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Summary
Recent research studies conducted by Ventana Research show that large and midsize corporations are underutilizing the capabilities of their enterprise resource planning (ERP) systems. For example, few companies use them to support more effective process execution (such as order-to-cash for receivables or procure-to-pay for accounts payable) or make full use of technologies that would speed cash flow and reduce costs (such as electronic documents and electronic payments). Ventana Research believes that a number of factors are preventing companies from making full use of this valuable asset. One of the most important is the seemingly intractable divide between business units and the IT group. Business people do not know enough about the capabilities of their company’s IT systems to understand what is possible; IT people understand the technology but either do not know how to apply it to business or do not see this as their mission. For that reason, we think CIOs should organize an ERP steering committee consisting of members from Finance, the lines of business and the IT organization. The purpose of such a committee is to identify and prioritize ways in which the company can make better use of its ERP system.

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Ventana Research undertook research studies last year on ERP innovation (sponsored by Cognos and by media partners Business Finance, CMA, IMA, Intelligent Enterprise and Montgomery Research) and innovation in finance organizations, particularly in midsize companies (sponsored by Lawson Software and Prophix and by media partners Business Finance, Business Management, Intelligent Enterprise, IT Business Edge, CXO, Montgomery Research, Manufacturing.net, SearchOracle.com and SearchSAP.com). The research shows that only a minority of companies have adopted more effective processes or incorporated the more advanced technology capabilities of systems that could help lower costs, improve responsiveness to customers or reduce financial system risks. Most fail to capture or use information that could help them manage their business better. Indeed, among our research respondents only 20 percent of companies with more than 1,000 employees reported they have matured their use of ERP beyond a basic or intermediate level.

In addition to process support, ERP systems collect a range of nonfinancial information, such as units produced, number of invoices processed, time to complete processes and stock outages. Companies should be using this information as part of performance management initiatives. We think one reason why companies focus their performance reviews so fully on financial metrics is that those metrics comprise the bulk of the information they gather. While 20 years ago collecting and distributing reliable nonfinancial information was painfully difficult, that is not the case today. Yet only a relative handful of companies are collecting this sort of information in their ERP systems and using it to set and assess key performance indicators.

Not using all of the capabilities of an ERP system is a waste of money, similar to underutilizing a factory or any other productive asset. We think this failing has less to do with information technology than with human behavior. In many companies a status quo attitude prevails. IT departments manage the ERP systems, but they seldom understand enough about business and finance to see how existing systems can support process improvement and business. For their part, finance and business people do not understand enough about ERP systems to be aware of their possibilities.

In excusing their poor use of ERP capabilities, some finance executives draw a false analogy to the low utilization of the total features set in spreadsheet software. A spreadsheet package is a grab bag of capabilities, aimed at any conceivable user, that are shoved into a single package. If 90 percent of users need only 10 percent of the features to do their jobs, then they really aren’t underutilizing it. In contrast, the ability of ERP systems to improve business process execution, planning and performance assessment is almost universally useful. Underusing these components is truly a lost opportunity for cost savings or greater effectiveness.

Assessment
To overcome this all-too-familiar business/IT divide, we recommend CIOs and CFOs lead a steering committee that seeks ways to use more of the capacities of their ERP systems and devises an ongoing set of process and IT enhancements. Companies need to benchmark their ERP utilization capabilities to identify gaps they can address. After identifying the gaps, the task of the steering committee is to jointly develop a set of opportunities and then estimate their impact on capabilities, customers and costs to prioritize their implementation. A steering committee is one sure way that organizations can bring business and IT together for a common purpose and ensure that new approaches to using ERP are feasible and useful.