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Corporate mergers and acquisitions are on the rise, and the M&A frenzy has seen organizations of all sizes, from obscure brands to cultural icons, snatched up. In such an environment, ERP consolidation is bound to come up, and for good reason. Complexity in ERP environments -- which include systems, processes, policies, governance models and data models -- prevents many companies from achieving their corporate growth objectives. The typical large international organization, particularly one in aggressive acquisition mode, is likely to report that it is not getting the value needed from its ERP systems. Such an organization tends to have an alphabet soup of ERP platforms and software across business units and geographies, which can create major but often unseen inefficiencies. These inefficiencies only become more pronounced when a company attempts to integrate a newly acquired business, and the result can be one giant ERP mess that hampers data-based decision making, cross-enterprise communication, human capital alignment and operational performance.
ERP fragmentation, the plague of many companies
A report from benchmarking and best practices research advisory APQC, in collaboration with Cognizant and SAP, examined the relationship between ERP systems and ambitious business growth and looked for practical steps, beyond wide-scale ERP consolidation, that companies can take to reduce ERP complexity.
Solving the ERP complexity challenge requires business leaders who are ready, willing and able to tackle what is an incredibly difficult job. Unfortunately, a number of common hurdles might stand in the way. For example, while many business leaders are aware of the ERP complexity issue, many disagree and can't create an aligned strategy on how to solve it. Another common issue is that although some leaders realize that ERP complexity makes integrating newly acquired businesses even more difficult, they continue to put off meaningful change because of realities such as budget limitations or a resistant company culture. Others have a weak understanding of the problem; they are not fully aware of how ERP environment complexity is affecting the enterprise and hindering growth. Another obstacle: Even if an organization's leaders are willing to shoulder the burden of reducing ERP landscape complexity, they have no sense of what the first step toward ERP consolidation should be.
A first step to ERP simplification
These issues highlight an important truth: Overcoming ERP landscape complexity is not solely a technological issue. To address the problem adequately, an organization's long-term business and technology strategies must align. A practical step in the right direction is to carefully review the potential benefits of incremental remedial steps. For example, one first step company leaders could take is to uncover financial performance reporting issues that stem from ERP landscape complexity. The next step would be to invest in software that enables fast and relatively easy consolidation of financial data from across a spectrum of ERP system brands and versions. Platforms designed to funnel information into a central application for ERP use, often through cloud computing, provide this service.
The idea behind this approach is that managing the technological dissonance through a centralized source spares organizations the financial burden and risk of ERP consolidation. It is not a difficult transition for an organization to first implement financial data consolidation and then undertake ERP landscape consolidation down the road. Such an approach is less costly, time-consuming and disruptive to the enterprise as a whole than tearing up the whole ERP system and starting from scratch.
Overcoming the challenges of an unnecessarily complex ERP environment, either through adjustments to business strategy and approaches or through technology-related avenues, is critical for organizations that want the most from growth opportunities. Senior executives who are open to solving these problems are doing much to position their organizations for success. Their attitude helps others see how ERP complexity hinders growth as well as the benefits tackling the problem, regardless of how difficult it might be.
About the author
Michael Cappelli is a research specialist at benchmarking and best practices research advisory APQC, where he focuses on financial management. Using APQC's benchmarks and metrics to uncover insights from data, his goal is to leverage qualitative case study research to identify real-world practices and solutions that back up the data.
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