Ventana Scorecard: Making Better Use of ERP

The process of shifting from US-GAAP to International Financial Reporting Standards (IFRS). must include a long-range plan for your company's accounting and ERP systems. If you work in a company with 1,000 or more employees, it likely has ERP systems from multiple vendors, multiple ERP "instances" (those that have different charts of accounts) of an ERP system from a single vendor, or both. If so, over the next three to five years your company probably will find it worthwhile to consolidate vendors or harmonize your instances.

I'm not wedded to the idea that having a single instance of a single ERP system is desirable, since the economics of this approach are reliably positive only for consultants and software vendors. However, when circumstances permit, eliminating unnecessary IT complexity is always a good idea. (The key word there is unnecessary.) Ordinarily, there would be no mandate to do this on any particular timetable, but it's likely that the shift to IFRS will represent a "kill-two-birds" opportunity for your corporation that ultimately will lower costs.

By now, almost all large companies have relegated the upkeep of their ERP system to their IT department; Finance typically has little interest or involvement. Yet the shift to IFRS involves decisions that must involve your company's finance department, the IT department and your external auditor. You'll need a cross-functional team that includes both Finance and IT to determine your ERP system roadmap (which ERP systems should remain, which should go, how to structure the charts of accounts and the schedule for the transition, among other considerations). But while you're at it, we recommend that your company take the opportunity to make better use of the ERP systems that you are using. This means making this cross-functional transition team a more permanent fixture, one that is charged with ensuring that your company is taking advantage of the full capabilities of your ERP system.

Most finance departments -- understandably -- have a dysfunctional relationship with the most important piece of software they touch every day. Implementing ERP systems has proven to be so difficult and so daunting to that the expectations finance professionals have for them are shockingly low. Finance executives are thrilled simply to have the ERP system hum away in the background. Because the implementation process for most companies is so painful and anxiety-ridden, once a system is installed correctly, the last thing they want to do is make changes.

That's too bad, because there is a huge gap between what most companies have and what they could have.

Our benchmark research finds that a majority of corporations underutilize the capabilities their ERP systems. They miss opportunities to automate routine activities or simplify cross-functional processes. This raises costs, limits effectiveness and prevents finance organizations from focusing on higher value activities. It's like driving your car in the lowest gear and then being puzzled and annoyed that you can't go as far or as fast as you want but pay more than you'd like for gas. The problem is, most executives and managers don't know their ERP system is stuck in low gear.

We find that failure to use ERP systems to their fullest stems largely from three factors. One is delegating the ERP maintenance responsibility entirely to the IT department. IT naturally focuses on making an existing system more efficient to operate rather than seeking to reconfigure the software to achieve greater operational effectiveness and business process efficiency. A second is that most business and finance executives have little or no sense of the full extent of what ERP systems are capable of doing and therefore do not demand more from them. A third is the perception that ERP systems are too difficult to change and therefore enhancements are not worth considering.

To the address the first two, corporations need that cross-functional steering committee to strategically manage their ERP systems. That's because businesspeople don't know enough about IT capabilities and IT doesn't understand business requirements well enough. As to the third, major changes to ERP systems are rarely simple, but decisions about whether to make changes should be based in fact, not perceptions, and should factor in expected business benefits as well as costs.