Embracing the Euro

PARIS, August 2, 1999 — With less than six months to go until the deadline for making computers ready to meet the Y2K challenge, companies worldwide are also scrambling to address another issue of even greater potential cost and impact to their businesses: the euro.

Jan. 1, 1999 marked the official start of a 3-1/2 year dual currency phase, in which 11 European countries began moving toward adopting the euro as their official currency. On that day, exchange rates were set and the European Monetary Union (EMU) launched the euro as an accounting unit alongside each nation’s local currency. On Jan. 1, 2002, euro notes and coins will be placed into circulation, and six months later, on July 1, 2002, the euro will become the official European currency, replacing the national currencies of the participating countries.

As an information technology (IT) issue, the euro is less complicated than Y2K, Microsoft officials said. Companies must prepare their IT systems to recognize the euro symbol and make calculations using the new currency — tasks less daunting than reprogramming their systems to address the Y2K problem. Yet the issue for many companies extends far beyond the IT department, affecting everything from the way the payroll department pays wages to the way the marketing department develops pricing.

“Y2K is about IT — period,”
said Richard Lindh, director of marketing services for Microsoft Europe, Middle East and Africa (Microsoft EMEA).
“It has nothing to do with business processes, whereas the euro has everything to do with your business processes, your marketing strategy, your sales strategy, your purchasing strategy — and less about IT.”

Microsoft began addressing the issue in January 1997, when it established an eight-member Euro Steering Committee. The steering committee was formed to evaluate software issues that must be addressed to enable customers to work with the euro. In addition, the committee is making the internal changes necessary for Microsoft to prepare its own infrastructure for the euro.

“We want to provide our customers with the necessary tools for their systems to function smoothly with the new currency,”
said Claude Changarnier, committee chairman and financial controller for Microsoft EMEA.
“We also want to make a smooth transition to the euro ourselves.”

As the biggest single change to Europe’s markets in half a century, the euro will directly affect 270 million people and nearly one-third of the world’s economy. Many economists predict the euro will lead to a stronger European economy and a more robust trading environment. Yet the transition will not come about without high cost and enormous effort. For example, the Belgian news organization L’Echo puts the costs to Belgian banks at 21 billion Belgian francs, compared to about 7 billion to 10 billion francs for preparing for Y2K. And the Gartner Group analyst firm estimates that the costs of software conversion alone will exceed $100 billion in Europe.

A Complex Business Issue

One factor that makes transition to the euro so complex is that it is taking place over 3-1/2 years, Lindh and Changarnier said. To provide companies with flexibility, the EMU is allowing businesses to change over to the euro any time between Jan. 1, 1999, when the euro was introduced, and July 1, 2002, when the 11 participating countries’ national currencies will be removed from circulation. As a result, businesses are moving to the euro according to their own timetables, which means that many companies’ survival depends on their ability to accept payments in both the euro and one or more national currencies.

Complicating the matter are some new conversion rules that affect companies’ IT systems, according to Lindh and Changarnier. For example, the EMU has mandated that all conversions be rounded to six decimal places, a greater level of precision than most accounting systems can handle. This conversion rule makes it necessary for some companies to implement temporary accounting solutions to make the conversions between the euro and national currencies during the dual currency period. In addition, direct conversions between national currencies are no longer possible. Rather than converting directly from the French franc to the Italian lire, for example, the franc will have to be converted first to the euro and then to the lire. This conversion rule, known as
“triangulation,”
can lead to rounding errors.

“For a bank that has billions of transactions, a small rounding error has the potential to become big bucks,”
Lindh said.
“But for a smaller company with a low quantity of transactions, those rounding errors will never net out to be a huge amount of money, so they won’t become a big problem.”

Further complicating the issue, companies with operations in the euro zone must evaluate the impact of the euro on every aspect of their business. Is their IT system ready to handle the euro beyond the dual currency period? If they move to the euro too quickly or too slowly, will it alienate vendors and customers? Is their payroll department prepared to issue paychecks and pensions in the euro? Has financial data collected before 1999 been converted to the euro so that comparisons with current data can be made? Have devices ranging from keyboards to vending machines been updated to handle the euro?

