ERP Implementation vs Finance Outsourcing: What Comes First?

3/20/20 2:24 PM / by Eric Liebross

Eric Liebross

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It’s the kind of chicken or egg question that can get consultants opening for hours: If a Finance Department aims to outsource and perform an Enterprise Resource Planning (ERP) system implementation, which one should come first?

There’s no simple answer to this question, and decisions are colored by nuances specific to each company and project timing. But here’s the thing: ERP implementations are fraught with risk. It’s no secret that many fail to meet expectations – and studies often paint the chances of a company’s ERP rollout failing altogether as little more than a coin flip

Companies rarely internally possess the range of skills and competencies required to guide ERP system implementations to success. Partnering with an outsourcing provider who also has extensive ERP expertise can provide your business with an “all-star” project team, augmenting internal resources and helping to ensure that your organization doesn’t drown in the costly headaches that accompany failed or delayed implementations.

 

What is ERP Implementation? 

 

The list of organizations that have suffered devastating fallout from failed implementations reads like a Who’s Who of major brands, including: 

Companies poised for the fastest growth are not only ready to face new challenges, but they can pivot nimbly toward new processes and technologies. Forward-thinking executives embrace ERP solutions for their ability to tie together an array of business processes and enable data to flow between them - dramatically enhancing speed, accuracy, and productivity.

But no matter the size of the business, ERP implementations are a challenge.  Gartner studies have shown that 75% of ERP implementations are considered failures.  And the scary part of this statistic is that these numbers have remained consistent over the past 20+ years.  Clearly, we are not learning from our prior mistakes.  

The list of organizations that have suffered devastating fallout from failed implementations reads like a Who’s Who of major brands, including: 

  • A problematic ERP implementation that prevented Hershey’s from delivering on $100 million worth of chocolate right before Halloween, prompting its stock to drop by 8 percent. 
  • Nike lost $100 million in sales after a failed supply chain project, which led to a series of lawsuits and 20 percent dip in its stock.
  • After spending more than $563 million, German grocery giant Lidl scrapped its ERP system implementation after an avalanche of problems.

 

Poorly Defined Business Requirements Cause Many ERP System Implementations to Fail

 

There are many reasons why involving your outsourcing partner in ERP implementations makes sense for Finance Departments, once you have made the decision to outsource that part of your operation. For starters, let’s zero in on one of the main factors that cause many ERP implementations to fail: poorly defined business requirements.

During an ERP implementation, business requirements represent the non-negotiable existing processes the system must match, as well as planned changes intended to yield future benefits. Thoroughly documenting existing processes and using them to shape accurate requirements and functional specifications are key to success. 

It’s also critical that processes are optimized to work within the capabilities of the selected ERP system, with customizations added where necessary.

But just like you wouldn’t hire an airplane pilot to perform plumbing work, it’s unrealistic to expect managers hired for their accounting skills to know how to document processes in a repeatable, consistent manner. Too often, steps are forgotten or contingencies that may arise are overlooked. 

Unfortunately, that causes system functionality to miss the mark – leading to nasty surprises during the implementation phase. 

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As part of their standard protocol, BPO (Business Process Outsourcing) teams invest extensive time into creating Standard Operating Procedures (SOP) for clients. They clearly document every process in a department – the exact same process that’s needed to begin an ERP implementation.  This includes most exceptions, variations and one-time events within business operations.

As professional consultants, BPO teams possess an intrinsic understanding of how companies operate, gleaned from years of working with a wealth of organizations across an array of industries. They are trained to coax the information they need from employees, probing into every nuance of how different situations are treated and exceptions to the rule. 

And the best outsourcing providers don’t simply replicate a process – they re-engineer it to more effectively meet business objectives. 

When processes are captured, improved, and communicated effectively by skilled consultants, organizations can trust that the business requirements and functional specifications that follow will most accurately reflect business needs. For Finance Departments that are considering or have already made the decision to outsource, starting the relationship with ERP implementation also avoids duplicating the documentation work, as well as the training of the team to the newly revised processes –dramatically improving the outcome by using people with the right skill sets and open-mindedness to perform it.

