Where does this strong belief in "Single global ERP is the best solution" come from? I must admit, there was a time when I too was convinced that a single global ERP (Enterprise Resource Planning) system was the key to simplifying complex multinational operations. However, I've since learned to begin each project with a critical inquiry: 'Do we REALLY need a single global ERP?'.
This article is written to prompt critical thinking among leaders of multinational organizations operating across diverse industries and countries, as well as leaders of large, multi-industry corporations within a single country.
These multi-industry and / or multinational organizations often find themselves managing multiple ERP systems, particularly where growth has been achieved through acquisitions. This can complicate the control of financial performance, automated reporting in a unified format, efficient consolidation, and timely compliance with group requirements. Consequently, many companies consider implementing a single global ERP system across their group, believing it will solve all controlling, reporting, and consolidation challenges. But what's the actual reality? What outcomes we really obtain after an attempt to implement a Single Global ERP? In this article, we'll explore the real outcomes versus the expectations and discuss the challenges that should be considered when deciding to implement a Single ERP system globally.
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6) Conclusion
Real Outcome vs Expectations of Implementing Single Global ERP
It's well-established that a significant portion of organizations—between 55% to 75%—that embark on new ERP system implementations encounter obstacles in deploying on time, staying within budget, and delivering the expected business value. A simple online search for "ERP implementation failure rates" will reveal a range of challenges. Often, these issues arise from unrealistic and unachievable expectations of the outcome. How do we get these expectations so wrong?
The Trap of Unrealistic Expectations for Single Global ERP
And really - where does this common belief that "Single global ERP is the best option" come from? Many of us initially hold this assumption, fueled by extensive reading and research.
Actually the content we rely on is often heavily influenced and financed by ERP system vendors with strong interests in promoting their solutions. Also when you engage with ERP vendors trying to choose the new ERP system, it is worth taking in mind that they are primarily focused on selling their software and services. There's a risk they may mismanage your expectations by only showcasing the strengths of their ERP system while being silent about system's limitations, their lack of experience with implementation of specific functionality needed by your business, or other potential risks and challenges associated with their system's implementation.
To overcome this, it is important to investigate the risks and drawbacks in details, asking vendors pointed questions about the system’s capabilities and their track record with implementing similar projects. Valuable insights always are gained when seeking feedback from other companies that have either completed or stopped implementations of the ERP system you are considering.
The unrealistic expectations can sound something like this:
"We'll choose a single ERP system that will be suitable for all our group companies. As our business is not unique, the ERP implementation partner will instantly understand our business needs from half a word due to their extensive global experience with similar projects and they will swiftly and effortlessly implement and integrate the new Single ERP in all our multi-country and multi-industry companies. The new ERP system will not only function better than the old ones but also effortlessly integrate all company data, providing reports in a unified format and making consolidation a breeze within the new ERP system itself."
Real Outcomes of Implementing Global ERP
When multinational and multi-industry organizations attempt to implement a Single global ERP solution across various group companies, the outcomes can be quite different from initial expectations.
Actual Results of Unified ERP Implementation:
1) Different ERP Systems Despite Unified Branding: Despite having the same ERP name, there are separate and independent ERP installations in different countries without interconnection, essentially functioning as separate systems.
2) Inability to Integrate Diverse Operational Activities in One ERP: Different industries and countries come with their own unique regulatory and taxation requirements. This diversity necessitates varied Chart of Accounts and customization of different ERP modules. For example, a group with a mix of production, construction, retail, and service companies will have distinct ERP system requirements for each sector. This leads to different customizations of ERP systems and the same challenges in achieving uniform reporting, and automated consolidation.
3) Need for Third-Party Consolidation Tools: Even after Single ERP implementation, there's often a continued need for external financial reporting and consolidation tools, which can reduce some of the intended benefits of a unified ERP system. Some companies take on the challenge of developing their own financial reporting and consolidation systems, either as separate modules within the ERP or using BI tools. This approach can be effective if there are finance professionals experienced in creating such systems and defining precise requirements for system developers. However, in most cases, this leads to a continuous cycle of ever-evolving requirements and escalating development costs. I recall my own experience years ago, where the first system I guided for development had to be abandoned. Initially unforeseen details and requirements made the system too complex, slow, and inaccurate due to continuous and conflicting modifications to its fundamental functionality.
4) Escalating Costs and Time Commitments: The initial cost and time estimates are often limited to initial implementation, and they can escalate due to the need for development of customized functionality. What starts as a basic installation often grows into a complex, resource-intensive and never-ending project.
5) Shortfalls in Functionality: Newly implemented ERP systems may lack crucial functionalities or integrations that existing systems had, causing disruptions and inefficiencies in established workflows.
6) Development and Performance Issues: The functionalities of the new ERP systems are sometimes inadequately developed, leading to operational glitches and user dissatisfaction. There is a noticeable variance in the quality and experience of ERP implementation partners
7) Issues with Definition of Requirements: Often, the custom functionalities and processes within the new ERP systems are not clearly defined by the implementation teams, leading to errors and inefficiencies.
