Readers weigh in on their utilization of and satisfaction with their business technology systems, the business objectives driving technology investment, ease of integration, and more.
James Morlan, CFO of ViewSonic in Walnut, Calif., has a clear idea of what it takes to fully utilize his company's business technology. As the chief financial officer of the private, $1 billion manufacturer and distributor of computer monitors and other visual display equipment, Morlan emphasizes the importance of using technology to support business processes. He regularly wrestles with prickly integration challenges and uses his company's technology investments to achieve both tactical goals, like curbing SG&A, and strategic objectives, such as instituting a common software platform companywide to facilitate future functionality upgrades. He also weighs in resolutely on the ERP vs. best of breed (BOB) debate: He prefers single-stop shopping. "My position for the past couple of years has been that 'best of breed' is a contradiction in terms," says Morlan, "because every user interface is an error generator."
Morlan could serve as the honorary über-respondent for the Business Finance/American Express Tax and Business Services Inc. Business Information Solutions Survey. His experience and judgments crystallize the most important findings that came out of the survey results.
The lengthy questionnaire probed 875 Business Finance subscribers on the extent to which their company utilizes business technology (accounting and ERP systems, plus add-on functionality), their satisfaction with those solutions, the business objectives driving those investments, ease of integration, and their priorities for future IT purchases. The short answers to those questions? Utilization: so-so. Satisfaction with solution: needs improvement, especially in the area of business processes. Business objective: cost reduction, cost reduction, cost reduction -- and technology is not always achieving that goal. Integration: difficult. Future IT investments: CRM, e-commerce and business intelligence.
The biggest problems that the survey uncovered center on respondents' dissatisfaction with business processes. When asked to identify which potential benefits of business information solutions are most important to their company, the largest proportion of respondents -- 81 percent -- selected improvement of business processes. Yet only one-third of respondents reported that their current solutions actually provide this benefit.
"There is a difference between being efficient and being effective," notes Charles Riess, managing director, consulting and information solutions, with American Express Tax and Business Services Inc. in New York City. "Efficiency is doing things right, and effectiveness is doing the right things. For example, a tool in a machine shop may drill holes very, very efficiently. But if it's putting the holes in the wrong place, it's not being effective at all. If you just implement technology without taking a look at the business processes, you can simply make the wrong processes more efficient." To achieve the greatest return on IT expenditures, Riess says, a company needs to align its business processes and its organizational structure with its information technology. The survey results, he notes, "clearly confirm that people want to use their information solutions to improve business processes. But, for the most part, that's not happening."
It's the Process, Stupid
Asked how satisfied they are with the technology, people and processes associated with their enterprise's business information solutions on a scale of one (lowest) to five (highest), respondents registered the least satisfaction with processes: 43 percent ranked people highly (a four or a five), 42 percent ranked technology systems and software highly, and only 29 percent ranked processes highly. (See Business Process Disconnect below.)
These results can lead to both positive and negative conclusions. On the cloudy side, business information solutions are failing to achieve one of the most important objectives that drive their investment. But at least the finance, IT and business executives we polled recognize that shortcoming. Ideally, that means they will work to reverse business process problems.
Consultants and vendors understand the importance of business processes. "In our view, the technology isn't the most important element to the equation," says Steve Miranda, vice president, applications development, financial applications, for Oracle Corp. in Redwood Shores, Calif. "We're building business solutions, so we're trying to leverage technology to improve a business process." That comment would have raised eyebrows a few years ago; now most vendors make similar claims. And those statements seem to be more than lip service. Miranda notes that Oracle added the capability to upload from Microsoft Excel into its core offering because accountants often use Excel for journals, budgeting and even sales forecasts. Oracle didn't try to change that process just because it involves a competitor's product.
Too often, however, the emphasis on process gets lost somewhere between the purchase point and the software's live date. "We regularly see clients who are looking to replace their ERP systems," says Bob Beaird, managing director for consulting and information solutions with American Express Tax and Business Services in Chicago. "And we often find out that they don't necessarily have the wrong system, they just haven't [correctly] utilized it and/or they didn't look at their processes when they implemented it."
