Analyst Perspectives

Over the past decade, how organizations manage processes and record data related to transactional events captured by an enterprise resource planning system has undergone a significant evolution. Some of the more recent changes have been the result of a steady migration to the cloud, since these systems are typically updated frequently, require less maintenance, have better performance and are more readily available than those operating on-premises.

Today’s data architecture is the culmination of a multitude of incremental steps that have increased the analytical capabilities built into ERP systems. And because of the evolution of data architecture, where an ERP system can automatically incorporate information held in different systems of record, the breadth of the analysis and reporting is likely to increase by having embedded analytics (a system that incorporates data from multiple discrete sources) increasingly become the standard for ERP systems.

Decades ago, dissatisfaction with ERP systems was the norm. When they first appeared in the 1990s, ERP systems were criticized for being data “roach motels,” where “data checks in but it can’t check out.” (A reference to a then-current advertising slogan for an anti-vermin product.) However, our Office of Finance Benchmark Research revealed that two-thirds (66%) of organizations say it’s easy or very easy to get useful information from an ERP system. Reporting and analytics have increasingly been added to ERP systems’ out-of-the-box capabilities, especially in the form of configurable dashboards tailored to the needs of specific individuals in specific roles. These additions have improved the user experience, bringing necessary information within easy reach and allowing individuals to manage by exception. Rather than forcing managers to look for trouble, exceptions immediately come to them.

Our Benchmark Research found that 81% of participants said their ERP systems work well or very well. ERP systems eliminate batch processes and use in-memory processing, supporting a continuous accounting methodology, which I first defined in 2015. Continuous accounting is an approach to managing the accounting cycle that addresses time-consuming tactical issues which reduce the time and focus finance and accounting departments have to be more strategic. It automates mechanical, repetitive accounting processes in a continuous, end-to-end fashion. Doing so is more efficient and ensures data integrity, which is crucial. Lack of data integrity is the root cause of a lot of time-consuming work that adds little value. Continuous accounting distributes departmental workloads continuously and more evenly over accounting periods to eliminate bottlenecks and optimize when and in which order accounting tasks are performed.

Although some aspects of dissatisfaction with ERP systems have been addressed, others remain. For example, while 35% of participants say their systems are as easy to work with as one could expect, 60% say improvements are necessary and 4% think their system is difficult to work with.

ERP systems have a well-earned reputation for being difficult to implement, but the inherent reason is that they manage complex, cross-functional processes that require tight controls. And cloud implementations can be faster and less expensive when companies eliminate unnecessary customizations and adopt the best practices built into the system. Increasingly, vendors offer capabilities aimed at specific industries and even micro-verticals — for example, a system designed specifically for beer brewers rather than the more generic food-and-beverage category.

The stage is now set for a decade of innovation, enabling organizations to take full advantage of existing capabilities and incorporate newer technologies that will redefine how the finance and accounting department works. Over the next 10 years, information technology will have a greater impact on how organizations operate than it has over the past 60 years of the information age.

Larger organizations have grappled with having multiple ERP systems for decades. Our Next-Generation Enterprise Resource Planning Benchmark Research found that 69% of organizations with 1,000 or more workers have ERP systems from multiple vendors. Multiple systems are often managed through a consolidation system that simplifies the process of combining accounting transactions recorded in multiple systems to create headquarters-level financial statements. However, that process is time-consuming and typically performed on a monthly basis. An alternative “universal journal” involves cross-posting every transaction from each ERP system to a central system so that an aggregated, real-time consolidated view is possible. Moreover, by calculating (but not necessarily posting) amortizations, accruals and similar notional entries on a daily basis, a headquarters, divisional or regional set of financial statements would be available on an intraperiod basis. Today’s technology makes that theoretically possible, but cost considerations have stymied adoption.

Artificial intelligence has been overpromoted and its impact on finance and near-term impact on accounting departments has been exaggerated. Rather than putting robots in charge of the department, AI — using machine learning — eliminates the robotic work that besets accountants today. Meanwhile, AI is already at work in, for example, document scanning and voice recognition. Bad data is a major barrier to successfully training AI systems, holding back adoption, but AI is already used to automate data cleansing at scale. In the near term, ERP vendors will use AI to support data accuracy at the point of entry so that errors and omissions — such as leaving out necessary information about a transaction in a record — will be spotted by the system before the record is entered. Natural language processing, already in use, will increasingly reduce the training required as people speak or type the task they want to perform. A multitude of individually modest advances supported by AI will steadily shift the type of work the accounting department performs to more analytic and proactive pursuits rather than backward-looking bean counting.

Cloud-based ERP systems aren’t new, but their inherent utility has only been lightly exploited. The cloud has been a boon for small and midsize businesses, eliminating the need for workers to maintain the software and spreading the cost of compute and storage to provide better performance at an affordable price. In a cloud environment vendors have greater control over the system’s operating environment and it is easier to innovate and improve, especially in usability and user experience. There are a wide range of potential services that, for example, simplify B2B transactions and provide value-added business services. These, too, are more likely to benefit SMBs that have fewer resources than larger organizations.

Our research suggests that, on average, organizations replace ERP systems every 10 to 12 years, but many organizations hold on even longer. Although replacement of an ERP system is expensive and challenging, the senior leadership team, especially the CFO, should assess whether an existing system addresses business needs, and consider what else could be accomplished with new software, especially a cloud-based application.

Regards,

Robert Kugel