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Adding Value to ERP

Nov 23, 2005 (09:11 AM EST)

Read the Original Article at http://www.informationweek.com/news/showArticle.jhtml?articleID=174401609


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Summary
During the 1990s, the vast majority of Global 2000 companies deployed client/server systems for enterprise resource planning (ERP) to replace their mainframe-based accounting packages. Some did it as part of the business process re-engineering (BPR) boom, others as Y2K upgrades at the end of the decade and others simply to replace aging financial systems. A recurring theme throughout the ’90s was that implementing ERP was difficult, expensive and frustrating. Study after study showed substandard returns for ERP investments. Perhaps because of this experience, many organizations have been very cautious about making changes to their ERP environments. However, doing nothing may be a costly mistake because most companies can use their ERP software more effectively than they are doing today.

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In the 1990s, many companies deployed enterprise resource planning (ERP) systems to support business process re-engineering. BPR was an important theme for management consultants in that decade, as companies in North America and Europe, particularly in manufacturing, struggled to compete with more efficient Asian rivals. ERP systems, companies were told, not only would handle transactions centrally but would be able to support consistent execution of optimized processes.

Unfortunately, results from the first decade of deployments fell far short. Many factors contributed to the failures of those projects. Some were the inevitable issues with new and evolving technologies. Others were due to poor project management by companies, their systems integrators or both. The idea of attempting process re-engineering while implementing entirely new critical business software systems certainly was unrealistic.

By the late 1990s, many companies had no such lofty aims in mind. They simply wanted to replace the non-compliant core systems in time to meet the Y2K deadline. Regardless of their original objectives, it now appears that many organizations — exhausted by their own ordeal or put off by horror stories of others — have been unwilling to make further enhancements to their ERP systems. That is unfortunate; we assert that even those that have made innovative use of the technology often can achieve even greater returns.

One of the main areas where companies can still derive value is process improvement. Many that were in a hurry to meet the Y2K deadline likely looked for the simplest approach, not the most effective. Even companies that started earlier in the decade to improve the handling of physical goods and to automate workflows and paperless documentation have opportunities. A decade on, software vendors have greatly expanded the scope and capabilities of their products, and there may be room for greater process automation and innovation for the flow of physical goods. Moreover, ERP can (and should) be used to support transaction process engineering. Corporations not only need to cut the direct cost of processing business events, they need to redefine processes to make them more controllable and transparent, and they need to speed process execution. End-to-end transaction processing, such as going all the way from order to cash, should be the norm.

Companies also need to support business imperatives such as performance management and improve profitability, cost management and other crucial results. ERP systems are the logical source of data to support these initiatives and can serve as the technology foundation for innovative approaches to business management. Both large and small business opportunities that build on ERP capabilities can have positive returns on investment.

Assessment
ERP is not just about commodity accounting and other transactional record-keeping. Used properly, it can deliver great value to end users today and tomorrow. Ventana Research thinks many companies can gain more from their existing ERP deployments. The first step is to benchmark existing core business and financial processes to determine the magnitude of gains that might be reaped through more efficient execution or of competitive advantage through more innovative use of the software. We assert that a majority of companies will find the status quo unacceptably expensive. However, any decision may be complicated by the wave of consolidation among ERP vendors since the start of the decade. Companies that own JD Edwards, Oracle and PeopleSoft applications should consider the potential outcome of “project fusion” before deciding what changes to make and when.

About Ventana Research
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© 2005 Ventana Research