Beaird recognizes that an implementation's focus sometimes shifts to deadlines and budgets at the expense of business processes as the project wears on. That's why he advises clients to set deadlines based on a realistic understanding of the work necessary to support business processes. "The goal of an implementation shouldn't be hitting a date; the goal should be improving the business," he says. "That's where the return on investment is."
Chris Hagler, national director of IT services for Resources Connection Inc., an international professional services firm based in Costa Mesa, Calif., suggests that a focus on cost-reduction objectives can sap the likelihood of achieving strategic gains: "Suppose I implement PeopleSoft, in part because I'm going to be able to lay off 10 people in revenue accounting. If I really stick to it, my deadline to lay off the people is generally quicker than I'm able to change the processes and implement the technology. So I end up behind the curve because I've laid off these people but haven't really improved the processes. You need to take a look at the most efficient way to do a process first and then apply technology to support that process."
Knowledge Products, a King of Prussia, Pa., training solutions provider, has a unique perspective on the disconnect between business processes and technology. One Knowledge Products offering enables trainers (of ERP, for example) to "pipeline" into a live application and walk the user through a hurdle. Based on his company's troubleshooting experience, president Dale Cline believes enterprise solutions' failure to improve business processes is the result of a knowledge gap.
Once an application is running and the initial training is complete, Cline notes, very few companies appoint anyone to manage the competency -- how well end users are leveraging the technology to support business processes -- on an ongoing basis. "So the CFO says, 'I paid $5 million for the system; I'm happy I'm using all the modules, but I'm not sure I'm seeing all of the efficiency that I wanted,' " he says. "That's usually because all the responsibility for competency has diffused all the way down to line managers who have 15 other priorities in front of them. And competency on a particular application falls way, way down on that list."
Clearing business process hurdles is not attractive from an initial-cost perspective. "The difficulty is that it costs more to implement that way," Beaird says. "And most businesses get driven by dollars and dates and are not willing to invest, even though it's just an incremental amount of money, to do it right." But that investment may be a small price to pay to reach a critical objective.
Integration was the key consideration in ViewSonic's decision to standardize processes across its global operations this year by upgrading its data warehousing software and improving its e-business efficiency. The company now uses Oracle's 8i database as well as the financials, iStore, manufacturing, order management and procurement applications in Oracle's e-business suite (version 11i). Morlan says integration issues can be both formidable and broad, from creating XML linkages among different products to achieving corporate standardization.
"Every internal functional area always wants more functionality, and sometimes you have to go to a third party to get that functionality," he says. ViewSonic purchased software and services from Vertex to handle state and local tax needs and software from Cognos to gain advanced reporting and data warehousing functionality. Both vendors are Oracle partners, so the additions fit into the Oracle financial suite relatively smoothly. But, Morlan says, "we may have had more challenges just integrating our international operations with our U.S.-based operations -- getting common language integration, a common chart of accounts, common items master and common accounting processes."
Forty-one percent of survey respondents at $100 million-plus companies have moved to a single-instance accounting software product or ERP suite with a common chart of accounts. However, 50 percent of respondents indicated that their business technology systems and processes are only "somewhat integrated" across the company, and 26 percent said, "Our systems support our processes by functional area in most instances, but most functions are not integrated by location, and cross-functional systems and processes are not integrated." Only 15 percent of respondents said their technology and processes are "fully integrated across all functional areas and locations."
That does not necessarily indicate a failure, though. "I think a lot of people are really excited about integrating everything without knowing why everything should be integrated," Hagler says. "I think people integrate because they think they ought to. What they really need to do is to ask, 'What kind of information am I trying to get, and is there an easier way to get it?' "
For many executives, close integration of software systems is a difficult but worthwhile process. Arin Brost, vice president, information systems, with HyCite Corp., a private wholesale distribution and finance company in Madison, Wis., says that integrating disparate CRM, ERP and custom applications without predefined specifications is difficult but ultimately pays off. HyCite, an Agresso ERP customer, bridges that integration gap with custom software developed in-house, Brost notes.
