Since the late 1990s enterprise resource planning suppliers, analysts and CIOs have advocated a move to single-instance ERP as a solution to data integration and reporting problems. ERP suppliers have argued that the extended functionality in workflow, purchasing automation and other areas offers a lower total cost of ownership with superior functionality.
So why aren't chief financial officers buying? Why do they continue to embrace best-of-breed tools across areas such as reporting, business intelligence, work- flow and peer-to-peer automation? And why do so many CIOs and CFOs have widely divergent views on the ERP versus best of breed debate?
For CFOs the governing objective is shareholder value, not superior technologies. Chief exec- utives and CFOs are increasingly focusing on managing for value, and evaluate business transformation initiatives (and associated IT investments) in terms of how they enhance shareholder value. Specifically, they look at whether investments support turnover growth, margin improvement, working capital optimisation and reduce cost of capital through compliance and lower risk.
Moving beyond TCO
The implication of this is that IT professionals need to move beyond total cost of ownership and assess the technology sourcing decision in the wider context of shareholder value. Many IT investment decisions fail the key shareholder value test.
CFOs want robust solutions and effective execution rather than elegant strategy. Our research suggests that CFOs and senior finance executives prefer technology architectures that are robust across a wider ranger of organisational circumstances. This allows them to make acquisitions and restructure without compromising costs and returns.
As such, they are willing to accept the reality of the "messiness" of the multiple ERP/best of breed environment because they believe future business decisions will derail any single ERP strategy, however elegant it is.
For CFOs, functionality and ease of use are also key considerations. Many of the users of so-called extended ERP applications are based outside the traditional finance function and may have had only limited exposure to finance systems. Our research suggests that users tend to find ERP functionality cumbersome, complicated and not in keeping with their established work patterns. Although ERP systems may ultimately offer greater functionality, it comes with a significant learning overhead which CFOs are unwilling to carry.
The price of deadlines
For many firms in our study, going live with ERP was a false finish. To meet deadlines for going live, firms had abandoned areas of functionality and reduced the scope of their ERP projects.
Y2k pressures, skills shortages, a failure to redesign processes, reluctance to address business change issues and other factors saw many firms falling short. In addition to scope reductions, global firms found the roll-out to other countries required them to freeze the ERP implementations of the initial sites until the full global roll-out was completed.
This caused even minor system changes to be postponed. As a result, in most cases the organisational appetite for large-scale technology investment was dented. CFOs in particular are sceptical about making further investments in second wave ERP until payback from the first wave of implementations is realised.
Currently, the technologies in place in many organisations resemble spaghetti. Important data is locked away in closed systems and inside people's heads, and many firms rely on the re-keying of vital information. More specifically, firms fail to automate the interface procedures between sub-systems and ERP master data, and in many cases they have not even automated the generation of key analytical information.
Although the technological merits of single instance ERP are appealing, the shareholder value arguments in terms of improved process integration and better information only stand up in a limited number of cases.
For the foreseeable future single-instance ERP will be a popular rhetoric, but a scarce reality.
Martin Fahy is a lecturer in management information systems at the National University of Ireland, Galway. He prepared the report Insights into Enterprise Purchase to Pay Automation and Transformation
This was first published in December 2005