In the early days of 2014, Paul Hamerman, vice president and principal analyst at Forrester Research in Cambridge, Mass., said finance departments should take stock of their systems this year and simplify them if possible. Large companies in particular often amass a significant number of core and tangential financial systems as they grow, which can inhibit data visibility.
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But when it comes to core ERP systems, one single system might not always be the best way to go, according to Robert Kugel, senior vice president and research director at Ventana Research, based in San Ramon, Calif. It's not that it's necessarily a bad idea, but for a lot of companies, it's just not practical. As far as Kugel is concerned, single-instance ERP is a "vendor theme happily embraced by systems integrators." "There's a big difference between minimizing the number of core financial systems and consolidating on just one," he added.
So, is single-system standardization a pipe dream? While the viability of a one-system consolidation project varies depending on the company, one thing is clear: Simplifying the financial systems landscape is no easy task.
The challenges of ERP integration
Ricoh Americas Corp. acquired IKON Office Solutions in 2008 to bolster the company's business infrastructure in the United States, Canada and Europe by integrating IKON's sales and service network. The job of integrating the heterogeneous Oracle ERP systems fell to Balaji Rangaswamy, now Ricoh Americas chief information officer (CIO), and formerly IKON vice president of enterprise solutions. The project began in April 2010.
Acquiring IKON meant Ricoh had to streamline the overall IT infrastructure, as well as enable employees to be more efficient, and Ricoh's strategy for accomplishing these goals included bringing the systems together, Rangaswamy said. To that end, the company looked at cloud and on-premises integrations of the different ERP systems, as well as the infrastructure itself, Rangaswamy said. "But neither of the companies had the best technologies, so we had to find a third application that did not exist within our portfolio," he said. "The main reason to bring these systems together was the acquisition, but we were also looking at how to bring employees together. And we also took this opportunity to identify the systems that were not going to exist in the long term."
When Ricoh first started its ERP integration, it looked at the best ways to benefit quickly from its IKON acquisition. The company started by consolidating some of the front-office functions, and bringing the service technicians together. "Even though we had two ERP systems on the back end, we integrated that so we could combine our service force," Rangaswamy said. "After that, we enhanced and consolidated our warehouses for our supply chain and then we did the actual Oracle ERP E-Business Suite integration."
Rangaswamy cited data consistency as a challenge in the ERP integration. In addition, there was an overlap of customers, as well as of products, between Ricoh and IKON, not to mention differences in the contract portfolios that existed between the companies. "Those are the pieces where we had a bigger set of challenges, in terms of defining what that contract portfolio should look like, as well as merging the customers," he said. "So, we dedicated about 30 or 40 people just to the data cleansing aspect of the integration."
Is standardizing on one ERP system worth it?
Like Ricoh, when most companies consider bringing together several disparate core financial systems, they typically do so to standardize their operations and business processes.
But aiming for one system is often impractical, and Ventana's Kugel said many of the benefits of standardizing on just one ERP system can be obtained through other means, such as employing master data management in automating the creation of an integrated view. And then there's the cost of going from multiple systems to a single instance of an ERP system. "You won't find the advantages are sufficient to justify the investment that it's going to require," Kugel said.
Also, if large companies put in the time and effort to standardize on one ERP system, they'll be back at square one when they make additional acquisitions. "And then what are they going to do? They've got fragmentation again," Kugel said. "Does that necessarily entail the need to bring them into conformance with a single instance of the ERP?"
Furthermore, it might not necessarily be good for companies that encompass several different kinds of businesses to have a single chart of accounts, Kugel said. "Of course, having a single instance of a single vendor's ERP system with a single chart of accounts is going to be a lot easier than having multiple ones," he said. "The question is, What do you pay to get there and what do you pay to stay there?"
Benefits of consolidating ERP systems landscape
Instead of striving to standardize on one ERP system, Kugel said it makes more sense to minimize the number of instances and individual ERP systems to the extent possible. "If I'm looking at a multi-billion-dollar, multi-line company and it has six different ERP systems, it may find that it can bring that down to three, and that's cost-effective," he said. Conversely, the probability that such a company could standardize and remain on one system is unlikely.
Greater visibility and transparency is often the driving force behind consolidating multiple ERP systems, according to David Axson, managing director in the finance and enterprise performance practice at Dublin, Ireland-based Accenture.
Companies that strive to consolidate ERP systems gain "the ability to be able to look both horizontally and vertically across [the] business," Axson said. "For example, what is our total spend on a particular purchased item, or what are our total sales of a particular product in multiple different marketplaces?
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"You really want to get that common language so you can very quickly get visibility and transparency as to what's going on across multiple dimensions of your business," Axson continued. "For some organizations, that means moving to a single ERP system. For others, it means building a common management reporting layer that maybe sits on top of different ERP systems."
Determining if and how to consolidate comes down to looking at the overall cost and the ongoing benefits of eliminating ERP systems, Ventana's Kugel said. Are two or more businesses very similar and could probably function on a single ERP? Or are they different enough that this doesn't make sense? Is one of the ERP systems currently in use several releases behind? "There are very few instances, in my opinion, where technology purity is demanded if we're really trying to be pragmatic in our use," he said.
Accenture's Axson said deciding whether to consolidate on one ERP system depends on a combination of business value and the investment companies need to make. "If you have a significant investment made in your ERP infrastructure, you really have to look very carefully at the business risk and the value you're going to realize associated with changing that," he said. "In some instances, that business case is there and it's valid. In other businesses cases, it's not quite so strong, so it's on a case-by-case basis."
About the author:
Linda Rosencrance has written about technology for more than 10 years and has been a reporter for more than 20 years. A former Computerworld reporter, she is a freelance writer in Massachusetts and also an author of several true-crime books.