The global economic outlook has continued to improve yet great uncertainties persist about the magnitude of the recovery. The key to managing uncertainty in such volatile conditions is to have complete and timely visibility of business performance. But this is easier said than done. The fashion for large scale ERP systems in the expansionary 90’s proved very successful in centralising processes and driving down transaction costs but in more challenging times, when organisations need to be more nimble and responsive to change the traditional ERP model has proved cumbersome and unwieldy. In this white paper, Gary Simon, FSN’s managing editor asks; Is there a better way of achieving global consistency, regulatory compliance and oversight of business performance without stifling local businesses’ operating autonomy and culture?
Introduction
What are the benefits of a globally consistent approach?
Eliminating accounting complexity
Maximising user productivity
Enabling tight performance management
Encouraging operational excellence
Promoting organisational responsiveness to change
So what are the challenges to a global roll-out?
Multi-vendor applications
Vertical market needs
Financial reporting
Multiple currencies
Different cultures
Local support and training
What sort of architectures would work?
What are the organisational implications?
How does Cambridge Online respond to the challenges?
Summary
Introduction
The global economic outlook has continued to improve yet great uncertainties persist about the magnitude of the recovery.
The US economy grew at a faster than expected annualized rate of 5.4% in final quarter of 2009, the fastest since 2003; the IMF (International Monetary Fund) sharply raised its forecast for global economic growth in 2010 to 3.9% and Japan's exports grew for the first time in 15 months in December, up 12% year on year.
But at the same time, China's stock market quivered on fears of a further government squeeze on bank lending; there are fears elsewhere that quantitative easing poses a risk of inflation; and several countries in the Euro zone are in dire financial straits. In the face of so many contrary indicators multi-national businesses face considerable strategic and operational challenges.
The key to managing uncertainty in such volatile conditions is to have complete and timely visibility of business performance. But this is easier said than done. The fashion for large scale ERP systems in the expansionary 90’s proved very successful in centralising processes and driving down transaction costs but in more challenging times, when organisations need to be more nimble and responsive to change the traditional ERP model has proved cumbersome and unwieldy.
So is there a better way of achieving global consistency, regulatory compliance and oversight of business performance without stifling local businesses’ operating autonomy and culture?
What are the benefits of a globally consistent approach?
Even operationally diverse (heterogeneous) multi-nationals can benefit from a cohesive and unified approach to business processes, technology and human capital. It is about striking an appropriate balance between local and group needs, taking care to accommodate local custom, culture and business practice.
The advantages of a globally consistent approach are compelling, for example, eliminating unnecessary accounting complexity, maximising user productivity, enabling tight performance management, encouraging operational excellence and promoting organisational responsiveness. Handled correctly, all of this can be achieved without compromising specific local requirements.
Eliminating accounting complexity
With the increasing adoption of international financial reporting standards (IFRS) across the globe, there is little justification for maintaining completely different accounting solutions in every country. Whilst the position around the convergence of US GAAP and IFRS is still uncertain the SEC’s public commitment to merging the standards should see the last big piece of the jigsaw fall into place by 2014.
Although the need to report in both Local GAAP as well as IFRS remains in many countries, the adoption of group standards for charts of accounts, dimensions, cost centres and other fixed elements helps to standardise reporting, accelerate the consolidation of statutory and management results whilst driving out complexity in performance reporting.
In recent years the challenge of group reporting has worsened because of the increasing breadth of statutory disclosure requirements, brought about by the EU Accounts Modernisation Directive in Europe and Management Disclosure and Analysis in the US which compel companies to collect information (both financial and non-financial) from an even wider range of data sources. But standardisation of processes and accounting systems allows businesses to respond more easily to regulatory change and provides a platform for the sharing best practice across the organisation.
Maximising user productivity
In turn, the sharing of best practice and uniform processes has major benefits for user productivity and staff mobility. Consider for example the benefits of a common user interface. The familiar look and feel of Microsoft Outlook style navigation embedded in accounting applications means that users are immediately familiar with the navigation and if the same interface standards are shared between credit control, sales order processing and, say, purchase order processing, then it becomes easier to move users between different functional roles to absorb peaks and troughs in workload.
Furthermore, greater commonality between applications across the entire organisation improves the ‘users’ experience’ and allows them to find information more readily – which is especially valuable considering that 25 percent of most workers’ business day is spent simply looking for information!