“Whereas Y2K is mainly an IT issue, the euro is more of a business strategy issue,”
Lindh said.
“There are a whole lot of questions that impact broad areas of your business.”

Another issue that needs be considered is pricing. For example, an item priced at 12.99 in British pounds may be less appealing at a price of 19.46 in euros, forcing companies to adjust their prices to make them more attractive. In addition, price differences from country to country become more obvious with a single currency, which is leading some companies to re-evaluate their pricing strategies and adjust their prices accordingly.

“Companies need to make sure their pricing is logical, manageable and acceptable so that customers buy their products,”
Lindh said.
“They need to look at where their lowest and highest prices are and find a level somewhere in between where revenue is neutral across the board. And that’s a hard, complicated process to go through.”

Of course, not all companies need to prepare to the same degree for the euro, Lindh and Changarnier said. Companies located within the euro zone, for instance, may have to make numerous changes to their business processes, while companies that do not trade with Europe will not be affected at all.

“If you’re a company in the United Kingdom, and you’re only buying and selling in the United Kingdom, there’s no reason to worry about these things,”
Lindh said.
“You’d stay with the British pound, naturally. But if you have vendors in the euro zone, or if you sell products to customers in the euro zone, then you’d better prepare for the euro right now, because there’s little benefit from waiting until 2002.”

As it turns out, many companies are preparing both for Y2K and the euro at the same time, Lindh said.
“Many companies are replacing their outdated legacy systems to make sure they’re Y2K-compliant, and in the process, they’re including the capability to handle multiple currencies as one part of the specification,”
he said.

Embracing the Euro at Microsoft

So what is Microsoft doing to help its customers prepare for the euro? The company has integrated support for the euro currency symbol throughout its Windows operating system family, Lindh and Changarnier said. All versions of Windows, starting with Windows 98 and Windows CE 2.1, have been developed to support the euro. In addition, Microsoft has posted free euro product updates to its Web site for Windows 95 and Windows NT 4.0, and customers can obtain third-party solutions for handheld PCs running on earlier versions of Windows CE than Windows CE 2.1. Microsoft also offers support for the euro character in Office products.

In addition to updating its software, Microsoft has created a Euro Information Resource Center Web site aimed at helping businesses prepare for the euro. The Web site includes a feature guide, which lists all Microsoft products that have euro-related features. The site also includes news articles and white papers outlining the potential impact of the euro on businesses, and provides links to related Microsoft sites.

Microsoft also has been working to prepare itself internally for the changeover to the euro and has outlined these steps in a white paper included on its Web site as a case study for other companies to use. On Jan. 1., the company began to accept invoices in euros and began to make price lists available in the new currency. On July 1, Microsoft began sending invoices in euros to distributors and customers in the 11 euro zone countries. On July 1, 2001, Microsoft EMEA plans to switch its internal accounting system over to the euro.

The biggest challenge, according to Changarnier, has been to coordinate all these changes with Microsoft’s multiple partners, suppliers and customers.
“We spent a lot of time talking to people to try to understand what they preferred, when they would move to the euro and what impact Microsoft’s timetables would have on them,”
he said.
“We always want to delight our customers as much as we can, so we didn’t want to risk alienating them with our decisions.”

Reaping the Benefits

Lindh and Changarnier predict companies will reap numerous benefits once the dual currency period passes and businesses successfully complete the transition to the euro. With a single currency, companies will be able to broaden the geographic reach of their goods and services, especially through avenues like the Internet.

“A single currency opens up the opportunity for electronic commerce across national borders, and that’s very compelling,”
Lindh said.
“I would argue that without the euro, Europe as a continent would never be able to build an electronic commerce market as interesting and dynamic as the one in the U.S., because a single currency is one of the key factors needed to create the critical mass for e-commerce to be a viable market.”

Moreover, companies will have broader access to suppliers, allowing them to tap into a wider range of goods and services, Lindh and Changarnier said. And they will be able to compare prices more easily throughout Europe, a factor that will help them to keep costs down.

“We are a big believer in the euro,”
Changarnier said.
“We think it’s a great achievement, and we think both Europe and Microsoft will be able to gain from the increased efficiency it will bring about.”

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