Selecting an ERP (Enterprise Resources Planning) solution can be one of the most daunting tasks an organization can engage in. It can be particularly challenging if you work for a TMT (Technology, Media and Telecommunication) organization. Why does this industry sector have unique challenges? There are three main reasons: Change, Revenue Recognition and Financial Reporting.
Sure, all businesses have change; there is no doubt about that. But for many other sectors the secret to business success is in doing the same thing year after year, but doing it better, at a lower cost with more efficiency. For the TMT space the secret is to do the same thing better, but with different technology or perhaps even a different thing altogether with different technology. When the technology behind the business changes, is enhanced, improved or perhaps even made completely obsolete, the business needs to change quickly to stay viable. What does this mean for the ERP?
The ERP is being used to run the business so it has to adapt to the new situation quickly without a complete overhaul. Lets face facts, it would not be uncommon for the team responsible for the ERP to be among the last in the organization to be made aware of a major change. It is always assumed that the ERP will adapt quickly, and it should! This means you need to be able to quickly and easily add a new set of Vendor classes and products or get a whole new set of product SKU’s into the system. Perhaps part of the change is the acquisition on of a whole new business, so adding a whole new department to the GL and then to the financials statement model needs to be straight forward and easy to understand. When selecting an ERP be sure to ask how easy it will be to make this type of change. Make sure these changes are something you can do yourself and that you won’t need to go back to your implementation partner for assistance.
All businesses need to be sure they recognize revenue correctly, but the volatility and variety of revenue recognition challenges is what makes the TMT space unique. It would not be uncommon for one organization in the TMT space to have product sales, subscription sales, professional services, annual support revenue, contract sales, clicked based or volume sales or flat rate agreements for services. In selecting an ERP you will need to ensure the system has more options for Billing and Revenue Recognition then just a straight order entry system. Looks for various billing engines including an order entry system integrated with inventory tracking, a separate area for contract billing, service call billing, project billing, equipment charges, and rental billing. Within each billing area there needs to be configurable pricing options based on customer, region, product and volume discounts and price breaks. Ask question around how the system handle billing in multiple currencies and realization of exchange during cash receipts. It is also important to ensure that no matter where the invoice is generated and how the revenue is recognized that all the areas of the system process the invoice to the same receivable subledger. You don’t want to have to set up the same customer more then once in your ERP and you want to be able to report on a single customer’s volume across all your service lines.
Flexibility, Efficiency and fully Integrated Financial Reporting
Yet again, it is reasonable to expect that all business require flexibility and efficiency in their financial reporting. That said, TMT organizations have unique challenges as it relates to the speed and rhythm of their business and expectations of the executive suite. Executives in the TMT space are very technically savy and they see no reason why they should not have their financial statements on demand during the month with final versions by day 2. If you align these expectations with the chronic organizational change in this industry, having a flexible financial reporting tool is absolutely critical to the success of the finance function. Is this your world? At the end of the month you export your trial balance and then spend several hours (if not days) setting up your financial statements in Excel? Then, just as you finish, to make sure you didn’t miss anything, you re-export your Trial Balance and find the numbers have all changed and you need to begin again? This is not flexible, efficient or integrated! When selecting your ERP don’t just look a couple financial statement layouts to confirm that the solution can produce a balance sheet and an income statement. Ask to see 10 -15 different layouts, ask what the steps are to add a new department or division, find out what happens if a single GL account is added during the month. When asking questions and researching your ERP consider questions about what would happen if you were to purchase a new business or engage in a global reorganization? Be sure to confirm the financial reporting tools are flexible enough to handle these types of changes. Most importantly ensure the solution is fully integrated. Exporting to excel as a mandatory step should not be required. At anytime during the month you should be able to generate financial statements with only a few clicks.
There are many factors to be considered when selecting an ERP. A little research will easily allow you to find a variety of checklists and best practices to help you with your selection. In addition to your own research, there are many organizations that will help you will your selection as a billable service. Make use of these checklists and services but if you are in the TMT business: pay particular attention to how your business change, your policies for revenue recognition and your need for flexibility in your Financial Reporting are address by any system you would select.