Additionally, a common application platform across the organisation, from a single vendor liberates users from artificial functional boundaries that act as a brake on organisational effectiveness. A user, say, in Sales Order Processing could look at stock situated in warehouses anywhere in the organisation without leaving her desk, sending an email or getting on the telephone. The result of standard applications is that users are no longer confined to operational ‘silos’ but are able to reach across the whole organisation to obtain the information they need.
Enabling tight performance management
A set of consistent core applications forms an essential platform for the generation of performance management reports and dashboards. By deploying one platform and taking care over data quality, Key Performance Indicators, (KPI’s) can be applied consistently across the business and decision makers can depend on the information being supplied.
Encouraging operational excellence
The growth of the last two decades has masked much more profound changes, i.e. structural changes that have affected whole swathes of industry as they come to terms with the ‘networked economy’. The notion that businesses, even very big businesses, can execute strategies entirely on their own terms is misplaced. Most organisations operate in a fragile ‘ecosystem’ of multiple stakeholders and dependencies. Organisations of all kinds are waking up to a wider range of responsibilities and relationships with suppliers, customers, employees, regulators and other stakeholders.
As a consequence business processes are being stretched beyond traditional corporate boundaries and there is increasing pressure to interleave enabling systems with, for example, a wide range of external supply chain, e-commerce, CRM and Cloud based applications.
The ability to share information instantly with customers and suppliers over the web is vital to efficient logistics and supply chain processes but the smoothing of these processes to manage inventory levels, unfulfilled orders, stock-outs, wastage and business disruption is difficult to achieve without the commitment to a single ERP platform rolled out on a global basis.
Promoting organisational responsiveness to change
Rapid change is a constant feature of today’s economy regardless of whether it is expanding or contracting. So whether companies are selling services or products flexibility is key to maximising the benefits and the integration between different applications has to be amenable to change, upgradeable and provide a consistent level of control.
Deployment of a single core application across all business units allows businesses to benefit from common processes but also provides the foundation for rapidly assimilating change (since there is only one core application) and absorbing the latest upgrades.
So what are the challenges to a global roll-out?
Whatever one's views of traditional ERP systems (Enterprise Resource Planning) it is undeniably a fact that they have made a very made a very deep impression on the corporate landscape for transaction processing. It is only now, in a period of dramatic change and tighter budgets that the true cost of traditional ERP is being exposed. Organisations that benefited from ERP systems when contemplating massive change, now find themselves less flexibly positioned in the face of relentless change. Where ERP systems were once regarded as technology ‘investments' they are increasingly viewed as sunk costs, since every incremental change requires fresh investment.
Worse still, the big providers of traditional ERP systems promoted a culture of self-sufficiency and did not envisage the need to step outside of the ERP environment. In fact integration with other systems was positively discouraged and regulated through the practice of ‘certified adapters’ which limited customers’ choice of third party systems in the hope that their needs could be satisfied from within the current ERP stable.
Companies with diverse needs or smaller business entities within a large group found themselves with an unsympathetic vendor and overbearing applications that did not fit their needs or could not be downsized to suit the smaller entity.
Multi-vendor applications
Few multinational organisations start with a blank canvas. Most have a variety of ERP, operational and performance management systems already deployed. Even those that purport to have standardised on a specific platform find themselves with multiple instances of applications and different levels of compatibility.
So the deployment of new, more agile ERP systems represents significant challenges in terms of reforming processes, introducing new functionality, migrating data and integrating to legacy systems.
Leveraging existing hardware and communications structures is also a challenge, matching hardware configurations to organisational need and ensuring the optimum configuration from an economic, technical and resource perspective.
Vertical market needs
Of course the ‘one size fits all’ approach rarely satisfies complex needs. Each industry and sector has to some degree its own vertical market needs. In the easiest cases this amounts to little more than different business terminology or the addition of a few additional data fields that need to be captured with, say, a sales order. But often the needs can extend into entirely new processes and extensive functionality requirements which take the applications into new realms. In these instances it is frequently necessary to deploy specially written vertical market applications designed specifically for the industry.
Sourcing and deploying vertical market applications on top of core financial functionality creates new challenges in a multinational/multilingual setting, particularly for support and training.
Financial reporting
Volatile markets, increasing regulatory disclosures and the need for continuous re-forecasting and performance management have increased the pressure for accelerated financial reporting. But this is not always easy to achieve across multiple countries operating in different time zones.
