How to Determine If a Single-Instance ERP Implementation is Right for You

For the better part of three days last June, Bill McDermott, president and CEO of SAP America, sat at the head of an oversized conference table in an out-of-the-way third-floor meeting room in the Orange County Convention Center in Orlando, Fla. CIOs and other executives from some of the country’s leading companies attending the software giant’s annual Sapphire trade show paraded in and out, happy for face time with the head of the company to which most have either given or are about to give millions of dollars. In a meeting with a CIO reporter, McDermott stares out the tinted glass wall overlooking the bustling convention floor and then dives into the same pitch he gives the pilgrimaging executives.

"You have ERP," says SAP’s CEO. "The next step is to expand it to CRM and the supply chain." The idea, he says, is to control all the data in a company by standardizing on one system for the front end and using one data source for the back. His pitch reaches its climax when McDermott sounds the message SAP has been trumpeting all week:

It’s time to move to a single instance.

In other words, McDermott is telling CIOs to forget the multiple systems their companies use today, rip them out, and replace them with one ERP system?with one data store?that serves the entire company, no matter how diversified or geographically spread out it is. That, he says, is how to get the most bang for your IT buck.

"I hear it all the time," says Larry Shutzberg, CIO of Rock-Tenn, a $1.4 billion packaging manufacturer. "The vendors are pounding down my door."

By now, most companies?especially those in the $1 billion to $5 billion range?have heard the knocking. And so far, they seem to be listening. In a recent study on the government’s new financial reporting requirements, AMR Research found that 65 percent of the companies it interviewed were considering ERP consolidation, a percentage that analyst Bill Swanton thinks is representative of the market as a whole. "Only a small percent of companies did single instance the first time [they implemented an ERP system], maybe 10 percent," Swanton says. "Easily 50 percent of the rest are considering it over the next two years."

The Siren Song of Single Instance

What deploying a single instance boils down to is getting rid of your existing ERP and other best-of-breed systems?such as purchasing and CRM?and replacing them with a single monolithic system from a single vendor. Everything your company needs?financials, order entry, supply chain, CRM?would come from SAP, Oracle, PeopleSoft, whomever. There would be one giant database, one application that does everything.

And there are some compelling reasons to undertake such a project now. For starters, the Sarbanes-Oxley Act, the government’s post-Enron accounting legislation, requires that financial reports have a verifiable audit trail. (For more on Sarbanes-Oxley, see "Your Risks and Responsibilities" at www.cio.com/printlinks.) With a single instance, all of a company’s financial data will live in one application and will originate from one source, eliminating consolidation errors and greatly reducing the time it takes to close the books.

Having a single data source could also create new revenue opportunities and cut costs. Companies would be able to run reports that show cross-promotion opportunities, places where they could reuse equipment or leverage purchasing power. Also, AMR estimates that companies budget $4.3 million for a single-instance order management module versus $7.1 million for multiple instances.

But despite these benefits, rip-and-replace is a difficult pill for CIOs to swallow, many of whom are just shaking off the multiyear, multimillion-dollar hangover of their first ERP project. And they’re wondering if there isn’t another cure for their integration headaches: Web services, those plucky little XML-based applications that are currently being held up by multiple standards organizations often working at cross-purposes (see "The Battle for Web Services," www.cio.com/printlinks). Web services could allow CIOs who have invested in best-of-breed solutions to integrate their standalone systems without either shelling out millions for single instance or tying their company’s future to a single vendor.

Essentially, single instance and Web services are two ways to get to the same place, and CIOs will need to choose which path to lead their company down.

"There’s no right answer," says Shutzberg. "Every situation is different. You have to follow your specific business drivers until you find a compelling reason to do it one way or the other."

Haven’t We Heard All This Before?

Does McDermott’s pitch sound familiar? It should. After all, ERP vendors today are singing the same song that got them through the corporate door in the first place: one system for everything (see "Sometimes a Great Notion," below). But as almost everyone who tried to do an ERP project in the mid- and late ’90s learned firsthand, the melody was off-key.

There are a couple of reasons single instance was almost impossible to achieve. For starters, databases large enough to serve entire enterprises just didn’t exist?at least not at prices most could afford. On top of that, connecting to that single database from faraway locations was almost impossible. It was a simple matter of physics, says Cap Gemini Ernst & Young Chief Technologist for the Americas John Parkinson. There wasn’t enough bandwidth to get to the data. "The result was a bottleneck," he says, which forced geographically dispersed companies to install regional ERP systems.

Those ur-ERP projects weren’t just victims of immature or inadequate technology; they were also sabotaged by bad timing. The primary driver for the ERP projects of the ’90s was Y2K. Companies rushed into the projects so that they could remediate old systems before the date change reduced them to rubble. But as the millennial deadline approached, CIOs had to reduce the scope of their projects to get them done on time. What suffered was process change?getting everyone to work the same way.

"Rather than resolve the ways different operating units worked, they threw in a system in France, one in the U.K., and one in North America," says AMR’s Swanton. Each of those systems wound up customized, which meant that they couldn’t interact without an integration layer, which most people didn’t bother with. Consequently, each system ended up a separate instance. The result, according to a 2003 Hackett Group survey, is that the average company now has 2.7 ERP systems. Some have more, such as $1.1 billion Esselte, an office-supply company, which has 22. (Esselte is currently trying to move to a single instance.)

