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Companies invested a lot of time, money and pain implementing ERP solutions in the 1990s. The system is running smoothly now, so why should a company make changes?

Ventana Research often sees static ERP systems preventing companies from improving performance. Underlying software and systems issues may stall or make performance improvement projects more difficult and expensive to deploy. In addition, over time internal business processes improve, best practices evolve, technology reworks what is practical and the external environment (regulation, industry structure, etc.) changes.

The cumulative impact of these changes negatively affects how the ERP system supports the business. Modifications to business processes may not have been implemented well in the IT infrastructure, or may not have been automated at all. Keeping core ERP solutions current and expanding the scope of deployments to achieve greater efficiency, as well as promoting more effective business execution, is required to maintain optimal performance.

Not every company will benefit from an ERP system upgrade, but ERP systems are at the heart of three sets of performance issues:

1. Missed opportunities to use ERP systems to redefine and automate processes that consume a great deal of employee's time and waste resources. Often, to save time and money, the initial software implementation simply copied an existing process without exploring how information technology could enable a better approach.

2. Inability to obtain all of the information needed in a timely fashion to make the right decisions. Companies can benefit from consolidating ERP instances and using capabilities built into the system they are already paying for.

3. Failure to keep ERP software synchronized with internal processes leading to inefficient execution.

Different business units may be using software from different vendors, they may be several versions behind the most recent software release, the infrastructure supporting the software may be fragmented and drive operating inefficiencies in the IT department, and so on. On their own, each deficiency may be minor. The cumulative impact of all deficiencies may be a roadblock to improving performance.

Given the average age of today's ERP systems, Ventana Research advises executives to examine the software and supporting infrastructure that manage their core business processes because updating and improving them can be a necessary and beneficial investment. Changes to ERP solutions that might have been expensive in the past may be much more affordable today because of advances in technology (particularly using the Internet) and because organizations have much more experience using these technologies. Companies can now perform enhancements with in-house staff that initially might have required outside consultants.

Companies must evaluate the proposed enhancements to the ERP system not just on cost, but on all factors that determine the real pay back from the investment. These factors include:

• Systems effectiveness - the new infrastructure and software must support new business processes aimed at improving performance, new software solutions such as Performance Management and enhanced management reporting
• Business efficiency - all of the cost savings that can be achieved because of the new system
• Business effectiveness - higher revenues, greater competitiveness, improved customer satisfaction the company will achieve with the investment
• Total cost of ownership (TCO) - the lifetime costs associated with the acquisition, installation, operation, support and maintenance of the entire system

Assessment

Ventana Research sees a pervasive lack of understanding of what is now possible with ERP systems. Companies are missing opportunities to automate a wide range of processes that consume a great deal of employee time in business units, finance and administration. They believe it is impractical to implement Web services. They may have not considered how to leverage wireless technology for their field sales and support teams. Finance staffs waste time across the entire accounting cycle on operations that ERP software can automate. Discounts for early payment go unearned because the accounts payable process is too cumbersome, and days sales outstanding are too high because systems that would accelerate receipts have not even been evaluated.

Where an ERP upgrade is indicated Ventana Research advises our clients to assemble a team to create a priority list of process, software, and system enhancements to ensure the system leverages the company's capabilities to their fullest potential. The list would establish how each enhancement would have a business benefit and how to evaluate each benefit. Once the team creates the list of ERP-driven enhancements, assign a cross-functional team consisting of line of business, finance, and IT to determine the resources required to achieve the business benefits with the ERP improvements. Organizations should avoid unnecessary implementation and on-going operation costs in the design and deployment of the enhancements.

Too often, the focus of technology investment is buying something entirely new. Ventana Research believes companies can achieve significant returns by enhancing what they already have, particularly their core ERP system.