In-Depth

Caveat Emptor: Put Performance Before Convenience in ERP

An all-in-one approach to performance management has its merits, but companies should look beyond their ERP stacks, too

• By Stephen Swoyer
• 11/03/2004

Just when you thought it was safe to wade back into the ERP waters, at least one consultancy says you might want to think twice.

Many organizations have reached a comfort level with their ERP implementations, says Mark Smith, CEO and senior vice-president of research with Ventana Research, and some are now mulling additional investments in software from Oracle Corp., PeopleSoft Corp., SAP AG, and others. Instead of staying the ERP course, however, Smith says companies would be better advised to focus on improving their financial and workforce performance by looking beyond the wares of their ERP vendor of choice. It’s not that ERP vendors aren’t up to the tasks, but that organizations should weigh solutions from their ERP suppliers and best-of-breed performance management providers before making a decision, Smith says.

“While your ERP suppliers try to entice you to purchase new systems or upgrade existing ones through their new applications, application platform, performance management, and BI solutions, these tactics must be examined closely to ensure you are not required to modify and upgrade existing systems that are operational and do not need to be impacted to meet new business requirements,” he writes. “The marketing of new capabilities for further efficiency improvements in ERP systems should be examined and weighed against alternative effectiveness and performance-centric approaches.”

Why are ERP vendors aggressively expanding their technology stacks? One reason, says Smith, is that the ERP space itself has been commoditized to some extent. “ERP systems have reached a stable level of competency and functionality as provided by vendors such as Lawson, Oracle, PeopleSoft, SAP, SSA and others,” he writes. “The maturity of the process and systems for ERP has stabilized and now the market is transforming to the commoditization of these systems. This has resulted in ERP providers focusing on maintaining and improving their large maintenance revenue streams and acquisitions to consolidate and reduce costs of supporting applications.”

Just in case they haven’t gotten the memo, Smith reiterates that organizations must embrace a performance-centric mindset when evaluating additional ERP or performance management investments.

To a large extent, this involves first defining business imperatives for compliance, performance, profitability, revenue, and cost management, says Smith: “This Performance Management approach can help you decide where improvement-to-processes need to occur in the context of critical imperatives like compliance, profitability and other business improvement initiatives.” The alternative, he argues, is the unthinkable: competitive disadvantage. “Organizations that do not define business imperatives for compliance, profitability, performance, revenue and cost management in order to drive people, processes and systems together for improving financial and operational performance are at a competitive disadvantage,” he writes.

And no matter how good of a relationship you think you’ve got with your ERP vendor, or how enticing the prospect of seamless integration between your ERP and performance management stacks might otherwise be, Smith says companies must carefully scrutinize the claims of their ERP providers.

“The commoditization of ERP and the actions of these providers to gain your trust that upgrading and purchasing new systems will improve performance and meet these imperatives should be closely scrutinized for alternative approaches,” he writes. “Your financial and human capital resources are precious and continuing an inward operational efficiency path could be detrimental to your customer and market performance that requires a performance-centric model for your business.”