One of the recurring discussions we have with clients is around ERP systems used in portfolio companies. Especially when a portfolio company has grown through M&A activity, sooner or later the question arises: ‘do we need to consolidate the ERP systems and if so, how should we go about it?’
Firstly, when you’re dealing with a dispersed systems landscape, is it always better to consolidate to one single system?
Ideally, yes. In most cases, the fewer systems you have the better because this can help integration across the businesses and ensure that there is a single source for management information. Also, in general the more systems you have, the higher the running costs will be. Running and supporting systems have fixed and variable costs, so for every extra system you will have another set of fixed costs.
There are some exceptions though - consolidation is not always practical and there are some instances where you might want to have more than one system in one organisation.
For example, I worked with the Linde Group a few years ago and they acquired businesses in different countries. Although they were a SAP ERP house, they acquired businesses in other countries that were using Navision, which is now owned by Microsoft. They made a conscious decision that they would run with two ERPs because in countries where they had a very small business the overhead of running SAP was quite high. Navision was much cheaper, and they created some interfaces between Navision and SAP so they could do the reporting globally.
So in summary, yes, ideally you should aim for one, but some circumstances may warrant keeping another.
Before embarking on a systems consolidation programme, how should you go about selecting ‘the one’?
My first comment would be: don't rush into it. Take a step back and understand your objectives - what are the most important functionalities the system needs to bring to your organisation? Different ERP systems have different strengths and quite often it depends on where they started from. Some started from finance applications and that’s still their strongest areas; some started from HR applications and that remains their strongest area. So, take a step back and decide what it is you want.
Secondly, take a look at the key systems you already have but be open minded. It may in fact be more practical and more cost effective to go out to the market and find the best ERP system to deliver on your objectives. That route has the added advantage of minimising internal conflict, avoiding the possibility of each division fighting for their system to be the one to stay. If they are all having to move to a new one, it levels the playing field to an extent.