 

Change Management is Another Key Factor that Separates ERP Implementation Success from Failure 

 

Change management is another key issue that often leads to ERP failures.  The team that is charged with adapting to the new system is often the same team that was working with the older system and processes.  Adapting to this change can be a significant task, often akin to the 7 stages of grief: shock, denial, anger, bargaining, depression, testing, and acceptance.

Existing employees often lament the change, rather than accepting it, stating over and over again, how “we used to do things” this way or that way, any way that is different from the new process being implemented.  Manual processes that are now being automated are often distrusted or ignored completely. Older system challenges are often forgotten in a haze of nostalgia for the “way things used to be.” Bottom line, getting teams to change is a challenging situation, and this is magnified when business requirements are inaccurate or incomplete.  A task that was missed in the initial requirements gathering, no matter how minor or infrequent, gets magnified way beyond its importance.

Starting “fresh” with a new team, used to working across multiple systems and processes, can make this process work much more effectively.  BPO operators are used to working with multiple client systems and processes. There is no nostalgia for “old systems gone by”, and their training onboarding processes are designed to bring new teams to operational stability quickly and effectively.  

 

Familiarity with ERP Finance Modules Sets the Stage for Success 

 

Outsourcing providers with extensive ERP experience possess system knowledge that’s critical to project success.”

Outsourcing providers with extensive ERP experience possess system knowledge that’s critical to project success. As they learn the details of a Finance Department’s operations, they will inherently understand how processes can be adapted to work within the chosen software. That knowledge eludes internal teams unfamiliar with a new ERP finance module. 

Let’s consider a real-world example. An Auxis client suffered an ERP implementation disaster that resulted in millions of dollars in lost revenue, and additional millions in “clean-up” costs.  As the implementation imploded, the client was unable to process orders and invoices and lost visibility to its supply chain. 

While Auxis was not involved in the disastrous ERP rollout, its team’s knowledge of the software as a system user helped its client get back on track. Thanks to its knowledge of the ERP system and its detailed understanding of its client’s processes, Auxis was able to provide specific guidance on how the system could be adapted to better meet business needs.

 

Intelligent Outsourcing Leads to Effective ERP System Implementations

 

Efficiencies are another important benefit of outsourcing a Finance Department’s back office operations before ERP implementations.”

Efficiencies are another important benefit of outsourcing a Finance Department’s back office operations before ERP implementations. By completing the implementation in-house and then outsourcing back office work, Finance organizations waste time and expense training employees on a new system they won’t use for long – adding an unnecessary layer of complexity to the transition. 

Exceptional BPO providers will spend about six months learning a business before its transition starts and stabilizing new processes.  By the time the ERP system is ready for implementation, the BPO provider should be processing transactions without a hitch. Outsourcing teams will play an active role in User Acceptance Testing (UAT) as well before the ERP system roll out, ensuring every functionality is correct. They also are trained to properly manage the transition to the ERP system to minimize hiccups along the way. 

By comparison, the attention of in-house teams is often divided among other work – setting the stage for frustrations and potential failures when ERP implementation begins.

Outsourcing also generates cost savings that can help organizations more easily afford expensive ERP implementations

For instance, Auxis research found that outsourcing finance and accounting positions from New York to Costa Rica cuts labor costs by an average of 42 to 51 percent. Economies of scale and productivity gains typically add another 10 to 20 percent savings to the bottom line.

Outsourcing also generates cost savings that can help organizations more easily afford expensive ERP implementations.”

Those savings, captured upfront, can be used to defray some of the ERP implementation cost incurred by the organization, and help to ensure lower additional costs from revising and adjusting the system after implementation.

 

Outsourcing: A key to ERP Implementation Success

 

ERP implementations can deliver immense rewards, but failed attempts can paralyze an organization. Unfortunately, few enterprises possess the technical know-how or capabilities they need to implement such a complicated system effectively.  Involving an exceptional outsourcing provider before an ERP implementation starts can mitigate the biggest reasons they fail – setting the stage for success.

Eric Liebross

Written by

Eric Liebross

Eric Liebross leads Auxis’ Back Office Optimization practice, helping organizations design and implement innovative operating models, processes and technologies to achieve optimal performance within Finance, Customer Service and HR Operations. Eric’s areas of expertise include Shared Services Strategy, Nearshore Outsourcing and RPA.