The debate about whether the UK should join the euro continues to cast a shadow over the political arena. Most commentators agree that it is a question of "when" rather than "if", with 2005 being mooted as a possible date for entry.
While this may seem like a long way off, it might be wise for those who will be responsible for overseeing the conversion operation to get to grips with some of the issues ahead of time.
Despite all the uncertainty, Andrea di Maio, research director at analyst firm Gartner, says the perception that UK companies are in some way not primed for the change is misleading. "We have to be careful about saying that the UK is unprepared," he says. "Many UK companies have already been exposed to the euro changeover - either they have partners, customers or offices based in the euro-zone.
"The issue now sits with SMEs [small and medium-sized enterprises] which make up the majority of businesses in the UK. These companies will be doing business totally in the UK or with the US but not with the continent."
Di Maio says that adopting the euro will not be a big deal for smaller companies because many of them will have outsourced their financial systems to specialist third-party providers. For them the priority will be to understand how ready their partners are.
It is most likely to be the medium-sized companies,employing between 100 and 250 staff, with their own internal systems running their own financial applications, that will be unprepared for the euro. And it may pay for these companies to start some preliminary thinking now about the implications of the euro for their own situations.
Although the original members of the European single currency had a three-year transition period, when the UK joins it can expect only one year once the decision is taken - this was the timetable Greece worked to when it became the 12th member of the euro zone in January 2001. It adopted the currency at the same time as the 11 founding members, despite having qualified for entry two years after them.
Di Maio says there will be a time lapse between when the decision to join the euro is taken and when the transition period starts. He advises companies to start making arrangements as soon as the decision is taken so that they have plenty of time to get their houses in order.
For these companies he highlights four areas where conversion to the euro is an issue:
- Supplier software packages
- Legacy and in-house applications
- Data conversion - run-time as well as historical data that is stored for the purposes of business intelligence and analytics
- Data on PCs - spreadsheets and so on.
Legacy and in-house applications start to be more tricky, says di Maio, because whereas with the Y2K issue conversion tools were available, the level of automatic transition with the euro is limited.
Specialist tools can help to identify where there are data transformation issues within an application, but for every transformation there has to be a human decision because at different points in an application you may want to apply different rules. At some points you may want to completely replace pounds with euros but at others you may need to be able to manage both or, in some cases, just keep the pound.
For example, does it make sense to convert all your historic and archived data into euros? You may want to keep some records, such as invoices and orders, in pounds as well as euros to enable you to corroborate financial transactions because when converting pounds to euros some rounding-up of currency is inevitable. This means you will lose some precision. Also, if you want to check back you will need to have kept your records in euros as well as pounds.
All rounding problems are labour-intensive as every decision has to be taken by the user, and with every conversion there is a potential for rounding error.
Di Maio says one trick used by many companies is to implement a run-time conversion to keep your internal systems in the same currency but change across to the euro for the user interface and then change back to pounds once you go back to the internal system.
On run-time and historical data Di Maio poses the questions, "When do you correct the data? And how long will that take?" If you have a big database that you will need to convert to euro compliancy it could take days, especially if large amounts of the operation have to be carried out manually. This means that there will be times during the conversion when you will have to suspend your operations.
One approach is the "big bang" conversion, when you switch all your data over in one go. This is the ideal method, as it will simplify the conversion and mean there is less risk of losing or corrupting your data.
But for most sites with lots of disparate data to convert the only option will be to split the operation into different chunks. You should be able to suspend some systems, such as accounts and general ledger, for short periods without too much disruption, but other applications, such as supply-chain, are more problematic.
Although the overall task will be easier to do in phases, this approach will bring its own problems because part of your system will be running old data and part will be running new data.
"You will have to build bridges to run data back and forth over the different parts of the application," says Di Maio. "This means there is a job to install and uninstall this array of bridges as you go along."
With this range of variables and potential pitfalls it is vital that any site facing a euro conversion programme will need to plan and schedule the scope of its operation as well as factoring in risk management and contingency plans.
Extensive testing is another must-do. Di Maio recommends involving users in the tests from day one. "Tests should be carried out after the first day, the first week and the first month. Ask yourself, 'Does the data make sense?' With such a massive data conversion there must be several checks for rounding errors."
Data held on PCs is an area where many companies on the continent have experienced problems, says Di Maio. Many PCs contain spreadsheets and small databases that will need to be converted to euros. For the most part, central IT is not concerned with data held on PCs and there are no automatic euro-conversion tools available.
"Converting the data held on PCs will be time-consuming. IT managers will need to raise awareness and give responsibility to the user to change his or her own data. You can offer general assistance with this but, overall, users must plan in time to do their own conversion," he says.
Don't underestimate the scale of the task of converting a business from pounds to euros
There are differences and similarities between Y2K and euro compliancy. The differences are obvious: while Y2K was about a change of clock date, euro conversion poses the question, "How do I deal with rounding-up converted currencies?"
According to Andrea di Maio of Gartner, the issues surrounding euro compliancy for the UK's IT system make it comparable in size with the problems posed in the run-up to Y2K.
"Y2K may have seemed much bigger because of the hysteria that surrounded the issue. This reached fever-pitch in the run-up to the 1999/2000 new year," says Di Maio. "What is missing as people contemplate euro conversion are thoughts of the the 'dark side', which were prevalent a few years ago."
Di Maio says there is much experience in Europe and Ireland in companies which have already gone through the pain of euro conversion. He urges managers to seek out reliable information from other users and companies.
As with Y2K, the euro issue could signal a boom for contractors, especially those from the UK. Di Maio says that because the issue of euro compliancy will be specific to the UK at the time when it chooses to go in there are unlikely to be many contractors from other countries offering specific euro services.
This all means that the cost of contractors in this area may increase. "Contractors working in this area will have to go through code meticulously. They will have to demonstrate the ability to work closely with application users to decide tactics and discuss which changes are suitable where."
Plan ahead to avoid problems
- It would be wise to start thinking now about how you would approach a euro conversion
- Most off-the-shelf software packages should already be euro-compliant
- Much of the euro conversion of data and legacy applications will have to be done manually
- Most sites will have to carry out their conversion in stages. This will involve installing bridges between old and new data
- Planning and scheduling is vital, as is risk management, contingency planning and systems testing
- Users must be made responsible for converting data held on their PCs.