Most companies know they have an ERPi problem. In fact, it’s a multiple-ERP problem. So why aren’t they doing anything about it?
According to a 2018 study, 74% of companies have more than one ERPi which means 74% of CFOs and finance teams have more than one GL (general ledger) – and you are probably among them. What’s more, 14% of companies surveyed have more than ten ERPs! This is clearly something that should be top of mind for CFOs in every industry. However, many have been slow to act despite the fact that 75% of CFOs plan to increase capital spend for their finance teams in 2023ii which would seemingly encourage consolidation.
But the reason for foot-dragging is understandable: the prospect of consolidating multiple ERPs is daunting. It is a complex and consequential exercise that can be a years-long commitment. Yikes!
So, what led to this situation? Organizations typically did not set out to operate multiple ERPs but have accumulated systems over time for a variety of reasons. One of the most obvious reasons is the impact of M&A activity over the last couple of decades. With global M&A deal volume growing more than 25%iii since 2010, a corresponding increase in the number of systems managed by an enterprise was often inevitable. As organizations came together, the systems of the combined enterprise fell under the same banner but were often not integrated in any meaningful way, and the disparate solutions persisted.
Perhaps less recognizable is the way multiple ERP systems crept into organizations organically. In the early days of ERP, this was mostly a symptom of how the systems were applied. Developed primarily to support manufacturing operations, and without the internet available to connect the plants, individual ERP systems were typically installed at each facility. A company with seven production facilities would naturally have seven separate ERP instances – and seven GLs that needed to be consolidated manually. Of course, most companies would not take that same approach today.
ERP proliferation was also partially fueled by the explosion of options that spiked in the early 2000s as a dizzying number of ‘cloud-ready’ solutions became available. All of a sudden, businesses of every type and size put ERP systems in place, many for the first time. In larger organizations, this led to voluntary adoption of multiple ERPs as many companies elected to use different platforms to suit the needs of different functions and divisions. Bringing the best tool in to address a specific need is a valid approach and delivered value but the result was a growing collection of systems and GLs that were rigid and did not always play well together. The consequences of having to manually consolidate multiple financials were largely unforeseen.
Another factor that contributes to why so many companies continue to struggle with consolidation is obvious, but often unacknowledged: aging technology. Until very recently, virtually all ERP solutions, including so-called cloud solutions, were based on technologies and concepts that are decades old, predating the internet – and many system users. As anyone who has worked with these systems knows, they were and continue to be very inflexible. The deterministic nature of the legacy technology makes it difficult to move off those systems or consolidate quickly to pursue opportunity or respond to change. With rip-and-replace as the only viable option to consolidation, it’s no wonder why CFOs are hesitant to even begin the process. But it doesn’t have to be that way, as we’ll see below.
The complexity that results from having to manage multiple ERP systems – even if they are different instances from a single vendor – creates issues that inject operational friction and impede agility. Some of the issues are relatively tactical and are confined predominately to the finance team while others are more systemic, impacting other areas of the operation and affecting the performance of the larger organization.
Finance teams are often plagued by inefficiencies in their closings that lead to delays and introduce the potential for inaccuracies. For example, when operating under multiple ERPs (and thus multiple GLs), intercompany consolidations and adjustments must take place outside of accounting systems, usually in a series of spreadsheets. This manual process only prolongs the close cycle. And, because they are difficult to generate, reports are often delayed which stalls decision-making and hampers agility. To most CFOs this feels wrong because it is wrong! It’s like driving a sports car toward your destination but having to stop and walk the last mile. Uphill. In the rain.
Managing multiple GLs also means that integrations are necessary to generate reports and to keep up with the types of day-to-day changes that are part of any business – like adding new departments and GL accounts. Introducing these kinds of requirements only adds complexity without adding value. As a result, reporting cycles are longer than they have to be and the ability to adapt quickly to new requirements is severely limited.
Another consideration is the nature of the systems themselves. The fact that all systems are not equal brings its own set of challenges to the enterprise as a whole. Because each GL has different capabilities (some have limited reporting, others don’t integrate well, for example), reports must be cobbled together from a variety of dissimilar and inconsistent data sets. This can obscure visibility across an enterprise, limiting the quantity and quality of data available for strategic decision-making at the highest levels.
In recent years, tools have become available that allow CFOs to consolidate multiple GLs into one view. While the flexibility of these tools offers welcome relief in the short term, they are actually enablers of the same behaviors that brought us here in the first place: they allow companies to maintain their patchwork approach to consolidating GL data but do not provide a path forward to a long-term solution. This is a severe drawback.
Only recently have a new class of enterprise applications platforms emerged that enable CFOs to simultaneously consolidate multiple legacy GLs in one view and position the organization to move away from the old systems whenever they are ready. This approach provides a parallel runway that allows companies to consolidate their ERPs into a single, future-proof solution while also transitioning away from their legacy systems. By enabling this type of edge to enterprise adoption framework, organizations can wean themselves off cumbersome, version-locked ERPs at whatever pace they choose and in the way best suited to help them reach their strategic goals.
At Nextworld, we have developed the Enterprise-Grade Applications Platform that supports GL consolidation and provides the flexibility needed to pursue digital transformation initiatives today so you can stay ahead of what’s next®.
i Aberdeen Research, March 2018
(2) Source: https://blogs.gartner.com/tonn...
Director - Solution Engineering
Nate is a CPA and brings over fifteen years of software industry experience to his role at Nextworld. He has firsthand knowledge of multiple ERP solutions, donor management, CRMs, and various reporting tools. His areas of expertise include budgeting, banking, fixed assets, AR, AP, general ledger, and intercompany & consolidations.