Gerry Smith, president of Changepoint Corp., a best-of-breed professional services automation (PSA) software provider based in Toronto, fires a shot in the ongoing ERP vs. BOB battle when he addresses integration, but his advice echoes Hagler's point. "Ease of integration is still a differentiator," he says. "Unfortunately, it is usually only looked upon at a high level. Companies do not dig into the integration being sold. Companies sometimes do not need anything more than a file transfer on a nightly basis ... but will be convinced by a vendor that they need real-time updates and therefore real-time integration.
"Unless companies know what their business requirements are for the update and availability of data, they may purchase more expensive and technically complex integration than they need and sacrifice application functionality because of it," Smith adds.
ERP vs. BOB, Round 9
Judging from the survey results, Business Finance readers favor ERP. Tier-one vendors -- which, not coincidentally, seem to be distancing themselves from the "ERP" label as they continue to add HR, supply chain, CRM and other functionality to their suites -- dominated the vendor rankings. Surprisingly, this was true even with respondents from small companies (see Software on the Shortlist on page 20). Respondents also indicated that they prefer using ERP modules to best-of-breed applications by a 2-to-1 margin (see ERP vs. Best of Breed below).
"I think clients tend to prefer one-stop shopping for their software and, in many cases, for the partners that put the software in," Riess says. "If they can get an ERP solution that provides the technology and the functionality that meets the majority of their needs, they would prefer to do that than deal with all of the integration issues involved in a best-of-breed approach." Riess notes that the likelihood a company will one-stop shop varies by industry. In the manufacturing segment, for example, the tendency is greater because mature ERP solutions are available. "If you go to other sectors -- the not-for-profit sector, for example -- the ability to go to one place to find a vendor to solve all of your issues is very, very difficult," he adds. Bruce Myers, vice president, Americas EEA/ERP, at Cap Gemini Ernst & Young, agrees, noting that preferences have "definitely swung away from best of breed and to the suites."
But best-of-breed advocates and their vendors refuse to cede victory. Smith points to failed ERP projects and huge license, implementation and support costs as evidence that companies need to take a more balanced look at the ERP vs. BOB choice. "Changepoint sees the issue not as one of integration per se," he notes, "but as one of customer market focus and business plan. And they should select software based on those needs."
HyCite's Brost does just that. "I look for best-of-breed providers for those business applications and systems that give us our competitive advantage," he says. "We feel that these competitive advantages are somewhat unique and that by trying to implement a suite of software from a single vendor, we may be required to compromise our business practices to the point they are no longer unique or lose their advantage. I look for a suite vendor for those business system applications that are relatively standardized throughout our industry, such as A/P, HR, G/L, etc."
We've waited till late in this report to discuss the objectives of respondents' business software purchases not because that information is unimportant but because survey results in this area contain few surprises. Asked to identify, on a scale of one to five, the importance of various business objectives related to their business information solutions, respondents gave top ratings to three cost-related goals: improving efficiency (87 percent scored this a four or a five), reducing the cost of doing business (also 87 percent), and improving employee productivity (82 percent). Improving customer service (80 percent) ranked fourth, and generating more revenue (76 percent) placed fifth.
But satisfaction with how well software systems are meeting these critical objectives remains low. Only one-third of respondents believe their business information solutions are sufficiently achieving their top-rated goals. (See Objectives Are Not Being Met below.) Myers suggests that less-than-rigorous post-implementation follow-through is one reason for this dissatisfaction. He believes companies that put someone in charge of tracking the business objectives laid out in the business case -- someone whose incentives are tied to achieving those objectives -- have a much better shot at satisfaction.
"Most everybody says that they're putting any technology in to reduce costs," says Hagler. "That's the only way they can justify an investment in the technology." But that's not necessarily how the solution first comes up. "The conversation often starts at the user level," Hagler says. "The accountants and the financial analysts might say, 'Gosh, we're spending so much time reconciling numbers, so much time trying to figure out what version of the truth is really true, and I want to do more. I want to analyze information instead of just spitting it out.' " But, she adds, that doesn't quite cut it as a business case in these cost-conscious times.
