Too Many ERP Systems Are a Bad Thing: Metric of the Month

Excess enterprise resource planning systems will drain efficiency from your finance shared services center.
Perry D. WigginsNovember 2, 2022
Too Many ERP Systems Are a Bad Thing: Metric of the Month
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Finance shared service centers (SSCs) provide a centralized team that carries out high-volume, repeatable finance processes on behalf of business units or areas across an enterprise. Organizations commonly choose this model to achieve process standardization and improvement, reduce errors, and bring costs down by leveraging economies of scale. 

Enterprise resource planning (ERP) systems help organizations to achieve these goals, but there is a point at which they can become counterproductive. Even if it is initially born out of necessity, a complex systems environment with multiple ERPs will undermine the reason for having an SSC in the first place. 

After reviewing cross-industry data on the number of ERPs that organizations have in their finance shared service center, we discuss the reasons why organizations end up with multiple ERPs and highlight the importance of consolidating systems in a shared services environment.       

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APQC finds that organizations at the 25th percentile, as well as the median, have two ERPs for their entire finance SSC. Organizations at the 75th percentile use four or more.

The Issue With Too Many ERPs

It’s not hard to see how a proliferation of ERPs can undermine the purpose of a finance SSC. Standardization, both for processes and technologies, is a critical success factor that helps build the capability to serve internal customers across an enterprise with the same core group of staff. That capability weakens with each disparate tool, process variation, or system that an SSC has to use. 

An SSC that uses four different ERPs will need at least four specialists or teams of specialists for each of those ERPs in order to serve customers. Specialization leads to silos, which in turn compete with each other for resources to pursue differing priorities. As a result, standardization within the SSC becomes harder, mistakes become more likely when translating between systems, and efficiencies are more difficult to attain.  

ERPs Proliferate Through Mergers and Acquisitions

Most commonly, an organization’s ERP environment grows more complex through mergers and acquisitions. For example, if a health care organization acquires two different hospitals, those hospitals will have their own ERPs, which may be different from the parent company and from each other. If the parent company plans to use an SSC to execute basic finance processes like accounts payable on behalf of the newly acquired hospitals, it will need to take time to learn the new ERPs, bring staff from the acquired companies who specialize in the ERPs, or shift the entire enterprise to a single ERP.  

  Perry D. Wiggins

Consolidating ERPs is often a costly, difficult, and time-consuming endeavor. Some organizations balk at the cost and decide that it’s worth putting up with multiple ERPs at once. In the context of an SSC, this decision might be pennywise in the short term but is likely to be pound-foolish over time because it makes the systems environment more complex.  

IT Should Be Part of Your M&A Plan

Successful organizations approach their information technology (IT) strategy as an important element of an ecosystem that collectively drives enterprise value. This does not mean that successful organizations only have a single ERP, but that there is a sound business case for each system and a good reason why their systems look the way they do.

Executives from IT have valuable input to offer on the opportunities and challenges associated with systems integration, but all too often they are overlooked in the due-diligence process. It’s important to have input from IT to help create a roadmap for what will happen to your systems as new companies come into the fold, especially if you leverage or plan to leverage a finance SSC. 

Crafting a plan and roadmap for systems integration not only helps companies avoid a proliferation of ERPs, but also helps to prevent scenarios where systems are dismantled carelessly and in a way that ends up causing more harm than good. Moving to a single ERP by fiat without having a good plan in place can be just as counterproductive as having too many systems. Standardization is the name of the game in shared services.

The ability to leverage the same processes and systems repeatedly is what enables SSC staff to serve customers across an enterprise with greater efficiency and lower cost. The more complexity that is introduced into this environment through additional ERPs or other systems, the more difficult it becomes to achieve the benefits of having an SSC. Make sure you have a roadmap and a rationale for each system so that you don’t end up with systems you don’t need and have a good reason for keeping the ones you have. 

Perry D. Wiggins, CPA, is CFO, secretary, and treasurer for APQC, a nonprofit benchmarking and best practices research organization based in Houston, Texas.