Hackett: Companies can cut costs, improve effectiveness when ERP is combined with process improvements
Atlanta, GA — May 20, 2004 — The choice between the six leading enterprise resource planning (ERP) software vendors is largely irrelevant in a company's efforts to drive towards world-class performance in finance, according to new research from The Hackett Group, a business advisory firm and an Answerthink company.
If improving finance performance is the primary goal of a company's ERP implementation efforts, it should not agonize over small differences between the core finance features of the various packages, because all of the leading packages offer fairly similar functionality in this area, Hackett recommended. Instead, companies should pick a package then concentrate on process improvements and configuring to enable best practices in order to ensure a significant return on investment (ROI).
Technology Alone is no Guarantee of World-class Performance
Hackett's research found that there is no direct correlation between the software package chosen and a company's ability to achieve world-class performance in finance, particularly for the three leading package vendors: SAP, PeopleSoft and Oracle. These three packages, taken together, are used at more than 80 percent of all finance organizations in Hackett's database (which is comprised of more than 2,400 client organizations, including 93 percent of the Dow Jones Industrials) and at over 92 percent of all companies that achieve world-class performance levels in finance. But, Hackett said, none of these vendors truly dominate, and all similarly support best practices in finance. In addition, 96 percent of all companies that implement one of these three packages do not achieve world-class performance in finance.
Hackett IT Practice Leader Beth Hayes said that many companies delude themselves into believing that ERP packages will solve all their problems and automatically help them cut finance costs and improve effectiveness. This is understandable given the millions of dollars they're spending to implement the software, she commented.
"But the reality is, to a large extent, when it comes to finance the ERP software you choose simply doesn't matter," she stated. "There are certainly other areas where the ERP packages do differ significantly. But if companies are focused on getting to world-class in finance, they need to improve how they do things, not simply change the tools they use to get things done."
Recipe for World-class: Focus on Best Practices
Since ERP package selection does not correlate with world-class finance performance, what does? Hackett's research found that companies seeking to become world-class in finance must incorporate best practice processes, organization design and enabling technology. Hackett's research stressed the importance of making process, organization and policy changes, and proactively configuring ERP to support best practices in finance as part of any implementation effort. This is a key element in maximizing the return on investment from a company's ERP investment.
To illustrate this point, Hackett looked at six organizational and process areas in the purchase-to-pay area of finance and found clear correlation between companies that relied on proven best practices and the attainment of world-class performance. Some of the purchase-to-pay best practices analyzed included centralization of payables processing, end-to-end process ownership and minimization of low-value tasks.
Recommendations: Fix Problems, Pick Software Quickly, Integrate
Hackett said companies can reap benefits from this analysis even if they have already implemented in ERP solution for finance by taking a range of actions. Hackett recommended that companies address processes and organizational structure before investing additional time and money in application upgrades or other technology.
If companies are selecting an ERP vendor, Hackett recommended that they simply "pick and move" and not waste time over small differences in core finance features and functionality unless they are of critical importance to the company's business.
Finally, Hackett recommended that companies focus on creating an environment that facilitates easy integration of incremental applications, as this capability is quickly becoming a differentiating criterion.
"Companies can reap tremendous benefits by taking an ERP implementation approach driven by best practices," said Richard Roth, Hackett chief research officer. "By avoiding common pitfalls, companies can put systems in place more quickly, get significantly higher ROI and, most importantly, dramatically improve the ability of their finance organization to provide strategic insight that supports their business goals."
The Hackett Group is a business advisory firm that offers clients best practices research and process benchmarking. The company said its analysis is backed by research into best practices in use at more than 2,400 client organizations, including 93 percent of the Dow Jones Industrials.
Hackett's world-class designation is bestowed on an organization that scores in the top 25 percent of Hackett's database in both efficiency (cost and productivity) and effectiveness (quality and value) output metrics in a given functional area.
Hackett's research report is based on statistical analysis of Hackett's database of finance benchmarks. The research examined companies that implemented one of six leading ERP packages: SAP, PeopleSoft, Oracle, Baan, JD Edwards and Lawson.