Solutions have to comply with different local accounting, multiple GAAP and tax regimes as well as accounting standards and group policies that may differ from region to region. VAT for example in the Euro zone is quite different to Sales Tax in the United States; and France has its own statutory accounts, Plan Comptable Général (the General Chart of Accounts or National Accounting Code) with no equivalent in the UK.
Multiple currencies
Multi-currency processing is a given in a multinational organisation but the complexity can increase many fold with multiple trading currencies in each territory, a different base currency, group currency and reporting currency. Applying these according to different accounting rules (for example average rate for Profit and Loss items and year end rate for balance sheet items) adds to the challenge of processing transactions and consolidating results. Care needs to be taken over what rates are used, when they are changed and by whom.
Different cultures
The impact of cultural differences is frequently under-estimated in multinational roll outs of ERP systems. The sensitivities go beyond different languages and currencies. The whole approach to an implementation should recognise different cultural styles in the way that a project is deployed and the way in which project teams are configured, striving to get the right balance between group and local resources, multi-lingual personnel and those with more limited language skills.
Focussing on cultural issues paid dividends in Spring Global Mail
To Hugo Leenders, formerly Director of Finance and Administration for Spring Global Mail, the complexities of an international roll out of a financial system are all too familiar. The project involved the deployment of Microsoft Dynamics NAV across Europe, North America and Canada and centred on the replacement of an old ERP system.
Although complicated by scale, Hugo Leenders recalls that it was not technical difficulties that posed a serious challenge but cultural or people issues. Despite being implemented successfully in a shared services centre based in the Netherlands, each new country found ‘reasons’ why the system could not work for them. For example, the North American subsidiaries expressed concerns about Sales Tax whereas the German business raised doubts about working with a single language version of the software.
“Everybody came up with reasons why the system could not possibly work for them. Some of the reasons were valid but others were definitely not,” he recalls.
Key to overcoming these barriers was the decision to deploy Spring Global Mail people alongside Cambridge Online personnel working on the project.
“We focussed on a core set of minimum requirements and devoted two to three weeks to workshops to explore each country’s detailed concerns. For example, France and Austria were worried about various ledgers for different reporting needs such as local GAAP and US GAAP. Once we had dealt with these issues we were able to develop a completely standard chart of accounts with very simple modifications around the edges to meet local needs. No changes were allowed to the standard system,” adds Hugo.
The other critical success factor was the decision to use just one NAV consultant to build the core system. This allowed the centre to maintain close control over the configuration of the package, reduced the complexity of managing change requests and empowered other local finance personnel to use their experience of the business to ensure that it met the Group’s needs.
“Getting the balance right between internal and external resources is important from a functional and cultural point of view,” adds Hugo. “It is all a question of recognising that people issues are as critical as technical issue when undertaking a global roll out,” he concludes.
Local support and training
The way in which training and support is delivered are key determinants of the success of a global ERP deployment. There are a variety of possible delivery models (see later) but whichever method is selected it has to straddle the multi-site, multi-lingual demands of a project as well as the complexity of different accounting and tax regimes.
What sort of architectures would work?
There is no single answer to the deployment of an ERP system and much depends on an organisation’s existing IT and communications infrastructure. The decision about the optimum way to deploy depends on a number of factors, such as, where servers are situated, where IT and application support is based and whether local language versions of the software are needed.
Modern ERP systems are relatively undemanding in terms of hardware and powerful servers are easily affordable. Usually, there are substantial benefits (economies of scale) in centralising hardware on a global or at least regional basis. In this way hardware support can be centralised, security becomes much easier and IT skills do not have to be provided in locations where they would be difficult to cost justify.
Similarly, it frequently makes economic sense to centralise application development and help desk capability. In general terms multinational groups benefit from a standardised approach based on core functionality common to all trading subsidiaries and divisions. Most modern ERP solutions support this concept together with localised functionality around the core. This approach greatly simplifies deployment and allows for the introduction of uniform processes and centralised support without compromising local needs.
A common core system was the key to success at BMG Music Publishing
The pursuit of a common processing platform allowed John Dobinson, VP Finance and Administration, BMG Music Publishing, to truly leverage the power of an international project to implement the financials elements of Microsoft Dynamic NAV.
The truly global nature of the project is illustrated by the fact that it covered a total of 22 countries including the UK, USA, Italy, Germany, Sweden, Benelux, Australia, Eastern Europe, Asia and South America. Projects on this scale are notoriously complex to manage, especially the need to resolve differing requirements in each territory. But careful management and a commitment to a core system for the entire group ensured that the system was not only rolled out expeditiously but also that considerable benefits were realised in terms of common reporting, analysis and performance management.
