Organizations are adapting to rapidly changing economic, social, regulatory, and business environments by bringing new capabilities through digital transformations. Digital transformations are affecting many parts of organizations, including the accounting and finance domains. For finance leaders, there’s a very high probability of involvement in defining and leading digital transformations related to finance within an organization.
Often this calls for evaluation and development of solutions to address new business and financial regulatory requirements, reduce costs, and streamline processes. But what are the best practices in creating and implementing modern system architecture, including enterprise resource planning (ERP) systems?
Legacy systems often can’t accommodate current requirements and lack modern capabilities. An ERP upgrade or change is often a foundational requirement. These changes may require significant money and time investment, and they might not provide 100% of the required capabilities for flexibility and complexity. Other business software could integrate with ERP and become part of the solution.
For the most successful and effective digital transformation, it’s important for an organization to evaluate digital assets and capabilities holistically, document current and future operating models, and capture and prioritize all business requirements, capabilities, and processes.
Digital Transformation Best Practices
The best practice in approaching digital transformation is to set digital strategy first, then design and implement the platform system architecture. This “product and platform” approach is recommended by McKinsey. The following steps guide this process:
1. Define and understand your organization’s strategic objectives.
2. Identify what business capabilities are essential for organizational success.
3. Identify your current operating model, capabilities, architecture, and processes.
4. Identify the desired future operating model and business processes.
5. Identify gaps between the current and the desired state.
6. Evaluate and propose new systems and/or processes.
7. Document new proposed system architecture and outcomes.
Once you receive approval for the timeline and budget, it’s important to complete the full implementation with a sense of urgency (on time and on budget) while evaluating the solutions and adjusting where needed.
Business Needs
A new ERP, a major upgrade (e.g., migrating data and applications from an on-premises server to the cloud), or a supporting integrated system may be the right answer if the current systems are any of the following:
1. Outdated or inefficient
2. Unable to meet growing operations (scalability issues) leading to a loss of customers, market share, and/or profitability
3. Not meeting security, compliance, and regulatory requirements
4. No longer supported by vendors
5. Escalating system maintenance costs
6. Unable to integrate with modern technological advancements (e.g., AI)
You may need to make changes to address these pain points. On the other hand, there are circumstances when it’s beneficial to postpone adopting a new ERP solution or software upgrade. These circumstances might include the following:
1. Limited resources, including financial constraints
2. Unclear business objectives
3. Ongoing organizational turmoil with high turnover, internal conflicts, and leadership changes
4. Unique business needs requiring extensive customization
5. Undocumented, unclear, or inefficient business processes
6. Unrealistic timelines and very tight implementation schedule
7. No ERP vendor support for the newly chosen system
Modern ERP Deployment Options
In ERP evaluation, consider three major deployment options for modern ERPs (below). Each deployment model offers distinct advantages and considerations.
- Cloud-based ERPs are generally known for accessibility and scalability, lower infrastructure costs, rapid implementation and upgrades, enhanced data security, and reliability.
- On-premises ERPs generally provide better control and customization due to the internal hosting aspect. They integrate with other on-site systems and offer more control over data storage and compliance with data privacy regulations. This would likely involve higher up-front costs, including hardware, software licenses, and IT resources.
- Hybrid ERPs offer flexibility and integration. They combine both on-premises and cloud elements, allowing businesses to leverage the benefits of both deployments. Integration and data synchronization between different deployment models require careful planning and coordination.
Capabilities of Modern ERPs
Modern ERP systems and related business software encompass a broader range of functionalities, including accounting, inventory management, supply-chain management, human resources, customer relationship management, project management, and more. ERP software aims to integrate all aspects of a business’s operations into a single, unified system.
ERP allows for the automation and optimization of workflows, as well as resource allocation and collaboration among different teams beyond financial processes. ERP software is designed to handle the needs of larger organizations with complex operations and multiple departments. It can scale up to accommodate a growing business, supporting increased transaction volumes, additional users, and expanding functionalities.
In each case, the expectations regarding the out-of-the-box ERP functions to meet the business requirements would vary from department to department. For instance:
- Finance would require budget planning, forecasting, cash management, procurement, credit and collections, revenue recognition, and financial reporting.
- HR would require flexibility (to adapt to the rapidly changing talent market) and support for recruitment, hiring, and onboarding, compensation and benefits administration, employee development, employee experience improvement, reporting workforce analytics insights, and managing a complex global organizational hierarchy.
- Global manufacturing organizations would require features to bring together their workforce data across several countries and help to transform their complex manufacturing environment.
- Global supply chain management would require a global view of data and visibility into the supply chain to perform more accurate forecasting by increasing agility to respond to market changes.
- IT would require the ability to address deployment options of both on-premises infrastructure and cloud computing, data security, customized user needs, strong system support, and advisory service.
The capabilities of modern ERP systems are vast, evolving, and critical in today’s digitized business ecosystem. The decision to adopt them should stem from a well-researched digital strategy. By defining and implementing digital strategy, an organization is establishing a foundation for improvements to data architecture, business processes, and user experience. These aren’t short-term investments but rather commitments to shaping the organization’s long-term success trajectory. Every choice—be it an ERP system or another type of business software, customization level, or deployment model—should resonate with the organization’s unique needs and future vision. Central to the success of such digital transformations is proactive leadership and organizational alignment.
November 2023
