Enterprise Resource Planning (ERP) solutions are increasingly attractive to clients who recognize the benefits of enterprise-wide integration of information technology, applications and business processes. The benefit of interegrated software solutions in finance, human resources, accounting, procurement, manufacturing, logistics and distribution outweigh the complexity of the challenge to implement and support enterprise-wide software solutions from industry leaders like SAP, Baan and PeopleSoft.
The capital outlay for ERP is significant. It includes the company’s need to maintain the adequate supply of ERP expertise required to plan, coordinate, and implement the transition to ERP, potential business process re-engineering and on-going support. For the world’s largest, best staffed and well-capitalized organizations, the challenges have been difficult but not insurmountable.
During this decade of implementing complex ERP solutions, three things have been learned. One, it takes a qualified group of IT specialists to support these solutions. Two, there is a next level of so-called ‘mid-range’ enterprises that are large enough to realize the many benefits of ERP solutions but lack sufficient capital and human resources for a timely implementation, including business re-engineering. Three, there is a dire need for the enterprise to focus on core business and not system implementation. These three realizations within the marketplace have driven the need for and acceptance of outsourcing as a strategic IT direction.
According to Dennis Highlander, partner in Global Business Process Outsourcing at PricewaterhouseCoopers, “The integrated ERP approach simplifies staffing, administration, operation and maintenance within IT as well as in each of the applications and functions. And ERP allows a single solution to Y2K issues when it replaces legacy systems.”
Clients Win With BPO Integrators
Companies employ a variety of resources — ERP vendors, consultants, business process experts, and IT staff — to oversee the project plan and somehow integrate and orchestrate the solution. “It’s a situation ideally suited for an outsourcing solution, and that’s one of the most active trends in IT today,” observed Highlander.
Forrester Research projects the applications outsourcing industry alone to reach $21 billion by 2001. Analysts estimate annual growth by the top four outsourcing integrators at 35 percent for the next three years. They expect integrators will handle 20 percent of all ERP licenses.
The changing marketplace has delivered several benefits that are being recognized by the industry. First, outsourcing affords the opportunity to implement ERP solutions with a minimum investment of capital and human resources. In today’s tight market for expertise in ERP systems, just finding qualified, competent personnel is challenge enough, but retaining and developing key support staff is increasingly difficult and expensive. Large BPO integrators have the advantage of a motivated, well-trained and knowledgeable staff with demonstrated reliability and productivity. PricewaterhouseCoopers, for example, has developed independent Centers of Excellence, which provide in depth experience in support of and dedicated to major ERP systems.
Second, outsourcing allows the IT function to focus on the core competencies of the business and not worry with the mundane support of complex ERP software.
Third, IT support costs from outsourcers is manageable, predictable and, in most cases, lower than in-house. This frees up capital and human resources for other mission critical programs.
As a company chooses to partner with a major business process outsourcer, they automatically leverage their investment with the outsourcer’s depth of resources, knowledge of the ERP product, and close relationships with the ERP and ancillary software vendors. The fact that BPO providers represent a large, consistent installed base enables the ERP provider to respond to one voice instead of diverse voices that do not always speak in harmony.Another benefit that clients can expect from an outsourcer that provides both ERP support services and BPOutsourcing is leverage in the knowledge and application of both ERP skills and hands-on experience in processes that represent industry ‘best-practices’.
“There’s a difference between just rolling in new technology and making the ERP solution perform efficiently and effectively in processes that represent industry ‘best-practices’, noted Highlander.
Leverage doesn’t necessarily stop with added value in system design, performance and delivery. In many cases, there is a bottom-line financial benefit. The developers of ERP systems are eager to add new customers, and integrators offer them a new channel to customers, especially in the mid-range. Most clients prefer to avoid the risks of the ‘big bang theory’ by not installing ERP solutions all at one time. Outsourcing provides the alternative of a smoother, phased-in implementation with a greater pool of resources and capabilities, thereby providing for a more orderly, cost effective and manageable transition.
Process for Realizing an Outsourced ERP Solution
In most cases, the first step is the normal development of an implementation program. This program will address the priorities of implementation, timing of key milestones and determination of the resources required. However, rather than focus only on internal or contract resources, the implementation should integrate the capabilities, resource requirements and responsibilities of the outsourcing vendor.
“This is also an ideal time to evaluate the possibility of re-engineering the business processes in those departments or even consider Business Process Outsourcing,” noted Highlander. “That’s when many clients discover they don’t have the expertise or perhaps the discipline in-house, so they choose a specialist like us as an integrator and outsourcing provider.”
From this point, some clients choose to outsource ongoing applications process installation and administration. They may even contract for the functional service. The next step is a strong assessment of the cultural and operation requirements necessary for success. Noted Highlander, “At each step in the solution development process, we look for the ‘sweet spot’ where technology and business process can work together most effectively in Business Process Outsourcing solution or in an organizations own operations.”
Putting It All Together
“Many clients initially have a notion that ERP is a panacea for a multitude of problems, and in some ways, they’re right,” observed Highlander. “ERPs can help contribute to consistency, standardization, and uniformity of reporting and data capture — the challenge is to pull it all together. In some industries like insurance, oil and gas, telecommunications, and transportation, there are many common reporting and record-keeping requirements. These industries lend themselves to a common solution such as ERP and offer an outstanding opportunity to fully recognize the benefits of ERP support and Business Process Outsourcing.”
As enterprises expand their operations into multiple regions and nations, maintaining consistency is nearly impossible without an enterprise-wide approach. But maintaining, administering and updating an ERP system can be costly and requires a dedicated staff of experts. One discovery that’s not uncommon is that the challenges are so extensive that outsourcing becomes increasingly attractive from a staffing, budgeting and performance perspectives.
Real Added Value
These are exactly the situations where a large integrator can provide added value in several dimensions. According to Highlander, “At PricewaterhouseCoopers, there is a fundamental level of expertise in information technology. On top of that, there is an added layer of applications process knowledge, and finally, a thorough understanding of business processes. This combination of expertise simply isn’t available from other more specialized vendors that may focus on a hardware, software or other specialized component delivery.”
What about the Future?
Yet another benefit of working with an organization that has a close working relationship with ERP providers, is having an impact on ERP strategy, products and future developments. Many organizations don’t have a clear notion of what direction ERP will take.
“The ERP suppliers look to the integrators and service providers for suggestions to improve and expand the functionality and ease of use of their systems,” says Highlander, adding, “We’re ideally positioned to see not only the problems that need attention, but more importantly, we have the business process expertise and specialized industry perspective to indentify how ERP can make the next quantum leap in providing industry focused solutions.”
Lessons from the Outsourcing Primer:
- Recognize the magnitude of the changes an ERP implementation involves in re-engineering, processes and time.
- Secure management support.
- Identify and ensure ready access to all support resources.
- Team up with a provider having the business process expertise and specialized industry perspective to indentify how ERP can make the next quantum leap.
- Assure scalability of the solution in functional and financial terms.