Extreme ERP Makeover

Extreme ERP Makeover

For a company to undertake a single-instance project, there has to be a compelling reason. The CIOs interviewed for this story named three: financial reporting, cost control and competitive advantage.

Reader ROI

  • Why single-instance ERP is now feasible
  • What business drivers should factor into your decision
  • How companies are determining their integration strategies

The grand ERP vision of one application and one database for everything your company does may finally be achievable. But does that mean you should rip out all your systems and replace them with a single instance?

Here's how to decide.

For the better part of three days last June, Bill McDermott, president and CEO of SAP America, sat at the head of an oversized conference table in an out-of-the-way third-floor meeting room in the Orange County Convention Centre in Orlando, Florida. CIOs and other executives from some of the country's leading companies attending the software giant's annual Sapphire trade show paraded in and out, happy for face time with the head of the company to which most have either given or are about to give millions of dollars. In a meeting with a CIO reporter, McDermott stares out the tinted glass wall overlooking the bustling convention floor and then dives into the same pitch he gives the pilgrimaging executives.

"You have ERP," says SAP's CEO. "The next step is to expand it to CRM and the supply chain." The idea, he says, is to control all the data in a company by standardising on one system for the front end and using one data source for the back. His pitch reaches its climax when McDermott sounds the message SAP has been trumpeting all week:

It's time to move to a single instance.

In other words, McDermott is telling CIOs to forget the multiple systems their companies use today, rip them out, and replace them with one ERP system - with one data store - that serves the entire company, no matter how diversified or geographically spread out it is. That, he says, is how to get the most bang for your IT buck.

"I hear it all the time," says Larry Shutzberg, CIO of Rock-Tenn, a $US1.4 billion packaging manufacturer. "The vendors are pounding down my door."

By now, most companies - especially those in the $US1 billion to $US5 billion range - have heard the knocking. And so far, they seem to be listening. In a recent study on the US government's new financial reporting requirements, AMR Research found that 65 per cent of the companies it interviewed were considering ERP consolidation, a percentage that analyst Bill Swanton thinks is representative of the market as a whole. "Only a small per cent of companies did single instance the first time [they implemented an ERP system], maybe 10 per cent," Swanton says. "Easily 50 per cent of the rest are considering it over the next two years."

The Siren Song of Single Instance

What deploying a single instance boils down to is getting rid of your existing ERP and other best-of-breed systems - such as purchasing and CRM - and replacing them with a single monolithic system from a single vendor. Everything your company needs - financials, order entry, supply chain, CRM - would come from SAP, Oracle, PeopleSoft, whomever. There would be one giant database, one application that does everything.

And there are some compelling reasons to undertake such a project now. For starters, the Sarbanes-Oxley Act, the US government's post-Enron accounting legislation, requires that financial reports have a verifiable audit trail. With a single instance, all of a company's financial data will live in one application and will originate from one source, eliminating consolidation errors and greatly reducing the time it takes to close the books.

Having a single data source could also create new revenue opportunities and cut costs. Companies would be able to run reports that show cross-promotion opportunities, places where they could reuse equipment or leverage purchasing power. Also, AMR estimates that companies budget $US4.3 million for a single-instance order management module versus $US7.1 million for multiple instances.

But despite these benefits, rip-and-replace is a difficult pill for CIOs to swallow, many of whom are just shaking off the multiyear, multimillion-dollar hangover of their first ERP project. And they're wondering if there isn't another cure for their integration headaches: Web services, those plucky little XML-based applications that are currently being held up by multiple standards organisations often working at cross-purposes (see "The Battle for Web Services", page 88). Web services could allow CIOs who have invested in best-of-breed solutions to integrate their stand-alone systems without either shelling out millions for single instance or tying their company's future to a single vendor.

Essentially, single instance and Web services are two ways to get to the same place, and CIOs will need to choose which path to lead their company down.

"There's no right answer," says Shutzberg. "Every situation is different. You have to follow your specific business drivers until you find a compelling reason to do it one way or the other."

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