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Collaboration Is Key to Successful ERP Consolidations, Says Leading Independent Research Firm Analyst

Consolidating enterprise resource planning (ERP) implementations on a single instance can be difficult, challenged in part by IT budgets that can't support full "rip-and-replace" approaches, says R Ray Wang, principal analyst with Forrester Research and a specialist in analyzing ERP trends for enterprises and midmarket organizations. Fortunately, there are a variety of alternatives, including increasingly popular shared services options. The key is close collaboration between IT and business groups.

Q: What potential benefits are driving organizations to adopt consolidation strategies?
R Ray Wang: When I look at benefits, I think of four "buckets." The first one is that consolidation helps drive sales, in part because it can give you better financial data to rank and rate customers. Second, on the efficiency side, consolidation is all about not duplicating data, which means you don't have to retest or reintegrate systems every time you do an upgrade. Then there's the regulatory piece. Having one set of common financial data is a great place to start from a governance and controls perspective.

The fourth bucket is strategic. As organizations look at what their future platforms might be, they look at the efficiencies that can result from consolidating vendors and standardizing on certain technologies.

Q: Does the initial catalyst for consolidation typically come from the IT side or the business side?
Wang: Often it comes from IT, in an effort to reduce overall IT costs. But that's changing. For example, the CFO who is looking at regulatory compliance could be driving the business consolidation because his or her job is on the line.

Commonality of Goals

Q: What are the best ways to get IT and business working together in a consolidation effort, considering they might have different goals?
Wang: Actually, I think there is a lot of commonality among their goals. If you align the effort with the business drivers around growth, efficiency, compliance, and future strategy, you are in good shape.

Q: If I'm part of a largely decentralized organization, what are my possible approaches to consolidation, short of moving to a single instance?
Wang: One of the best ways for a decentralized organization to move to a more-federated approach is to start with shared services. Shared services opportunities will ultimately drive the organization to commonality in its business processes. And driving commonality among processes creates an opportunity for IT instance consolidation.

To do this, you've got to start talking about shared processes, the savings that can result, as well as what the SLAs [service-level agreements] would be in a shared services center.

Moving to Shared Services

Q: What parts of the business are good starting points when moving to shared services?
Wang: Companies usually start with shared services for finance or HR because those are areas where you have a lot of common processes. But the shared services center has to perform better than the existing processes for this approach to be worthwhile to the business. If it does, then you have a model for rolling it out to different areas and to achieve consolidation savings.

Q: Speaking of consolidating finance systems, what's the downside for the company that chooses not to consolidate in that area?
Wang: You might have longer closing times. You might not necessarily have all your internal controls in place. Also, it's about getting good business intelligence and actionable information. Your ability to get to that level of detail is going to depend on how quickly you can get your financial systems in sync, if you want real-time data and real-time data collection. You'll lack the information that is critical for your business if you don't have instance consolidation, excellent data reporting tools, or data standardization in place.

Long-Term Applications Strategy

Q: In addition to considering shared services, what other best practices should enterprises consider for consolidation success?
Wang: One best practice in instance consolidation is to understand that this is one part of a long-term applications strategy. And that long-term strategy may include things like upgrades and maintenance timing, creating master data, and connecting other stakeholders, such as suppliers or partners or customers, into the systems. If you just look at instance consolidation on its own, you may miss out on some of the opportunities around better processes, around leveraging master data, and around making sure that you've optimized the maintenance cycle of all the different entities that you are consolidating.

The second point is that this is a change management exercise as much as it's a technology project. It requires a good amount of governance and project buy-in from everyone in the organization. And business and IT leaders need to work closely together for that to happen.

Editor's Note: At the Oracle OpenWorld session "Get More with Less: Panel Discussion on Consolidating ERP Instances," on Monday, November 12, Oracle customers MasterCard, British Telecom, and Symantec will discuss their ERP consolidation strategies and the value of consolidating ERP systems with Oracle E-Business Suite. View the Oracle OpenWorld 2007 Content Catalog.

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