Right from the beginning the foundations of a successful international project were put in place. The project was launched at a three day workshop, bringing together the Finance Directors from the major territories.
“We started from scratch with our Chart of Accounts and defined a new standardised version to which all of our offices would adhere,” says John Dobinson.
Cambridge online played a vital role at this early stage. “They ensured that we concentrated on obtaining agreement in areas where we could potentially have problems, so it was clear to everyone that we would be running a very tight ship and permitting few distractions in achieving our objectives”, adds John.
The next stage was to source and appoint Microsoft Dynamics NAV Partners in Australia, Italy, Germany, and the USA, with Cambridge Online at the helm to minimise costs and to maximise project control.
It is a strategy which paid off. “Overall, the project comprised about 10 percent custom developments to ensure that Microsoft Dynamics NAV was tailored to the company’s precise requirements,” concludes John.
But in heterogeneous groups this may not always be practical. Local language versions and/or specialised vertical solutions may make it more sensible to site applications nearer to local software developers or more specialised support.
One deployment model that has rapidly gained favour is the shared service centre or SSC. This approach combines the underlying processes, technology and operatives in a single location and helps to drive down transaction costs for group companies through sharing a common platform and repeatable processes. A further advantage of the SSC approach is that the entire function can, if desired, be located off-shore in an even lower cost environment. The SSC model was popularised in the nineties by large multinationals using traditional ERP, but with many new outsource providers entering the market around the world it is becoming an attractive option for even companies of modest size.
In reality, most companies adopt a hybrid model of deployment leveraging existing infrastructures and capabilities to best effect, weighing the need for global and localised versions of software and reflecting a suitable trade-off between in-house and outsourced functions.
What are the organisational implications?
The introduction of modern, flexible and scalable ERP solutions confer a number of advantages on multinational companies such as the ability to deploy in large and small entities alike, as well as the ease with which such systems can be configured without armies of consultants.
Critical to success is the ease with which the finance function can take ownership of the applications and effect simple changes to the configuration without recourse to the IT function. Adding new chart of account lines, currencies, dimensions, data entry screens and reports need to be well within the grasp of finance professionals if a company is to derive the full value of the system.
But increasingly the finance function needs ‘line of sight’ across the organisation, especially when the ERP system is being used to consolidate financial and management reporting. The ability for financial professionals to collaborate and meet on the web to discuss a financial reporting change or new disclosure is vital to maintaining organisational effectiveness especially when working across different time zones.
However, the organisational implications extend well beyond the finance function and deep into other operational areas. Traditional ERP systems were designed in modular way that re-enforced functional boundaries but of course transactions are processed in a way that transcends departments. For example, the ‘quote to cash cycle’ works its way horizontally across an organisation rather than being artificially constrained to sales, sales order processing, inventory and invoicing functions.
The configurability of modern ERP systems means that the deployment can be ‘roles-based’, i.e. the key capabilities of the applications can be organised in a way that is specific to a person (or related group). This maximises the productivity of each functional area as each role has all of the information necessary to complete its tasks at their fingertips and can reach across functional boundaries (and geographic boundaries in the case of a multinational) as necessary to complete a transaction or answer queries from employees, customers and suppliers. The result is a more fulfilling user experience for the people charged with operating the process and a more responsive and competitive organisation.
How does Cambridge Online respond to the challenges?
The challenges facing multinational companies are very familiar to Cambridge Online, a leading reseller of Microsoft Dynamics NAV, the popular global ERP system.
Whether it is profit improvement, faster group reporting, reducing costs, or enabling e-commerce and cross border transactions, Cambridge Online has deep experience of helping multinationals achieve their objectives.
Cambridge Online starts with a thorough understanding of the business, its current challenges and aspirations. Working closely in partnership with its customers it develops a deep knowledge of the business and understanding of its detailed requirements.
When rolling out multinational ERP solutions there are a wide variety of issues (discussed earlier) that need to be taken into account. Many of Cambridge Online’s customers have benefitted from the single solution (core functionality) that Cambridge Online can offer through Microsoft Dynamics NAV but sustaining the benefits relies on a ‘lifecycle roadmap’ to put best practice into effect.
The methodology employed ensures that once defined, the core functionality and the group data model on which it depends are properly maintained and are subject to appropriate levels of ‘change control’ to ensure that unauthorised and haphazard changes are not permitted. By the same token centralisation of software support and development resource can ensure that changes required by the business can be implemented expeditiously.
