June 25, 2018
ERP and the Gap Between Accounting and IT
ERP applications – once reserved exclusively
for Fortune 500 companies –
are now available to companies of all sizes and stripes.
But, with a dizzying array of options
and an implementation path strewn with potholes,
first-time users can find it challenging
to jump onto world-class platforms.
With a gap now between what accounting requires and what IT can provide,
lessons are emerging to help point companies of all sizes
toward best practices and outcomes.
As technology becomes more cost effective and increasingly offers services along with products, the once exclusive world of ERP applications – formerly the domain of Fortune 500s with their large budgets and larger technical staffs – has become accessible to companies of all sizes. From startups to midsized, businesses today can jump onto world-class platforms without the burden of a significant in-house IT department. It’s nothing less than a total evolution of service providers, platforms and the way businesses are consuming technology.
But … every coin has two sides. With the market now inundated with every type of ERP software imaginable for every size business in every industry, companies are drowning in options. And while these applications are truly more nimble and flexible and don’t require a huge investment in IT staff, successful implementation nonetheless requires a combination of technical expertise and broad business knowledge often not resident inside companies. This is true for large, midsized and small companies.
Securing the right outside support is a critical factor that companies ignore at their peril. That’s why this evolution is also having an effect on our business at Blythe Global Advisors. Clients are increasingly seeking our help on ERP engagements – from system selection to implementation to project management. I imagine my fellow independent accounting advisory firms are seeing the same inquiries.
In my view, this increase in requests for ERP assistance can be attributed to three overarching factors:
- The advent of Cloud technology has put downward pressure on software prices and capabilities across the board. In the case of ERP applications, offerings seem to get cheaper and faster every month. Companies can’t afford not to buy in, but they need help to effect a successful implementation.
- The demands for fast, actionable data continue to increase on all fronts but especially for companies with sophisticated investors like private equity and venture capital firms. These companies typically don’t have the in-house skills to transform data archives to meet investors’ requirements.
- As more accounting and finance functions continue to be automated, a significant gap has opened between the accounting/finance and IT functions that necessitates help from advisors like BGA who can bridge the chasm between what accounting/finance people need and what IT people are capable of doing.
So, with the pendulum firmly swung and the future for competitive success clear, I’ve asked Sal Sarabosing, who leads our Risk Advisory Services practice which includes our ERP implementation offerings, to give his perspective on these issues. At the end of this newsletter, Sal will offer some examples of engagements that he and his team have completed.
Perspective from Sal Sarabosing
Here’s a snapshot of the issues we’ve seen companies struggling with to implement an ERP effort and what’s required at each step for success.
- System selection support: Sorting through the raft of choices to find the application that best optimizes the business can easily devolve into a time-consuming, manual process. Here are some of the questions clients should expect their trusted advisor to ask with the aim of focusing the selection process and moving the arrow toward a more relevant – and manageable – range of options.
- At how deep a technical level does the company want to understand their financial performance? Is the business a multilocation, multicurrency organization? What does the software need to support? Regional activities? Business units? Product marketing? Etc.?
- What’s the actual operation of the business? Manufacturing? Buying and selling? Services? And how much does the client want their ERP solution to orchestrate/control those operations? Options range at the low end from back-office functions, financials only and CRM all the way up to all-encompassing applications that reach into every aspect of the business.
- What does the business need the application to support today and five years from now? And, if the client is looking for an application with strong scalability to evolve with the business, what can their budget support? Higher scalability capability equals higher cost.
- Proper configuration to business process needs: Once clients have chosen the application, the next step is to align the application to make it do what the company wants it to do. This phase is an opportunity for the business to say, “We’re here. We want to be there.” As the company works through this phase, they should expect their trusted advisor to help them manage the expectations of the rest of the organization. Some questions here are:
- How should the chart of accounts be laid out?
