Maximizing ERP market value has been saved
Perspectives
Maximizing ERP market value
How to overcome five ERP implementation challenges
As C-suite leaders navigate technology investments, sustained Enterprise Resource Planning (ERP) investments can help drive growth, stability, and market impact. However, many organizations may be setting themselves up to be disrupted by taking their foot off the gas on ERP investments. Working to get past these five common roadblocks can help drive ERP ROI and value to the organization.
Making the case for ERP investment
Enterprise Resource Planning (ERP) systems can accelerate innovation, data delivery, and business intelligence. They’re often the backbone of a modern enterprise, unifying the organization across the business, technology, innovation, and value.
However, as price increases outpace budgets, many leaders are likely squeezing ERP funding and ready to take their foot off the gas on ERP investments. Sixty-nine percent of business leaders analyzed have a negative to neutral sentiment about ERP investments, according to Deloitte’s analysis of 400 companies’ mentions of the technology in 10-K filings over the last 10 years. Business and financial leaders tend to be focused on the risks, cost, and timelines. And it’s costing businesses in market cap returns.
If C-suites allow negative market sentiment and prior poor experiences with large-scale investments to slow down their momentum on ERP implementations, that would likely be a mistake. Not only could that decision put them at risk of disruption, but it may do so at an important inflection point in digital and business transformation where enterprise-scale cloud, data, and automation and Generative AI is expected to dramatically impact the speed-to-value on ERP investments.
Instead, leaders should be thinking about ERP value in relation to growth, stability, and market momentum. When they maintain their ERP investments while staying true to their business case, this new Deloitte research shows that they experience long-term shareholder returns above market averages. Our report shares data and insights based on ERP news mentions and financial modeling of more than 700 companies stock returns from 2015 to 2022, and based on that insight details five common roadblocks to ERP value and offer considerations for how leaders can get maximize ERP ROI.
Five Roadblocks to Overcome to Help Maximize ERP Market Value
A strong tech strategy aligned with ERP investments shows a long-term impact on share price returns
Source: A Deloitte Center for Integrated Research and MKT MediaStats analysis as published in “A three-dimensional tech strategy,” June 2023.
Analysis based on analysis of largest 500 stocks in the market from 2015-2022. Given the list of companies changes each year, the analysis reflects 719 unique companies. Frequency analysis reflects percentage of overall media coverage for each technology relative to total articles available overall. Stock return correlation analysis reflects the stock sensitivity to an “attention factor” - ERP – regressing the future returns based on stock sensitivity to that factor. Results are reflective of under/over stock return performance over the subsequent three years.
One problem is that many organizations deviate from their initial business case. Most start out wanting to join disparate systems and develop a nimbler platform. However, they may take a detour and lose sight of their intended destination.
That could be due to changing market conditions, shifting business priorities and growth levers, innovation and process changes, cost pressures and technical debt, and a multitude of reasons. Often, program fatigue can set in when implementations run longer than expected. Whatever the challenge, slowing down these programs can impact the business case and the ultimate time to value.
Instead, leaders should signal they are confident in their capital portfolio of investments and that the ERP strategy will be part of a longer time horizon objective to change how the organization delivers services, enabling the ability to impact operating results. When businesses stay the course, most tend to see greater value gains. Our analysis illustrates that when analyzed leaders linked ERP investments to that original business case, they reported above average stock returns.
ERP is a massive platform. It typically holds a large portion of any organization’s technology footprint and often connects with many others. Therefore, if the ERP is modernized, everything else needs to modernize around it. That includes connecting to downstream systems inside and outside of the organization. Think of the system like a highway: failing to extend the data beyond the highway is like putting a road closed sign at the off-ramp—you’re not getting to your destination.
Consumer organizations have embraced these fundamentals and invested in growth. As an early adopter of enterprise resource planning solutions, they now have more mature ERP programs. Moreover, they have a higher focus than other industries on API capability investments and tracking how value cascades across their suppliers. Both the nature of the industry and the approach to ERP implementations could explain why consumer organizations we analyzed saw a 4.5% over-performance in their three-year-stock returns.
Data has value in an enterprise and should be treated as an asset. Lack of enterprise prioritization of data can cause redundancies. That replication and multiplication of data is like a traffic jam. When enterprise data is not prioritized accordingly, ERP data can only be so effective as a single source of truth.
Cloud migration enables simpler, more innovative, flexible, modern, and nimble enterprise platforms. These solutions often require less customization and come with lower technical debt. It is like moving off of the winding back roads onto a busy highway. You might get where you’re going significantly faster, but it can also require a dramatic shift in the organization’s culture.
When cloud migration is not happening at the enterprise level with an appropriate level of governance, ERP implementations and customizations can become a monumental task and value can be deferred. Many organizations try to transform the business but fail to transform the culture, so progress suffers.
Business leaders are at an inflection point. Advancements in automation and AI including Generative AI capabilities are expected to change the way we use and implement ERPs across the enterprise. This massive change is a huge opportunity to be more competitive than ever with ERP time-to-value, but it comes with costs across the design, build, validation, and deployment of these systems.
AI and automation create parallelism but can also accelerate and dramatically reduce implementation time. If that happens, you may not need to wait for years to take adv of the business value any longer or need to tie up resources in multi-year programs. AI is expected to have a dramatic impact on how ERPs are perceived in the future, how programs are designed, and on the speed of implantation.
Lifting the blockades to drive ERP value
Given these five roadblocks, C-suites should act accordingly when making and adjusting technology investment strategies. CEOs, CFOs, and CIOs should consider:
- Holding ERP investments to their original strategic vision and intent. Leaders have an opportunity to make strategic, bold, and disruptive business investments. Once a business case is defined, hold to it with a roadmap that focuses on system rationalization and capability enhancement for future success.
- Driving platform integration and next-gen processes. The end goal should be having one ERP do as much as possible versus deploying multiple different systems to create a future system that drives value across the organization and ecosystem.
- Embracing a common data model. A modern data strategyis often both a pre-requisite and outcome of successful ERP programs. It’s both the “gas” fueling the engine and the “exhaust.” The people who get ERP value right typically spend longer on the data. They tend to go slow at the outset to go fast once they create a high-fidelity capability to run business processes with a higher level of data visibility.
- Keeping cloud as a cornerstone to your ERP strategy. Cloud platforms and services can help accelerate the speed to innovation and integration of your platform strategy. Consider both dependences and economies of scale you can get from these investments.
- Communicating roadblocks and innovation opportunitiesto shareholders. Some of the most effective companies use business filings to communicate and plan for issues. That type of foresight and communication to analysts may contribute to a premium on total shareholder return.
Download the full report to view additional data and insights based on Deloitte ERP sentiment analysis, market value analysis overall and by industry, as well as additional insights to help organizations maximize the value of their ERP investment.
Get in touch
|
|
|
||||||
|
|
|
Recommendations
Cloud Digital Transformation for Business Value
Explore this report to discover metrics that matter for increasing the business value of cloud and other investments.