But of course a roadmap extends well beyond software solutions. Consideration needs to be given to hardware infrastructure (existing and new), where it is to be sited, and how it will be managed, maintained and supported.
With substantial multinational customers Cambridge Online is very aware of the cultural, language and technical issues that accompany a global roll out. Projects of this nature require a combination of local and central resourcing as well as an appropriate ‘teaming’ model. In most cases Cambridge Online takes overall project management responsibility from the centre, coordinating resources and deploying implementation teams comprising a mixture of specialist and company resources. Striking the right balance is important for maintaining the integrity of the global product approach, effecting knowledge transfer and giving the customer the confidence to assume responsibility at project hand-over. But there are also judgements to be made about the need to involve local management and locally based Microsoft Dynamics NAV partners who can support local language versions of the product or who can support specific vertical market functionality. It is this ability to combine flexibility and control that makes the Cambridge Online model so compelling for multinational companies.
But how does one ensure that changes are enduring? It is the post-implementation effort that can make a long term difference to the success of an ERP deployment. The ‘lifecycle’ roadmap does not finish with ‘live’ running. In fact many would say that it is just the start with companies seeking continuous improvement against the backcloth of constantly changing requirements. Policies need to be carefully crafted and controlled to ensure that changes are effected in a way that does not compromise ‘core’ group functionality, support and upgradeability. At the same time clear limits need to be defined around what can be changed locally. Furthermore, it is vital that adequately skilled resources (internal and external) are constantly abreast of new developments and the possibilities for leveraging the investment in the new systems.
The overwhelming majority of Cambridge Online’s customers are still customers after many years - a sure sign that attention to initial business requirements, deployment and post implementation support and policies pays dividends in the end.
Summary
In volatile trading conditions multi-national businesses need timely visibility of their global operations and constant insights into business performance. A single global solution for financials and ERP represents the best opportunity for meeting these objectives whilst maximising user productivity and organisational responsiveness.
A single platform comprising core functionality (localised where only strictly necessary) eliminates accounting complexity, maximises organisational effectiveness and promotes responsiveness to change. But there are several challenges to overcome when implementing ERP on a global scale.
A group-wide solution has to leverage existing technology infrastructures, accommodate vertical market needs whilst recognising the different regulatory and accounting regimes that will be encountered in different regions. Cultural issues, which extend beyond simple differences in language need to be taken on board at an early stage if a multi-national deployment is to be successful. Special consideration needs to be given to the structure of global support and training.
Several models of deployment are feasible and there is no ‘one size fits all’ solution. However, one approach that has rapidly gained favour is the shared service centre model which helps to standardise business processes and reduce transaction costs.
Modern ERP systems open up the possibility of greatly enhancing user productivity. Common interfaces and support for roles based processing encourage staff mobility, reduce the time taken to learn new applications and provide a more fulfilling experience for users.
Cambridge Online is an experienced provider of global ERP products and services based on the Microsoft Dynamics NAV ERP suite of software. Its whole lifecycle approach to projects ensures rigorous definition of requirements as well as the optimum choice of communications, technology, development and support infrastructures, working as necessary with local Microsoft Dynamics partners in other countries. The company’s methodology leaves its customers empowered to sustain any solution, yet capable of adapting to change.
About Cambridge OnlineCambridge Online specialise in supplying and implementing the Microsoft Dynamics range of business software that provides organisations with integrated software for accounting, inventory, distribution, manufacturing, e-commerce and customer relationship management. As a leading Microsoft Gold partner, it has 30 years experience helping organisations automate and streamline financial, supply chain and customer relationship processes.
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About FSN |
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FSN Publishing Limited is an independent research, news and publishing organisation catering for the needs of the finance function. The report is written by Gary Simon, Group Publisher of FSN and Managing Editor of FSN Newswire. He is a graduate of London University, a Chartered Accountant and a Fellow of the British Computer Society with more than 23 years experience of implementing management and financial reporting systems. Formerly a partner in Deloitte for more than 16 years, he has led some of the most complex information management assignments for global enterprises in the private and public sector. His book, “Fast Close to the MAX” was published in 2008. Whilst every attempt has been made to ensure that the information in this document is accurate and complete some typographical errors or technical inaccuracies may exist. This report is of a general nature and not intended to be specific to a particular set of circumstances. FSN Publishing Limited and the author do not accept responsibility for any kind of loss resulting from the use of information contained in this document. |
