Fragmented ERPs in Intercompany Accounting: The String & Duct Tape Approach
Intercompany accounting is a difficult process for any company to manage. This function is largely decentralized, and there are rarely standards for intercompany transactions across the organization.
Add to that a fragmented ERP landscape and you will magnify these issues, expose yourself to compliance risks and end up with a process that has ever-increasing cost and complexity.
Transactions are split across systems resulting in a loss of transparency. Then, when transactions are matched and eliminated during period-end close, they are done so at aggregated levels. This results in a process that offers no visibility to detail and drives countless hours of unplanned work just trying to figure out what happened. In addition, it can drive tension across business units since it is difficult or impossible to understand what happened and why. These are often classified as “behavior” issues. However, many of those issues can be resolved by increasing transparency across the enterprise.
That’s why there’s been a big push from SAP and other enterprise resource planning (ERP) systems to consolidate. Consolidation will improve transparency, but is that enough for long-term ERP navigational success?
The reality of multi-national intercompany accounting
Large ERP companies like SAP and Oracle encourage global multi-nationals to centralize their intercompany accounting (among other functions) by consolidating fragmented ERPs into a single system. For those frustrated by fragmented ERPs, that seems like the best solution. All users are transacting in the same system resulting in one common database which increases transparency and reduces the ambiguity between business units.
Sounds simple, right?
But let’s look at some of the hard facts of consolidating a complex technical landscape into a single ERP solution:
- Major ERP consolidation projects are multi-year engagements.
- Replacing a global technical landscape can cost hundreds of millions of dollars.
- Process and system complexity prevents customers from starting small and growing the solution.
These ERP solutions require a leap of faith from customers willing to wait to see the end results, with no opportunity to “land and expand.”
In addition, a major driver to a fragmented landscape is M&A activity. The speed of these transactions outpaces the time required to merge systems, resulting in a return to a fragmented landscape.
How can your company manage M&A activity in the future without sacrificing the gains realized from a consolidated system landscape?
Is your solution just string and duct tape?
Mergers and acquisitions are a regular occurrence for many global multi-nationals. Whether the merger is to gain market share, increase top line revenue, expand bottom line performance, or gain control of the value chain, M&A is a reality for big business.
To streamline these transactions, finance organizations often find workarounds to stay on schedule. These workarounds are intended as short-term patches to help facilitate closing the transaction. In reality, they become long-term “solutions” resulting in a complex technical landscape held together with string and duct tape.
Fragmentation is inevitable
Planning for a single ERP across a global enterprise is an ambitious goal, but the best laid plans of mice and men are often led astray.
Mergers & Acquisitions is one prime example of how maintaining a single ERP landscape is difficult. There are many other drivers as well including:
- Operating models
- Data & process security
- Support structure and network
- Regional service centers
ERP fragmentation is likely to come up time and time again. There are multiple external factors working against ERP consolidation, which results in a solution that is temporary and not sustainable. The string will start to unravel, and the duct tape will lose its grip.
What can you do instead?
Find solutions for key processes that are immune to ERP fragmentation. There are many FinTech solutions in the market today that are inexpensive to own, easy to deploy, flexible to accept data from many sources, scalable across the globe, and quick to adapt to an ever-changing business market. Selecting the right FinTech solution that is aligned to key processes can eliminate the risks associated with ERP fragmentation.
Fragmentation is inevitable. FourQ’s OneBiller connects to all your ERPs to provide your team with a centralized intercompany accounting function with better visibility and simplified tax compliance. Contact us to learn more.