8) Different quality of ERP Development Partners Among Countries: There are separate supporting and development partners in each country. Each works differently, each has different experience with development of custom functionality, resulting in varied outcomes across the organization.
9) Resistance to System Change: Existing teams, comfortable with their current systems, show resistance to adopting new ERP systems, especially if they perceive the change as unnecessary or not beneficial.
10) Data Loss: Transferring data to the new ERP system poses significant risks, including potential data loss or corruption, which can lead to major operational disruptions and data integrity issues.
Considerations and Challenges with Implementing a Single Global ERP System
Taking into account the potential unexpected outcomes described in the previous chapter, when assessing the implementation of a Single Global ERP system in a multinational, multi-industry organization, it's crucial to weigh the numerous considerations and challenges that accompany such a significant change. Beyond the initial implementation cost and time, there are many other factors that organizations often overlook:
1) Business Value: This is one of the most important considerations. Can you define the realistic and tangible benefits of implementing a Single ERP (Enterprise Resource Planning) system for your multinational, multi-industry organization? What are those benefits - improved data security, increased productivity, better customer service? Is replacing existing ERP solutions with a new ERP system truly advantageous and cost-effective for your specific business context? Will it solve the reporting and consolidation issues?
2) Business Model and ERP Selection: Choosing the right ERP system might be challenging. The key is to find a solution that aligns with your business model and industry-specific needs. If there are various industries represented in your group, it is serious indicator that one ERP might not be the best solution. Each industry might have unique requirements that demand customized solutions, which can be hard to accommodate within a single ERP framework.
3) Team Experience and Expertise: The success of new ERP implementation heavily relies on the experience and expertise of the Finance and IT teams. Their role is pivotal in providing detailed requirements to guide ERP implementation vendors in customizing the system and developing the tailored functionality needed. Often ERP systems are initially equipped with only basic functionalities, and it’s up to the internal teams to direct further development. This process requires a deep understanding of the organization's processes and needs. Often there is a gap in expectation versus reality – expecting ERP vendors to intuitively understand and implement complex systems – can lead to significant implementation hurdles.
4) Various Quality of ERP Implementation Vendors: The quality of ERP implementation partners can vary significantly. In a multinational organization, different vendors in each country can lead to inconsistent implementations across the group. Therefore, it's vital to carefully choose experienced and reliable partners, considering their experience with similar projects and gathering feedback from their clients.
5) Cost: ERP systems, especially those requiring extensive customization and access to many users, can be expensive. You might be provided with one-time implementation costs, but the reality often involves further extensive customization and development of additional functionalities. This leads to unplanned additional expenses and extended timing for implementation.
6) Automated Unified Financial Reporting and Consolidation: An essential factor to consider is how the new ERP system facilitates automated, unified format group reporting and consolidation. Assess whether there's still a need for a third-party solution post-ERP implementation. If the ERP system includes a reporting and consolidation tool, what functionalities does it offer and what must your team define? I've encountered ERP tools that struggle with consolidation due to simple issues like recognizing the same legal entity listed under different names (e.g., Emfino Ltd, SIA Emfino, EmFino, émfino, EMFINO OU, etc.) across group companies. Also, there may be challenges with availability of foreign currency translation strategies to reporting currency, consolidation at the dimension level or delivery of consolidated results in the report formats required by the Group, issues with intra-group checks, and more.
7) Time and Resources Requirements: Your IT and finance departments will likely be burdened with additional workloads before and after the implementation. This includes definition of the requirements for ERP development, management of the project, addressing custom development needs, resolving any issues that arise, testing the quality and and performance of the implemented functionality, addressing any post-implementation issues.
8) Operational Disruption Risks: Transitioning to a new ERP system can lead to significant operational disruptions, affecting critical business processes. Consider scenarios like malfunctioning warehouse modules preventing sales, inaccuracies in calculating the cost of goods sold, or issues in payroll processing. Such disruptions can suspend business activities, affect all employees, and prevent timely financial closures and regulatory or tax reporting. Often unexpected and severe, these operational challenges can have severe financial consequences
9) Data Migration Complexities: Transferring data to a new ERP system is often more challenging than anticipated. This process requires exporting information from old databases, updating and conforming it to the new system's requirements, and resolving any emergent issues. The risks include potential data corruption or loss, leading to operational disruptions.
10) Integration with Existing Business Systems: How well the new ERP system integrates with existing business systems (like CRM, HRM, SCM) is crucial. Poor integration can lead to inefficiencies and information silos.
11) Employee Training and Adaption: Implementing a new ERP system usually involves downtime. Employees need adequate training and time to adapt to the new system, which can temporarily impact productivity and disrupt regular operations.
12) Employee Resistance to Change: Often, there is a natural resistance to change, especially when employees are accustomed to a certain system. Overcoming this resistance is a significant part of ensuring successful ERP implementation.
