Enterprise resource planning (ERP) technology has a proven history of delivering value to today's corporations by enabling a centralized information warehouse to be leveraged enterprise-wide. However, ERP has a broad focus, and best-of-breed (BoB) applications have been developed to provide the depth of functionality required by key functional areas, such as accounts receivable. As a result, corporations have long recognized the need for best-of-breed applications to bridge fill the void of ERP's functional limitations.
With ERP's broad focus, it is easy to believe that it can provide a single solution to all of your corporation's challenges. However, it is important to know where the lines of reality and myth collide. There is no doubt that ERP plays a very crucial role in today's enterprise, but as with any technology, naturally there are functional limitations. It is crucial to understand what these limitations are.
MYTH 1: ERP can do everything that best-of-breed products can do.
It is a common belief that an ERP system can provide the same functionality as a BoB solution. However, this is not the case in most organizations because ERPs were designed to work in a simplified, uniform environment. The problem is that a "vanilla" ERP implementation may not be able to address business requirements, but customization for one business application could preclude configuration options for another.
Furthermore, evaluating ERP software on a scorecard basis without considering the real-life application can misrepresent the actual value of the solution as a whole. For example, both ERP and BoB may provide access to a full set of information, but users may need to navigate through multiple layers of screens to gather all the information they would need for a collections call in an ERP system, where a BoB application provides a more streamlined solution.
MYTH 2: I've already purchased the module as a part of a bundle, so there is little or no cost to implement the ERP collections solution.
Many people believe — for good reason — that because they have the license for the accounts receivable (AR) modules that are typically sold as a part of a suite of offerings, there is no barrier to immediately using the modules, since they are provided by the same developer as the ERP. But ERP systems are very complex.
The truth is a module that is designed by the ERP provider is a double-edged sword. Although the module is designed to work with other ERP modules, it is also designed to depend on other modules. This dependency creates implementation complications and increases costs when organizations are forced to implement the dependent modules in order to access the collections module. So, even if you already have a license for a collections module, you may incur additional license, service and support costs for any underlying modules.
Furthermore, according to CIO Magazine, only 35 percent of ERP implementations are on schedule, whereas, according to the Rockford Consulting Group, more than 60 percent of ERP implementations fail.
MYTH 3: ERP is easier and cheaper to support.
To accurately evaluate support costs, the system's total cost of ownership (TCO) must be considered. This includes the cost impact on an organization's internal resources, such as the typically overburdened IT staff, as well as the ongoing maintenance cost above and beyond routine system administration.
Whereas BoB technology is commonly designed to be supported by business users, ERP systems — given its complexities and heavy ancillary dependencies — often require a high level of IT involvement for even basic tasks, thereby driving up support costs. ERP support costs skyrocket if any customization is required.
For example, with an ERP system any changes in strategy, reporting, processes, security or usage requirements must involve IT. Furthermore, because standard reports are limited in ERP implementation, companies are typically forced to employ either custom reports or a third-party reporting package, which further drives custom development. As a result, the ERP system becomes even more difficult to support.
MYTH 4: ERP has all of the reporting that I need.
Although ERP systems often contain the data required to populate any required reports, they focus on financial reporting versus activity-based reporting (such as cycle times, call out comes, in-depth risk analysis). As a result, ERP systems typically have a limited number of useful reports out of the box. To expand ERP reporting outside of the limited canned reports available with an ERP system, organizations must custom build the reports using IT resources or employ a third-party reporting tool.
Alternatively, BoB systems have flexible reporting capabilities that are designed specifically with credit and collections in mind. BoB employs built in report writers, ad-hoc searches, and other robust capabilities, and provides interfaces for business users to easily author their own ad hoc reports.
MYTH 5: ERP will grow with my business.
An ERP system will indeed grow with an organization if the company doesn't form or acquire additional business units, and all current units continue to function under the same business model. Deployments of ERP are often full of compromises with a narrowing of scope. Furthermore, ERP systems are difficult to customize and have difficulty supporting multiple business models. This is why there are often multiple instances of an ERP system within one organization.
Therefore, corporate acquisition usually requires massive system changes to leverage core ERP functionality for credit and collections — the opportunity costs of waiting for the acquisitions to be folded into ERP could pay for a BoB many times over.
Furthermore, should an organization move to a Shared Service model, any new acquisitions or additions of business units that use independent systems may require employees to use multiple transaction systems, which essentially minimizes the effectiveness of a Shared Service model. On the other hand, BoB solutions have built in flexibility to manage multiple systems, business models and organizational structures.
MYTH 6: ERP will enable a faster ROI.
Numerous factors influence return on investment, many of which are discussed above, including usability, cost of implementation, ease of support, resource requirements, flexibility and scalability.
Usability — One of the most influential drivers for user adoption is ease of use, and ERP systems are notorious for difficult user interfaces. For instance, ERP often presents information in a manner that requires users to access multiple screens to perform a common task, while a BoB solution — designed with the specific business process in mind — presents the information on one screen or dashboard. (See Myth 1.)
Implementation cost and ease of support — ERP implementations are tremendously complex and difficult to support, due in part to the intra-system dependencies inherent in the system. New modules and any customizations ultimately uncover unseen costs and schedule over-runs. (See Myths 2 and 3.)
Resource requirements — Even more so than with standard software implementations, ERP systems drive a high degree of reliance on overstretched IT resources — not only on initial implementation but with any change that might be required in a dynamic organization. (See Myths 2 and 4.)
Flexibility and scalability — As an organization grows and changes, companies must be able to rapidly configure the solution to interface with multiple transactional systems. As described in the section above, this is not an easy task with ERP systems. (See Myth 5.)
A 2005 issue of Supply Chain Digest reported that most chief information officers admit that BoB solutions are not more expensive to implement when compared to ERP modules. In this article, the CIO of a major consumer goods company was quoted as saying, "You're right, it really isn't integration (why CIOs generally prefer ERP)…that's just an excuse we know it's hard for anyone to argue with. The cost differences really aren't that great. It's more a matter of staying with a vendor and technologies we're the most comfortable with."
There is no debate that ERP plays a significant role within corporations today. However, for specialized business functions such as accounts receivable and collections, corporations need to closely examine system functionalities and determine if they truly address their business requirements.
About the Author: Sanjay Srivastava is chief operating officer of Aceva Technologies (www.aceva.com), a San Mateo, Calif.-based provider of software solutions for enterprise cash flow performance management. For more information e-mail [email protected].