When ViewSonic and HyCite shop for business software, they strike a balance between cost-reduction objectives and a longer-term perspective. To assess the effectiveness of large technology investments, HyCite tracks return on revenue -- in terms of operational efficiency, accounting accuracy and overall operational costs -- and productivity measures such as revenue per full-time employee or receivables assigned per collector. "We correctly expected an initial decrease in productivity following both our ERP and CRM implementations," Brost says, "then witnessed a sharp increase in productivity measures after the 12-month mark."
Morlan describes a two-pronged approach to achieving ViewSonic's technology objectives. "On the one hand, we needed to lower our running cost with our whole information system," he says. In this year's upgrade to Oracle 11i, which the company implemented globally, licensing costs fell and support personnel duplications were eliminated (IT staff was reduced by 50 percent, a savings of more than $2 million). "That lowers my cost of doing business," Morlan says. "Strategically, the integrated common platform gives us a base for adding additional functionality. For instance, we added MRP to handle some of our parts issues. We're looking at supply-chain applications to see if that makes sense, seeing that we have a worldwide supply chain."
Priorities, IT Budgets and Hope
That supply chain interest echoes a priority expressed by survey respondents, who identified CRM, business intelligence, reporting, workflow management and e-commerce (i.e., supply chain) as the areas of functionality they most need but don't have. These priorities jibe with consultants' experience in the field. "Whatever industry they're in, they know they have to get on board with extending the enterprise," says Beaird. "Supply chain is becoming a reality for all tiers." Myers agrees with that point and with analyst projections that CRM investment will grow at a rate of 25 percent to 30 percent annually for the near future.
Hagler also agrees but reminds CRM purchasers of the importance of applying the technology to a business process change rather than fitting the process to the software. "Those investments are only going to be successful for the same reason financial systems are successful," she says. "If all they're doing is automating their existing order-entry process, that's not going to do anything."
The survey was conducted before the equity markets plummeted in July, so the mood at some companies may have changed, but 50 percent of respondents said they plan to increase IT budgets in 2003. Thirty-eight percent said they expect to leave IT budgets unchanged, and only 12 percent said they plan to reduce them.
An even more promising sign for vendors and consultants was revealed by a question about the percentage of revenue companies spend on IT. Twenty-five percent of respondents said their organization spends 1 percent to 3 percent of total revenue on IT, while 29 percent spend 3 percent to 7 percent on IT. That's right where it should be, in the 3 percent to 6 percent range, says John Matterson, president and CEO of Aston North America, an IT solutions firm in Vancouver, British Columbia. "It really depends what type of industry and business you're in," he says, "but that's a healthy range. Overall, there seems to be a confidence back but a different focus than there was two years ago, where people were looking at systems as if it was just the right or next thing to do. I think the buying is more intelligent now."
Despite the clear need for improvement in areas such as aligning technology with processes, companies seem to be utilizing business software better today than they have over the past several years. Asked how much of their current business technology systems' functionality is being utilized, most respondents (47 percent) answered "between 50 percent and 75 percent." Thirty-four percent of respondents reported that their companies use more than 75 percent of their systems' capabilities, and only 20 percent use less than 50 percent. (See Utilization Rates below.)
Yet many users we interviewed revealed that they consider low utilization rates to be acceptable for systems that are not yet mature. This attitude reflects a longer-term approach to the payoffs of business technology. Brost estimates that HyCite currently uses only 30 percent of the total functionality its Agresso system offers. But that's OK, he insists, because that 30 percent represents the core offerings that are most critical to HyCite's operations. "We've been live on Agresso for 18 months and stable for more than 12 months," Brost says. "Now we can begin to look at implementing additional functionality in critical business areas."
