One of the benefits of providing advisory services is that we get to talk to many different companies and see how they operate day-to-day. This gives us invaluable insight into the issues faced by finance teams and their impact on the organisation. We also get to compare approaches and identify common problems.
In several assignments we have performed over the past 18 months, the importance of the underlying financial transaction system has been a common theme. This article looks at the importance of your ERP solution and why it can be the root of many problems.
Changing ERPs is a big decision
We often experience organisations that are using ERP solutions that are either technically old (I hesitate to use the word legacy), identified as unsuitable for their needs or both. This most commonly manifests itself in functionality gaps in the solution. Examples of this that we have seen are deficiencies in purchase ordering (P2P), credit control (O2R) and fixed assets although the list goes on depending upon specific needs.
The problem is that replacing the underlying ERP (or accounting) system can be extremely expensive, painful and time-consuming. It is not just the cost of the technology solution but also the internal man-hours consumed in the project itself. Requirements gathering, selection, implementation, testing, training. All of this requires input from multiple stakeholders and users spread across the whole organisation. It is a big decision and one that is all too easy to put on the ‘too difficult’ list.
However, if you do not change…
As a result of procrastination and fear, many organisations have stuck far too long with ERPs that do not work for them. And what is the result? There are two common scenarios. The first, and least desirable, is that the processes are ‘forced’ through the functionality available. This inevitably results in significant manual intervention, either during the process itself or, more frequently, at the tail end in finance. The processes become very inefficient and, to a large extent, ineffective and can have an impact on many people. A classic example is a P2P process, an area of significant inefficiencies in many organisations.
Learn more about ERP solutions, here!
The second scenario is the purchase of a software solution that fills the functionality gap. Now this can be a positive move (see below) if it is treated as a long-term strategy. However, it is often approached as a short-term interim fix until a new ERP that has ‘all-singing and dancing’ functionality is implemented. As a result, the selection process is poor and siloed and the solution ends up creating more problems than it solves.
Single-platform or best-of-breed?
This is a million-dollar question and one that has no definitive answer. If we start with the single-platform approach, first let us dispel the myth that you will find an ERP solution that does everything. ERP vendors will tell you they do P2P, O2R, fixed assets, financial consolidation, reporting, budgeting and also wash your car for you. Many of them do provide a range of functionality that meets these broad definitions. However, is it just a bolt-on module? Is it a third-part product? A great example is budgeting or planning where one leading ERP solution says they do budgeting because ‘they can store budget numbers’. This is hardly a process and is not planning and budgeting! How functional is it really?
A single-platform approach does have potential benefits in terms of integration, single user-interface and maintenance. However, look carefully at what it does and whether it meets your needs.
This brings us to a best-of-breed. This approach has gone and come back into vogue in recent years as system integration has improved (driven by SaaS). Vendors in this space are often experts in their particular field and, as a result, their solutions are normally at the cutting edge. All their development dollar’s go into solving specific problems and hence, they deliver a high-level of functionality, invariably beyond that offered by ERPs. You may even find niche vendors that have developed industry specific solutions or models.
Where to go next?
If you find yourself in a position where your ERP is not delivering or is causing inefficiencies, be brave and bite the bullet. Identify where the ERP is failing you, how critical this is and the impact on the organisation. Look at what the vendor has to offer. Will an updated version have more functionality? Is there a third-party module that can be integrated? Does it meet your specific requirements?
Want to read more on ERP? We recommend ‘What comes first, ERP or reporting and analytics?’
Both a single-platform or best-of-breed are viable approaches. Look carefully into both and the pros and cons of each. Decide on a long-term strategy and stick to it.
Make sure you do your due diligence. Just because a vendor says it will solve your problem do not accept this as fact. At the same time, investigate the software market and identify the best-of-breed solutions that are available that will meet your needs.
Most of all, do not accept that you need to put up with inefficiencies and issues until the ERP is changed. Unfortunately, it is very rarely the case that this alone will solve all your problems and you may need to wait a while to find out this is the case.