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5/23/2006
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Peak Performance: ERP's Promise: Is Reality Stunted by Perception?

Can enterprise resource planning live up to its promise? What is the future for ERP in large organizations? The enterprise IT group must define what's next.

The many organizations that bought or upgraded enterprise resource planning (ERP) products just before or just after Y2K are now faced with decisions regarding their six (more or less)-year-old, stable systems for accounting and HR. Companies can usually get four to seven years out of an ERP system, though some can stretch for a couple more years. An upgrade or switch can take nine to 18 months, which means now is the time to figure out what's next for your ERP.

What are the available options? The handful of suppliers that have survived market consolidation have introduced advances in technology, such as service-oriented architectures, that are more flexible in supporting business processes than their client-server or mainframe predecessors. These revamped ERP systems also have capabilities that are not used and not well promoted by providers. Fully utilized, ERP could manage many of an organization's processes and its underlying assets.Layering additional applications, such as business intelligence, on the ERP backbone can help companies leverage their investment. However, most companies have not begun to plan for the future of their ERP platform.

Ventana Research recently completed a study that looked at trends in the utilization of and innovation with ERP. Representatives of nearly 400 companies having more than 1,000 employees, including many readers of this publication, told us that ERP has helped them innovate in accounting, reporting and purchasing but not in manufacturing, performance management or planning and budgeting.

Our survey results reveal both optimism about what is possible using ERP and reluctance to use it to improve enterprise management. For example, the majority of organizations we surveyed believe that ERP can play a key role in automating end-to-end processes like purchase-to-pay and order-to-cash, but fewer think it can in the HR-oriented recruitment-to-retirement of employees.

What is the future for ERP in large organizations? Our research found many executives and senior managers looking at new ways to automate processes. More than half of the companies interviewed are using eight or more different ERP-related suppliers today. Many stated that their ERP systems have aged and named finance and HR as areas where they are interested in upgrading or replacing them. Both systems consolidation and upgrades are on their minds.

Yet at the same time, managers who rely on these systems are reluctant to make sweeping changes. Our research found that 62 percent of companies do not plan to change their primary ERP vendor within the next 12 months. A more likely course is to try to optimize performance of the existing system. However, with seriously outdated products, increasing the value of the existing investment is not always an option.

Many of our clients and survey respondents say the availability of analytics to make better business decisions is increasingly important. Yet our research shows that managers do not perceive their ERP systems as capable of supporting areas of performance management like profitability, scorecards or costing.

ERP suppliers have made some investments in these areas--SAP has developed SAP Analytics and Oracle is integrating Siebel Business Analytics with its other products, for instance--but clearly they have not marketed and sold these effectively as part of ERP. And these BI apps don't necessarily work with older ERP releases, forcing companies to upgrade their ERP or turn to third parties for analytics.

Ironically, most organizations do not use ERP to actually plan the allocation of resources. For this purpose, many still use spreadsheets, which typically are neither integrated with other applications nor validated for the quality of their data. Using ERP for these critical functions could provide a significant opportunity for organizations to improve performance.

The enterprise IT group must play a major role in advancing the use of ERP. Many of the issues that obstruct planning and performance management are related to managing and synchronizing data and integrating products from multiple vendors. ERP suppliers are addressing these areas, but they are more focused on the interoperability of their own applications and systems than interoperability across all platforms or initiatives. Users should define what they want from the next generation of ERP and quantify the business case, costs and benefits as IT explores the next steps.

Mark Smith is CEO and Senior Vice President of Research at Ventana Research. Write to him at mark.smith@ventanaresearch.com.

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