13) ERP support structure: While centralized support and implementation of the new ERP by a single ERP vendor might be expected, the reality often involves decentralized support and implementation with different vendors in each country. This is typically due to the need to meet local regulatory and taxation requirements.
14) Long-Term Maintenance and Upgrade Challenges: Consider the long-term maintenance, including the ease of upgrading the system and the potential for vendor lock-in. Frequent upgrades and maintenance can incur additional costs and operational disruptions.
15) Emerging Technologies in ERP: The integration of AI (Artificial Intelligence) and ML (Machine Learning) into ERP systems is reshaping the capabilities and functionalities of these systems and should be considered in the decision-making process.
16) Environmental Impact: Assessing any environmental benefits, such as reduced paper use or increased energy efficiency, might be increasingly important for companies focusing on sustainability.
Benefits of Retaining Multiple ERP solutions
The prevailing belief that a "Single ERP is the best option" has been challenged in recent years. With the appearance of sophisticated reporting tools that effectively integrate various ERP systems, addressing automated reporting and consolidation issues, a shift in perspective is evident. Also, I have moved from being a strong supporter of a single ERP system to recognizing the value in each company having an ERP system that best fits its unique needs, size, and industry, supplemented by advanced tools for automated reporting and consolidation. Opting for a new ERP system should be based on its clear advantages over the existing ones.
In situations where you manage two or more distinct companies across different industries and with varying needs, maintaining multiple ERP systems can be advantageous:
Industry-Specific Systems: Businesses often retain multiple existing ERP systems due to their customizations and developments, which are tailored to meet unique business or industry requirements.
Faster Acquisitions: If your Group is equipped with a reporting and consolidation tool to handle and integrate various ERP systems, a new acquisition with its own ERP solution becomes straightforward. Simply incorporate the new system into your reporting and consolidation framework, avoiding the complexities of standardizing to a single ERP.
For insights how easy a third-party reporting and consolidation solution can be implemented, refer to the article 'Automated Financial Reporting & Consolidation in ONE MONTH!'
Cost and Time Efficiency: Opting for a third-party reporting and consolidation solution that integrates with existing ERP systems can be more efficient in terms of both cost and time. This approach capitalizes on what's already functioning well, avoiding the disruption and expenses associated with implementing an entirely new ERP solution that, in the end, might still necessitate additional reporting and consolidation tools.
Preserving What Works: By keeping what's already working, you avoid the pitfalls of failed global ERP projects.
Evaluating Current ERP Solutions
In order to make a choice between existing ERP systems and the new ERP solution, conducting a thorough evaluation of your existing ERP solutions is crucial:
Assess Current ERP Systems: Identify custom functionality within your current ERP that has been developed to meet your business's specific needs. Evaluate existing integrations and dependencies on other systems.
ERP Vendor Relationships: Consider the responsiveness, experience, and effectiveness of your current IT system vendors. Sometimes, improving relationships or changing vendors for the current system can be more beneficial than switching to a new system.
Adding Functionality: Explore the feasibility of adding required new functionalities to your existing ERP systems. This approach might be more cost-effective and less disruptive than starting from scratch with a new ERP.
Cost Comparison: Weigh the costs of licensing, hosting, maintenance, security, support, development and training between your current ERP systems and potential new solution.
If your existing ERP system is outdated, no longer meets business requirements, is costlier than newer solutions, or lacks adequate vendor support, then transitioning to a new ERP system could be reasonable.
Indicators Favoring a Single Global ERP System
Under certain conditions, selecting a single ERP system can be advantageous, especially when it can create synergistic effects:
Single Country Operations: If your operations are confined to one country, it can be very efficient to implement one ERP system for all the companies in that country, managed by one supplier.
Consistent Industry with Shared Data: In cases where your group operates within a single industry and shares critical data (such as product codes or customer bases) across different countries, a single ERP system can streamline processes.
Centralized Service Centers: A single ERP solution might be the best choice when you have shared service centers serving different companies in the group, facilitating unified and efficient operations.
Similar Business Processes Across Borders: When your companies in different countries have similar business processes, and the benefits of a global ERP outweigh the complexities involved, it's a strong indicator for a single ERP system.
Global or Regional Synergy: A single global or regional ERP system is practical for companies wanting synergetic effects. For instance, if your group companies are manufacturing the same products in Europe and South Africa for similar markets, a single global or regional ERP system might be practical.
Conclusion
The decision to implement a single global ERP system is complex and nuanced. It requires a careful evaluation of your current systems, business requirements, and a balanced consideration of the potential benefits and drawbacks of moving to a single ERP solution.
In certain scenarios, maintaining multiple ERP systems, each customized to meet the distinct needs of different businesses or industries, may be more beneficial. Opting for a reporting and consolidation solution that integrates effectively with these existing systems can often be a more cost-effective and time-efficient approach compared to the adoption of a new single ERP system.
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