AXA Corporate Solutions, a $65 billion reinsurance company based in Paris, is in the process of rolling out the second wave of its global PeopleSoft solution in the United States, the United Kingdom and Asia. "When we installed the new modules, we went in with a good core, providing maybe 60 percent of what the system has to offer," says Andrée Bourgon, systems application manager in AXA's New York City office. As users become more comfortable, "you slowly start ticking away at that other 40 percent," she adds. "So we're probably somewhere around 75 percent. But that's not because we don't want to use all of it; it's just because we don't have the need to use all of it right now."
Rob Wolf, senior PeopleSoft specialist in AXA's New York office, notes that utilization benefits from a strategic approach. "We also kind of play the different departments against each other," he says. "We'll help out a department that had been a bottleneck for a certain process within the organization. When the solution eliminates that bottleneck, the rest of the organization immediately sees the value." Such strategic thinking, patience and solid business processes may be even more hopeful signs of improving technology utilization than IT budget increases.
Software on the Shortlist
Large ERP vendors hit respondents' sweet spot when they were asked, "If you were in the market to acquire and implement a new accounting/ERP system, based on what you know of each of the solution providers today, which would you most likely consider?"
Big players such as Oracle, PeopleSoft, SAP and Microsoft Great Plains dominated the responses to that question, particularly among respondents from companies with annual revenues of $100 million and up. This result clicks with what many consultants see occurring in the tier-one market. "It seems to me that the trend is toward people saying, for example, 'Well, I'm an SAP shop, and I want SAP everything,' " says Chris Hagler, national director of IT services for Resources Connection Inc. in Atlanta.
Many executives in small and midsize organizations also expressed an interest in large-suite vendors. Looking at this response, one wonders whether their eyes are bigger than their stomachs. Consultants who regularly work in this market are surprised that tier-one vendors such as PeopleSoft, SAP and Oracle ranked high on a large number of surveys from companies with $5 million to $100 million in annual revenue (although Oracle's partnership with NetLedger may explain its prominence on the small-company lists).
"Often the challenge is to get a prospect in the $5 million to $20 million company range to look beyond QuickBooks or MAS90 to a SQL Server -- tier two -- product," says Charles Riess, managing director, consulting and information solutions, with American Express Tax and Business Services Inc. in New York City. "That is why it was so surprising that the tier-one vendors were listed by these respondents. Other than aggressive marketing, I cannot explain it." Different cuts of the data -- by industry, for example -- don't provide alternative explanations; small-company respondents in all industries were fairly consistent with their hypothetical vendor choices.
That shifts the focus to the respondents. How, exactly, do they form their opinions and knowledge base of solution providers? Asked to flesh out that question, some survey participants listed a handful of criteria: personal experience, information from peers, "negative stories from customers about their experiences" and magazines. Executives at small and midsize companies simply may not have time and resources to dedicate to extensive vendor research.
"In my judgment, many of the finance and IT decision-makers at small companies are not sufficiently knowledgeable to make the best decision regarding their accounting or ERP package," says Bob Beaird, managing director for consulting and information solutions with American Express Tax and Business Services in Chicago. "On average, a U.S. firm replaces its ERP or accounting package once every seven years. Keeping track of the software industry is difficult enough for professionals engaged in it. It is simply not a core competency that a CFO, controller or IT manager in a small firm has or needs to have when it is a task that they will confront rarely, if ever, during their tenure at a firm."
Following are the vendors and products that survey respondents said they would consider if shopping for a new accounting/ERP system. Scores were calculated by adding weighted votes for "strongly consider" for each vendor (number of respondents selecting that option x 2) and votes for "might consider" (number of respondents x 1).
TOP CHOICES OF ALL RESPONDENTS
TOP CHOICES OF RESPONDENTS AT $1 BILLION-PLUS COMPANIES
TOP CHOICES OF RESPONDENTS AT $100 MILLION TO $1 BILLION COMPANIES
TOP CHOICES OF RESPONDENTS AT $20 MILLION TO $100 MILLION COMPANIES
TOP CHOICES OF RESPONDENTS AT $5 MILLION TO $20 MILLION COMPANIES
note: vendors' scores are tallied according to vendor names as they appeared in the survey. some vendors have consolidated since the survey questionnaire was generated.