- How much does the company want the application to automate the business? Put another way, does the company want to make the application operate the business like it’s always operated … or the way the application envisions the business operating? This is an important question because software builders oftentimes come from the industry they’re now targeting. Their point of view is, “When I was in the industry, these applications didn’t really understand the business so I’ve developed an application that makes the business run 100 percent the way it should be run.” Even Fortune 500 companies with previous ERP experience grapple with the critical issue of how much to let the application run the business.
- Implementation partner selection or project management: Choosing the right implementation partner is as delicate as choosing the right software. And it’s another step where companies are faced with an array of options – from software providers to VARS to system implementers. Each of these folks can provide particular help but none can provide a holistic, technical and business perspective to get the implementation completed in a cost-effective way and configured to the company’s specific business needs and strategy. It’s a critical nuance that trips up many companies who confuse choosing the right application with choosing the right implementation partner.
A good implementation partner will be able to connect the dots between the technical aspects of system implementation and the business at large – again, a situation where a trusted advisor with a 360-degree approach can have a more positive impact far beyond any of the more siloed providers. Such a versatile partner will provide the project management assistance to keep the technical installation moving along while also helping organize and scour the data that’s going to be utilized to produce a final product that’s reliable and actionable. These partners will also supply the business perspective to help on a variety of issues: obtaining executive buyoff and setting the tone at the top; filling the gap between accounting and IT to help mitigate communications and technology issues and maximize investments; minimizing the divide between culture and technology among the rank and file; etc.
All of the above can be summarized in a single sentence: Implementation is hard work. Don’t make it harder. I’ve seen situations where companies have had to start over – resulting in implementation costs that are double the estimate. That said, if companies plan well and leverage the right available expertise, they can set themselves up for a smooth, timely, on-budget implementation – one that won’t just help reach goaIs but put the company on solid footing in the event of a future sale, acquisition or IPO.
At Blythe Global Advisors, we have a demonstrable track record of helping clients successfully implement the right ERP solution. We have worked across accounting and IT organizations to connect solutions to companies’ cross strategies, business units, technical infrastructures and cultures while minimizing disruptions. If you need help with an ERP implementation, please contact Marc or me. We’d be honored to help you.
Here’s a brief glimpse of some BGA engagements – perhaps one of them mirrors your needs.
- A U.S.-based bioscience diagnostics startup: For this financials only implementation, we supplied project management services to implement NetSuite across worldwide locations with multiple charts of accounts – providing one point of integration for all companywide transactions.
- Global provider of wireless networks and infrastructures: Working with the company’s in-house proprietary system and various off-the-shelf and on-premise financial applications that presented 22 unconnected sources of information, we created a datamart to provide a single destination for data collection, synthesization, analysis and retrieval.
- Multimillion dollar L.A.-based subsidiary of a global manufacturing company: We provided ERP system selection and implementation assistance for the company’s new U.S.-based location – to run the business today, allow for physical/business line expansion and to handle future product engineering changes supporting a $900 million contract.
- Merger of two $3.5 billion companies: We applied our enterprisewide systems integration expertise to bring together two different systems on two coasts – accounting, operations, etc. – into one companywide platform that was deployed on time and on budget.
On behalf of Marc and myself, if you would like to discuss anything in this or any of Marc’s newsletters, please contact either of us. Again, we’d be delighted to talk with you.
- Assisting companies with the assessment and implementation of new revenue recognition and lease accounting rule changes.
- Performing technical accounting assistance to several companies including many that are contemplating IPOs or are in the registration process.
- Providing complete outsourced SOX and internal audit services to several companies.
- Providing part-time controller/CFO services to several private equity- and venture capital-backed companies ranging from startups to $50 million businesses.
- Providing financial reporting, XBRL and technical accounting support to several smaller public companies.
- Providing pre-audit support to several companies preparing for their first external audit.
The newsletters published on this Web site, current as of the dates of publication, are for general information and reference purposes only. They do not constitute specific financial or accounting advice for individual circumstances and/or companies. Such specific financial or accounting advice should always be sought separately.