But a single instance is now more realistic than it was in the past. Storage is much cheaper than it was five years ago and, thanks to the evolution of the Internet, connecting, even across oceans, is no longer a significant problem. Furthermore, there’s no longer a Y2K hovering overhead like a sword of Damocles. There have been other advances too. For example, ERP vendors offer modules, such as supply chain or product lifecycle management, that they didn’t for most of the ’90s, and other modules have been improved.

Of course, it all takes time and money. AMR predicts that moving to a single instance will cost companies $7 million to $12 million for every billion of revenue, and that projects will still take from one to three years. But experts, analysts, consultants and CIOs all agree: Single instance is finally doable.

Who’s Doing What and Why

No one does an IT project just for the sake of doing it, especially not in this economy. For a company to undertake a single-instance project, there has to be a compelling reason. The CIOs interviewed for this story named three: financial reporting, cost control and competitive advantage.

Financial reporting. Esselte has three divisions and operations in 120 countries. It has 22 ERP systems. Until now, the business units were encouraged to be independent even though they sell the same products that, for the most part, come from the same factories. Consequently, it has been impossible to make sense of the information coming from the various systems, says CIO Lani Spund, because they use different terminology for the same things. "We couldn’t get consistent information," he says. "It’s not that the information wasn’t good; it was that we didn’t know if it was good or not. We couldn’t trust it."

Currently, it takes weeks for Esselte to close its books. It also takes an army of expensive accountants, climbing mountains of spreadsheets, to reconcile all the different terms. In order to get things under control, Spund is in the process of replacing 18 of the 22 systems with a single instance, Microsoft’s Axapta (the remaining four have been consolidated into a single SAP system, which Esselte will retain for the foreseeable future). In four years, when all the old systems have been replaced, says Spund, Esselte will be able to record transactions in the general ledger as they happen. It will, he predicts, let them close their books within days at the end of a quarter.

Total cost of ownership. Multiple ERP instances and multiple data stores require multiple support teams. Each best-of-breed point application also has to have its own support group, user training and, in most cases, hardware. Getting rid of those costs was the primary reason that ViewSonic, a $1 billion manufacturer of plasma TVs and LCD computer monitors, replaced its three ERP instances with one.

In 1997, ViewSonic deployed Oracle ERP systems in the Asia-Pacific region; Europe, the Middle East and Africa; and the Americas. Each had its own data store and used different operating systems, says Vice President for Information Services Robert Moon. There were more than 500 customizations among them. In other words, while they were all Oracle, they functioned as three entirely independent systems.

"It was causing huge problems," says Moon, not the least of which was that ViewSonic was writing three separate and large support checks. In May 2001, the company began replacing the old systems with a new single instance of Oracle (it was cheaper to stay with Oracle since Moon was already paying for the licenses, which never expire).

To date, Moon reports that he has decommissioned a million dollars’ worth of hardware and cut his annual maintenance fees by $150,000. He’s also reduced his Oracle support staff from 26 full-time employees to nine. None of these savings, he says, would have been possible without consolidating on one system, and ViewSonic has become an Oracle reference customer.

Competitive advantage. Up until last year, Ensco International, a $700 million offshore oil drilling company with 56 rigs and offices around the globe, had separate best-of-breed applications for each functional area, like finance and purchasing. And each rig had its own customized parts and maintenance databases.

"If we were notified by a vendor that there was a problem with a particular type of valve," says Tom Chapman, Ensco’s director of IT, "we would have to e-mail each rig and ask, ’Do you have this valve? And, oh, by the way, have you had a problem with it?’" The information was out there, but it was trapped in each rig’s system, and in each rig’s proprietary data format.

Ensco’s single instance of PeopleSoft went live in the first quarter of 2003 for all its offices and rigs, and now all its inventory information is in one place. If a rig off of Venezuela needs a particular piece of equipment, instead of buying it from a supplier, Ensco can check to see if another rig has it sitting in inventory. The single instance allows Ensco to visualize its purchasing habits and hence maximize its purchasing power. In fact, the company can now run reports on anything it likes.

One area that is particularly useful, says Chapman, is analyzing maintenance trends. Each rig is essentially just millions of pieces of equipment thrown together. "The amount our customers pay us on a daily basis doesn’t allow for too many failures," says Chapman. By doing a detailed analysis of all of its equipment, Ensco can figure out the optimal time for preventative maintenance, reducing both downtime and equipment failures. Chapman believes that this translates into a competitive advantage.

Why They’re Waiting for Web Services

Proponents of the single-instance approach, everyone from CIOs to vendors, recognize that what they’re gaining in integration they are sacrificing in functionality. An inventory module from an ERP vendor simply won’t have all the features that one from a vendor of inventory software will. For Chapman, it was an easy sacrifice to make; he says that Ensco’s point applications weren’t that good to begin with. But for other CIOs, that may not be the case. For them, cost, functionality and the ability to collaborate with partners dictate that either they integrate their existing systems using today’s XML-based integration tools or they wait until Web services matures.

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