Get More From Your ERP Investment
by Robert D. Kugel

Innovative companies have taken the lead in fully utilizing their ERP systems. The majority, however, have yet to take the first steps in using their ERP investments to greater advantage.

Ventana Research recently completed a research study titled "ERP Innovation". When we speak of innovation in using enterprise resource planning (ERP) software, we mean to suggest going beyond the first-generation objective of increasing efficiency through automation. We believe companies can achieve more today with this software than ever before. They can attain a higher return on their substantial investment in this critical enterprise software. Our study was designed to determine to what extent companies have taken advantage of these enhanced capabilities. Overall, we find that innovative companies have taken the lead in more completely utilizing their ERP systems. Our research indicates that these achievements are the result of using capabilities that already exist and that others can implement.

When companies first rolled out ERP systems in the 1990s, their main objective was to cut administrative costs; benchmarking data has shown that many have achieved this goal. However, we assert that companies should not stop there. While organizations use ERP for some purposes that drive and support innovation, the software could play a central role more consistently.

At the next level, organizations will use their ERP systems to improve productivity and enhance organizational effectiveness. Many of the benefits from using ERP to date have been the result of simple automation. Management can realize further efficiency gains by using the technology to manage end-to-end process automation (such as order-to-cash or purchase-to-pay), electronic invoicing and payment, or replacing paper with digital documents, for example. ERP systems also can help enhance organizational effectiveness, which is a primary goal of performance  management. While documenting accounting transactions has been a core function of ERP (often the main one), the software can record a broad range of operational data that plays a critical role in scorecards ("balanced" or otherwise), key performance indicators, driver-based planning and other performance metrics. In other research studies we have done and in our work with corporations, we find that many are not using nonfinancial metrics to the extent they should.

ERP automation eliminates manual steps, ensures rules are observed and reduces errors. Doing so cuts costs, reduces time needed to complete processes and increases the transparency of the company's performance, compliance processes and financial position and thus management's ability to see into them. In customer-facing processes, innovations in ERP use have been able to enhance customer satisfaction. Despite this, although about two-thirds of all respondents reported that they have used software to support purchase-to-pay processes, only half have implemented an order-to-cash system for sales and just over one-third have put in place a recruitment-to-retirement process in the area of human resources.

In addition, using technologies such as electronic invoicing and payment or image capture in conjunction with ERP systems can make those technologies more effective. Yet our research reveals that less than half of the participants' companies are using their ERP system for electronic invoicing and payment, and less than one-third have implemented image capture for invoices or other paper documents. These are well-developed technologies that, when used in conjunction with an ERP system, can streamline business processes, enhance the customer experience, speed collections, cut administrative costs and reduce working capital requirements.

Ventana Research is the leading Performance Management research and advisory services firm. www.ventanaresearch.com.