Companies Not Deriving Full Value from ERP Systems

Ann All

Ann All spoke with Robert Kugel, vice president and research director at Ventana Research, which recently published a study that investigated companies' attitudes and actions toward ERP and innovation. The study was sponsored by Cognos and SAP.


All: Your study found that most companies underutilize their ERP systems. Why aren't companies getting more business value from them?
Kugel: The root cause of the problem is the perennial divide: Most business people do not understand IT and most IT people do not understand business. Finance organizations don't take full advantage of their ERP systems' capabilities because they don't know what they can do. IT might be more helpful, except they cannot translate technology benefits into business benefits.

There are other contributing factors. The accounting mindset focuses on consistency and conforming to rules. This is good for keeping the books, but it is a problem when it comes to actively looking for new approaches. Also, implementing new ERP software is a project. Once it's stable, there is a tendency to say "if it ain't broke, don't fix it." We found people were evenly divided about how hard it is to make changes to ERP systems - some saying it was difficult, others describing it as manageable. Focusing only on the hassle misses the point. If the CFO knew an ERP-driven process improvement could generate $10 million by cutting their company's DSOs [days sales outstanding], they would put that at the top of the list of things to do.


All: What are some key areas in which ERP systems can yield additional cost savings and/or performance improvements?
Kugel: Describing it at a very high level, companies can address efficiency issues by increasing the amount of automation (usually by reducing spreadsheet use or keying/re-keying data); redefining processes to eliminate unnecessary steps or increase commonality; increasing their use of electronic data links to customers, suppliers or partners (or even within their organization if they have not done it already); replacing paper documents with scanned images; and saving time by having computers count the beans and letting people manage by exception.

Increasing the use of end-to-end processes is one concrete way companies can use their ERP systems to increase efficiency. We found only half of the companies have implemented an order-to-cash process, even though it usually cuts the effort needed to manage transactions and shortens the cycle.


All: It occurs to me that some companies may not know where to start. How can they evaluate their ERP systems to determine which features match their business needs?
Kugel: Find a business need and fill it. Benchmark your company's performance against its peers in areas like DSO, inventory turns and order fulfillment rate, and calculate the benefit of simply being average or even best-in-class. Make it the CEO's concern to have a steering committee of people from finance, IT and business units develop solutions that will achieve the performance improvement goals and prioritize initiatives. Almost always, this will include changes to processes and other things besides the ERP system. Make sure people think of these changes as their real job by tying compensation to results.

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