened with or without the euro. At Emerthames, Rapp argues: 'There's all sorts of supply chain hubbub in Europe. But we've had the Exchange Rate Mechanism (ERM) for years without any problem. We've had the ecu for a long time too and a lot of financials have successfully dealt in ecus to create a basket currency.'

So what of shifting VAT and exchange rates? Rapp says: 'What affects us is the strength of the pound. We're no more at risk from exchange rates than we ever were and we can still invoice and pay in euros. The only problem for us is finding where the cheaper kit is if the exchange rate fluctuates.'

In Brown's book, there's still a need to rearrange the furniture and the time to do it is now. The fact is that for whatever reason, things are changing. Hewlett Packard, for example, has already cut down to less than 50 direct accounts. Brown says this should be sufficient for most companies to sit up and take notice. 'Once you're up to your posterior in alligators you tend to forget about the architecture of swamp drainage,' warns Brown. 'For instance, if you're currently maintaining 12 systems across Europe for one customer, the possibility exists that in the future it will only need one. And if you're a marginal supplier, you could find things turning on their head.'

It may or may not be time to assess the situation. The industry has already become more specialised, so maybe it's time to focus even more closely on your customer base. If nothing else, the advent of the euro could be a good opportunity to ask the questions companies should be asking anyway.

What is the competition doing? What do suppliers want? And if traditional business models are transmuting, can a business pull its supply network with it? In one decision you're on the end of a business process - you're an executor of a vendor that made a decision and is placing the repercussions on you. On the other hand, it's about assimilating it all into your own organisation and, in turn, passing the effects of your own decision to your customers.

'It's about imagining the worst and preparing for the best,' Brown insists.

'But I know one thing for sure - if I were selling widgets to BMW/Rover I'd be learning to speak German real quickish.'

IMPLEMENTATION

The Neaman Bond report interviewed IT specialists in 14 countries - the 11 eurozone EC countries which have signed up for the euro, plus the UK, Sweden and Switzerland.

EC law states there is no compulsion and no prohibition for companies outside the eurozone to join. But if a company is dealing in a different currency from its customers, there's a danger of losing either business or money.

Graham Brown, director of Neaman Bond, says: 'You may well decide it's in your interest to move because the single currency removes the risk of currency fluctuation. If you don't take part, you're taking the ride of the euro vs the pound. If the client is dealing in euros and you don't, you're looking at an overdraft in a currency which is not your base currency.'

The report used the EC model of euro transformation which ancipates a business implementation through six stages:

1. Base level. The euro will be treated like any other foreign currency to be handled in a multi-currency accounting system.

2. Base currency transition. The period up to 31 December 2001 where companies signed up for the euro will operate with dual base currencies. Eurozone countries must be euro-capable by the end of 2001.

3. Dual coinage and notes. The six-month period beginning 1 January 2002, when participating countries will simultaneously use their own paper currency and coins as well as euro currency and coins.

4. Base currency replacement. The period after July 2002, when the national currencies of participating countries disappear.

5. Commercial transformation. Commercial transformations are likely to seep into markets during this period.

6. Economic transformation. Genuine transformation occurs.

EURO AND YEAR 2000

When it comes to a trade-off between the euro and year 2000, most countries nailed their colours to the mast fairly early. In countries where the euro was always welcome, most notably France, Germany, Spain, Italy and the Netherlands, the euro took early precedence in IT departments. The classic euro countries hadn't given due attention to year 2000, says Graham Brown, director of analysts Neaman Bond.

The UK is definitely lagging behind in euro adoption. Germany and Ireland are devoting more resources to testing than their European neighbours, while UK organisations are only dedicating 18 per cent of their capabilities.

The same companies have said they will dedicate nearly 40 per cent of their resources to year 2000.

Continental attitudes to year 2000 are now starting to shift as the date change looms. 'Only Austria and Spain now rate the euro ahead of year 2000,' says Brown. 'A year ago it was half and half.'

Germany is a classic case, having only recently decided to devote attention to year 2000. This is partly because of the economic importance of the euro and partly because Germany has always been a late technology adopter, says Brown. Germany was one of the last countries to adopt the Web and it has a culture of planning in the longer term. 'Classically, that approach doesn't matter because you get more proven technology, but you are in difficulty if you can't move the dateline,' he adds.