Getting More From ERP

A CFO would want to know why a plant manager is keeping machine tools idle when they could be put to profitable use -- and rightly so. Yet most companies are guilty of not fully utilizing another expensive capital asset: their enterprise resource planning (ERP) system.

Although the term "business process reengineering" may sound passé, companies should be putting more effort into process reengineering to improve efficiency and effectiveness by instituting end-to-end processes. In many cases the ERP software that companies already own can help them do this, without even having to make a major upgrade to it. What's the biggest hurdle? It may simply be understanding what's possible.

ERP software's capabilities -- and the expectations that users place on them -- have evolved substantially since mass adoption began in the early 1990s. Most companies have achieved simple process efficiency. The Hackett Group found that the cost of running the average finance organization shrank by nearly half during the 1990s; this achievement can be attributed largely to the nearly universal adoption of ERP systems over that period. And the impact of this improvement is not trivial: We calculate it adds $60 billion annually to the operating profit of the Fortune 500 alone. With that mission accomplished, it's time for companies to focus on raising their use of ERP to the next level.

Many businesses can use their ERP tool to achieve step-function improvements in productivity and to enhance organizational effectiveness. But our research shows that most are not taking advantage of newer but proven process improvements, such as using end-to-end process automation (order-to-cash or purchase-to-pay, for example) or replacing paper with digital documents. Many companies could also be using ERP to accelerate their periodic closing process.

ERP systems also can and should be used to enhance organizational effectiveness. While documenting accounting transactions has been a core function of ERP systems (often the main one), these applications are capable of recording a broad range of operational data that plays a critical role in scorecards (balanced or otherwise), key performance indicators (KPIs) and driver-based planning. Moreover, many companies are not using nonfinancial metrics to improve performance, either because they ignore data they already collect or they fail to collect the data their ERP system is capable of delivering.