by Robert D. Kugel CFA |
2/1/2008 | Article ID: V08-07 | Article Type: VentanaView
Summary
Ventana Research consistently finds that a major information technology challenge for larger companies (those with 5,000 or more employees) is dealing with complexity of systems and data. These organizations have invested heavily in IT for decades. Usually, decisions about these investments revolve around business requirements, not IT simplification. The result over time is a hodgepodge that IT organizations need to manage in order to deliver the capabilities the organization needs. This observation was confirmed in a recent benchmark study we performed on financial performance management issues. The research points to issues larger companies face in dealing with complexity related to enterprise resource planning (ERP) and other important data sources.
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ERP systems have made it possible for organizations to centralize their record-keeping functions and facilitate consistent management of financial and other processes. These systems collect not just accounting data but also a broad range of information about orders, payments, inventories, fixed assets and related aspects of business. Used to their fullest, they allow companies to manage once-fragmented processes in an end-to-end fashion. Yet ERP systems still have significant shortcomings, and inflexibility is one of the most prominent. Executives from a majority (58 percent) of companies participating in our research (sponsored by Teradata and media partners Business finance magazine and the Institute of Management Accountants) said that changing their ERP system to adapt to new business information needs is difficult or very difficult. These needs include new kinds of information for reports, new types of analysis or changes in the organizational structure. But simply because making the changes is difficult is not an excuse for leaving things as they are, especially when we note that on average companies keep ERP systems in place for about seven years.
While corporations have reaped many benefits from various kinds of IT systems, the accumulation has created complex infrastructures, especially in larger companies. Diagrams that track data flows required to complete processes can look like plates of spaghetti. More than half of research participants agreed or strongly agreed that in their company, the complexity of the IT environment is a barrier to their ability to access timely data, ensure data consistency or enable collaboration. Our research shows a correlation between such complexity and being able to get to the information that, for example, determines the factors behind a variance. Among those who reported they find IT complexity a barrier to accessing information, two-thirds said it is difficult or very difficult to drill down to underlying data (compared to just 20 percent who find it easy or very easy), and 74 percent of this group also said their revenue forecasting process is inaccurate or very inaccurate. Similarly, half said it is difficult or very difficult to determine the “what, why and how” about important numbers – the details that would deepen insight into the context of the information and its consequences. Finding ways to simplify IT systems is an ongoing and unavoidable task.
Assessment
We advise larger organizations to take a two-pronged approach to IT complexity: manage the IT infrastructure continuously to limit or reduce complexity, and apply technology effectively to adapt to the inevitable complexity. Understanding that these issues are root causes of ineffective performance and taking steps to overcome them are important first steps in elevating a company’s overall performance.
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